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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-32559

 

 

MEDICAL PROPERTIES TRUST, INC.

MPT OPERATING PARTNERSHIP, L.P.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

MARYLAND

DELAWARE

 

20-0191742

20-0242069

(State or other jurisdiction of

incorporation or organization)

 

(I. R. S. Employer

Identification No.)

1000 URBAN CENTER DRIVE, SUITE 501

BIRMINGHAM, AL

  35242
(Address of principal executive offices)   (Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (205) 969-3755

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x   (Medical Properties Trust, Inc. only)    Accelerated filer   ¨
Non-accelerated filer   x  (MPT Operating Partnership, L.P. only)    Smaller reporting company   ¨
        (Do not check if a smaller reporting company)     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

As of November 6, 2014, Medical Properties Trust, Inc. had 172,454,688 shares of common stock, par value $0.001, outstanding.

 

 

 


Table of Contents

EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three and nine months ended September 30, 2014, of Medical Properties Trust, Inc., a Maryland corporation, and MPT Operating Partnership, L.P., a Delaware limited partnership, through which Medical Properties Trust, Inc. conducts substantially all of its operations. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” “our company,” “Medical Properties,” “MPT,” or “the company” refer to Medical Properties Trust, Inc. together with its consolidated subsidiaries, including MPT Operating Partnership, L.P. Unless otherwise indicated or unless the context requires otherwise, all references to “our operating partnership” or “the operating partnership” refer to MPT Operating Partnership, L.P. together with its consolidated subsidiaries.


Table of Contents

MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.

AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED September 30, 2014

Table of Contents

 

     Page  

PART I — FINANCIAL INFORMATION

     1   

Item 1 Financial Statements

     1   

Medical Properties Trust, Inc. and Subsidiaries

  

Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013

     1   

Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September  30, 2014 and 2013

     2   

Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2014 and 2013

     3   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013

     4   

MPT Operating Partnership, L.P. and Subsidiaries

  

Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013

     5   

Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September  30, 2014 and 2013

     6   

Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2014 and 2013

     7   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013

     8   

Medical Properties Trust, Inc. and MPT Operating Partnership, L.P.

  

Notes to Condensed Consolidated Financial Statements

     9   

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

     33   

Item 3 Quantitative and Qualitative Disclosures about Market Risk

     41   

Item 4 Controls and Procedures

     42   

PART II — OTHER INFORMATION

     42   

Item 1 Legal Proceedings

     42   

Item 1A Risk Factors

     42   

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

     42   

Item 3 Defaults Upon Senior Securities

     42   

Item 4 Mine Safety Disclosures

     42   

Item 5 Other Information

     43   

Item 6 Exhibits

     43   

SIGNATURE

     44   

INDEX TO EXHIBITS

     45   


Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

     September 30,
2014
    December 31,
2013
 
(In thousands, except per share amounts)    (Unaudited)     (Note 2)  

Assets

    

Real estate assets

    

Land, buildings and improvements, and intangible lease assets

   $ 2,061,183      $ 1,865,455   

Mortgage loans

     385,093        388,756   

Net investment in direct financing leases

     436,386        431,024   
  

 

 

   

 

 

 

Gross investment in real estate assets

     2,882,662        2,685,235   

Accumulated depreciation and amortization

     (191,282 )     (159,776 )
  

 

 

   

 

 

 

Net investment in real estate assets

     2,691,380        2,525,459   

Cash and cash equivalents

     132,812        45,979   

Interest and rent receivables

     50,240        58,565   

Straight-line rent receivables

     56,403        45,829   

Other loans

     147,418        160,990   

Other assets

     90,887        67,873   
  

 

 

   

 

 

 

Total Assets

   $ 3,169,140      $ 2,904,695   
  

 

 

   

 

 

 

Liabilities and Equity

    

Liabilities

    

Debt, net

   $ 1,618,981      $ 1,421,681   

Accounts payable and accrued expenses

     85,426        94,290   

Deferred revenue

     30,830        24,114   

Lease deposits and other obligations to tenants

     26,797        20,402   
  

 

 

   

 

 

 

Total liabilities

     1,762,034        1,560,487   

Equity

    

Preferred stock, $0.001 par value. Authorized 10,000 shares; no shares outstanding

     —         —    

Common stock, $0.001 par value. Authorized 250,000 shares; issued and outstanding — 171,626 shares at September 30, 2014 and 161,310 shares at December 31, 2013

     172        161   

Additional paid in capital

     1,752,885        1,618,054   

Distributions in excess of net income

     (337,817 )     (264,804 )

Accumulated other comprehensive loss

     (7,872 )     (8,941 )

Treasury shares, at cost

     (262 )     (262 )
  

 

 

   

 

 

 

Total Equity

     1,407,106        1,344,208   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 3,169,140      $ 2,904,695   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

1


Table of Contents

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
(In thousands, except per share amounts)    2014     2013     2014     2013  

Revenues

        

Rent billed

   $ 48,063      $ 31,544      $ 136,952      $ 94,072   

Straight-line rent

     5,282        2,884        10,648        8,352   

Income from direct financing leases

     12,308        11,298        36,787        29,284   

Interest and fee income

     15,124        14,380        46,039        43,136   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     80,777        60,106        230,426        174,844   

Expenses

        

Real estate depreciation and amortization

     13,354        8,714        39,485        25,827   

Impairment charges

     —          —         50,128        —    

Property-related

     700        458        1,401        1,520   

General and administrative

     8,672        6,285        25,836        21,162   

Acquisition expenses

     4,886        4,179        7,933        6,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,612        19,636        124,783        54,966   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     53,165        40,470        105,643        119,878   

Other income (expense)

        

Other income (expense)

     75        3        44        (245

Earnings from equity and other interests

     1,153        843        2,059        2,511   

Interest expense

     (25,481 )     (15,830 )     (71,455 )     (45,896 )

Debt refinancing costs

     —          —         (290 )     —    

Income tax benefit (expense)

     (249 )     (94 )     (232     (261 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net other expense

     (24,502 )     (15,078 )     (69,874 )     (43,891 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     28,663        25,392        35,769        75,987   

Income (loss) from discontinued operations

     —         311        (2 )     3,330   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     28,663        25,703        35,767        79,317   

Net income attributable to non-controlling interests

     (126 )     (55 )     (192 )     (165 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 28,537      $ 25,648      $ 35,575      $ 79,152   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share — basic

        

Income from continuing operations attributable to MPT common stockholders

   $ 0.16     $ 0.16      $ 0.21      $ 0.51   

Income (loss) from discontinued operations attributable to MPT common stockholders

     —         —          —         0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 0.16     $ 0.16      $ 0.21      $ 0.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share — diluted

        

Income from continuing operations attributable to MPT common stockholders

   $ 0.16     $ 0.16      $ 0.21      $ 0.51   

Income (loss) from discontinued operations attributable to MPT common stockholders

     —         —         —         0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 0.16     $ 0.16      $ 0.21      $ 0.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     171,893        154,758        169,195        148,204   

Diluted

     172,639        155,969        169,852        149,517   

Dividends declared per common share

   $ 0.21      $ 0.20      $ 0.63      $ 0.60   

See accompanying notes to condensed consolidated financial statements.

 

2


Table of Contents

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
(In thousands)    2014     2013     2014     2013  

Net income

   $ 28,663      $ 25,703      $ 35,767      $ 79,317   

Other comprehensive income (loss):

      

Unrealized gain on interest rate swap

     1,136        182        2,342        2,788   

Foreign currency translation loss

     (1,319     —         (1,273     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     28,480        25,885        36,836        82,105   

Comprehensive income attributable to non-controlling interests

     (126 )     (55 )     (192 )     (165 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to MPT common stockholders

   $ 28,354      $ 25,830      $ 36,644      $ 81,940   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     For the Nine Months
Ended September 30,
 
     2014     2013  
     (In thousands)  

Operating activities

    

Net income

   $ 35,767      $ 79,317   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     40,403        27,000   

Straight-line rent revenue

     (11,599 )     (8,260 )

Straight-line rent write-off

     950        —    

Impairment charges

     50,128        —    

Direct financing lease interest accretion

     (4,954 )     (4,106 )

Share-based compensation

     6,571        6,019   

Gain on sale of real estate

     —         (2,054 )

Amortization and write-off of deferred financing costs and debt discount

     3,731        2,624   

Other adjustments

     1,175       4,156   

Changes in:

    

Interest and rent receivables

     (12,957 )     (9,216 )

Accounts payable and accrued expenses

     (13,471 )     6,084   
  

 

 

   

 

 

 

Net cash provided by operating activities

     95,744        101,564   

Investing activities

    

Cash paid for acquisitions and other related investments

     (182,982     (371,500 )

Principal received on loans receivable

     8,381        4,694   

Net proceeds from sale of real estate

     34,649       18,409   

Investment in loans receivable

     (9,102 )     (1,445 )

Construction in progress and other

     (97,002 )     (63,422 )
  

 

 

   

 

 

 

Net cash used for investing activities

     (246,056 )     (413,264 )

Financing activities

    

Revolving credit facilities, net

     (105,000 )     (80,000 )

Additions to term debt

     425,000        153,000   

Payments of term debt

     (100,197 )     (11,185 )

Distributions paid

     (108,026 )     (87,928 )

Proceeds from sale of common shares, net of offering costs

     128,270        313,319   

Lease deposits and other obligations to tenants

     10,879        3,589   

Debt issuance costs paid and other financing activities

     (11,757 )     (4,282 )
  

 

 

   

 

 

 

Net cash provided by financing activities

     239,169        286,513   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents for period

     88,857        (25,187 )

Effect of exchange rate changes

     (2,024 )     —    

Cash and cash equivalents at beginning of period

     45,979        37,311   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 132,812      $ 12,124   
  

 

 

   

 

 

 

Interest paid

   $ 62,826      $ 38,997   

Supplemental schedule of non-cash financing activities:

    

Distributions declared, unpaid

   $ 36,277      $ 32,381   

See accompanying notes to condensed consolidated financial statements.

 

4


Table of Contents

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

     September 30,
2014
    December 31,
2013
 
(In thousands)    (Unaudited)     (Note 2)  

Assets

    

Real estate assets

    

Land, buildings and improvements, and intangible lease assets

   $ 2,061,183      $ 1,865,455   

Mortgage loans

     385,093        388,756   

Net investment in direct financing leases

     436,386        431,024   
  

 

 

   

 

 

 

Gross investment in real estate assets

     2,882,662        2,685,235   

Accumulated depreciation and amortization

     (191,282 )     (159,776 )
  

 

 

   

 

 

 

Net investment in real estate assets

     2,691,380        2,525,459   

Cash and cash equivalents

     132,812        45,979   

Interest and rent receivables

     50,240        58,565   

Straight-line rent receivables

     56,403        45,829   

Other loans

     147,418        160,990   

Other assets

     90,887        67,873   
  

 

 

   

 

 

 

Total Assets

   $ 3,169,140      $ 2,904,695   
  

 

 

   

 

 

 

Liabilities and Capital

    

Liabilities

    

Debt, net

   $ 1,618,981      $ 1,421,681   

Accounts payable and accrued expenses

     49,197        58,538   

Deferred revenue

     30,830        24,114   

Lease deposits and other obligations to tenants

     26,797        20,402   

Payable due to Medical Properties Trust, Inc.

     35,839        35,362   
  

 

 

   

 

 

 

Total liabilities

     1,761,644        1,560,097   

Capital

    

General Partner — issued and outstanding — 1,711 units at September 30, 2014 and 1,608 units at December 31, 2013

     14,164        13,541   

Limited Partners:

    

Common units — issued and outstanding — 169,915 units at September 30, 2014 and 159,702 units at December 31, 2013

     1,401,204        1,339,998   

LTIP units — issued and outstanding — 363 units at September 30, 2014 and 292 units at December 31, 2013

     —         —    

Accumulated other comprehensive loss

     (7,872 )     (8,941 )
  

 

 

   

 

 

 

Total capital

     1,407,496        1,344,598   
  

 

 

   

 

 

 

Total Liabilities and Capital

   $ 3,169,140      $ 2,904,695   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
(In thousands, except per unit amounts)    2014     2013     2014     2013  

Revenues

        

Rent billed

   $ 48,063      $ 31,544      $ 136,952      $ 94,072   

Straight-line rent

     5,282        2,884        10,648        8,352   

Income from direct financing leases

     12,308        11,298        36,787        29,284   

Interest and fee income

     15,124        14,380        46,039        43,136   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     80,777        60,106        230,426        174,844   

Expenses

        

Real estate depreciation and amortization

     13,354        8,714        39,485        25,827   

Impairment charges

     —          —          50,128        —     

Property-related

     700        458        1,401        1,520   

General and administrative

     8,672        6,285        25,836        21,162   

Acquisition expenses

     4,886        4,179        7,933        6,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,612        19,636        124,783        54,966   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     53,165        40,470        105,643        119,878   

Other income (expense)

        

Interest and other income (expense)

     75        3        44        (245 )

Earnings from equity and other interests

     1,153        843        2,059        2,511   

Interest expense

     (25,481 )     (15,830 )     (71,455 )     (45,896 )

Debt refinancing costs

     —          —          (290 )     —     

Income tax benefit (expense)

     (249 )     (94 )     (232     (261 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net other expense

     (24,502 )     (15,078 )     (69,874 )     (43,891 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     28,663        25,392        35,769        75,987   

Income (loss) from discontinued operations

     —          311        (2 )     3,330   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     28,663        25,703        35,767        79,317   

Net income attributable to non-controlling interests

     (126 )     (55 )     (192 )     (165 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT Operating Partnership partners

   $ 28,537      $ 25,648      $ 35,575      $ 79,152   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per units — basic

        

Income from continuing operations attributable to MPT Operating Partnership partners

   $ 0.16     $ 0.16      $ 0.21      $ 0.51   

Income (loss) from discontinued operations attributable to MPT Operating Partnership partners

     —          —          —          0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT Operating Partnership partners

   $ 0.16     $ 0.16      $ 0.21      $ 0.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per units — diluted

        

Income from continuing operations attributable to MPT Operating Partnership partners

   $ 0.16     $ 0.16      $ 0.21      $ 0.51   

Income (loss) from discontinued operations attributable to MPT Operating Partnership partners

     —          —          —          0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT Operating Partnership partners

   $ 0.16     $ 0.16      $ 0.21      $ 0.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average units outstanding:

        

Basic

     171,893        154,758        169,195        148,204   

Diluted

     172,639        155,969        169,852        149,517   

Dividends declared per common unit

   $ 0.21      $ 0.20      $ 0.63      $ 0.60   

See accompanying notes to condensed consolidated financial statements.

 

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MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
(In thousands)    2014     2013     2014     2013  

Net income

   $ 28,663      $ 25,703      $ 35,767      $ 79,317   

Other comprehensive income (loss):

      

Unrealized gain on interest rate swap

     1,136        182        2,342        2,788   

Foreign currency translation loss

     (1,319     —         (1,273     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     28,480        25,885        36,836        82,105   

Comprehensive income attributable to non-controlling interests

     (126 )     (55 )     (192 )     (165 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to MPT Operating Partnership partners

   $ 28,354      $ 25,830      $ 36,644      $ 81,940   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     For the Nine Months
Ended September 30,
 
     2014     2013  
     (In thousands)  

Operating activities

    

Net income

   $ 35,767      $ 79,317   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     40,403        27,000   

Straight-line rent revenue

     (11,599 )     (8,260 )

Straight-line rent write-off

     950        —     

Impairment charges

     50,128        —     

Direct financing lease interest accretion

     (4,954 )     (4,106 )

Share-based compensation

     6,571        6,019   

Gain on sale of real estate

     —          (2,054 )

Amortization and write-off of deferred financing costs and debt discount

     3,731        2,624   

Other adjustments

     1,175        4,156   

Changes in:

    

Interest and rent receivable

     (12,957 )     (9,216 )

Accounts payable and accrued expenses

     (13,471 )     6,084   
  

 

 

   

 

 

 

Net cash provided by operating activities

     95,744        101,564   

Investing activities

    

Cash paid for acquisitions and other related investments

     (182,982 )     (371,500 )

Principal received on loans receivable

     8,381        4,694   

Proceeds from sale of real estate

     34,649        18,409   

Investment in loans receivable

     (9,102 )     (1,445 )

Construction in progress and other

     (97,002 )     (63,422 )
  

 

 

   

 

 

 

Net cash used for investing activities

     (246,056 )     (413,264 )

Financing activities

    

Revolving credit facilities, net

     (105,000 )     (80,000 )

Additions to term debt

     425,000        153,000   

Payments of term debt

     (100,197 )     (11,185 )

Distributions paid

     (108,026 )     (87,928 )

Proceeds from sale of units, net of offering costs

     128,270        313,319   

Lease deposits and other obligations to tenants

     10,879        3,589   

Debt issuance costs paid and other financing activities

     (11,757 )     (4,282 )
  

 

 

   

 

 

 

Net cash provided by financing activities

     239,169        286,513   
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents for period

     88,857        (25,187 )

Effect of exchange rate changes

     (2,024 )     —     

Cash and cash equivalents at beginning of period

     45,979        37,311   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 132,812      $ 12,124   
  

 

 

   

 

 

 

Interest paid

   $ 62,826      $ 38,997   

Supplemental schedule of non-cash financing activities:

    

Distributions declared, unpaid

   $ 36,277      $ 32,381   

See accompanying notes to condensed consolidated financial statements.

 

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MEDICAL PROPERTIES TRUST, INC., AND MPT OPERATING PARTNERSHIP, L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003, under the Maryland General Corporation Law for the purpose of engaging in the business of investing in, owning, and leasing 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 not be subject to U.S. federal income tax, 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.

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 United States 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 United States 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 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, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The condensed consolidated balance sheet at December 31, 2013 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 United States 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, 2013. During the nine months ended September 30, 2014, there were no material changes to these policies, except as noted below with respect to discontinued operations.

Reclassifications: Certain reclassifications have been made to the condensed consolidated financial statements to conform to the 2014 consolidated financial statement presentation. These reclassifications had no impact on stockholders’ equity or net income.

Recent Accounting Developments: In 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”), which raises the threshold for disposals to qualify as discontinued operations. A discontinued operation is defined as: (1) a component of an entity or group of components that has been disposed of or classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results; or (2) an acquired business that is classified as held for sale on the acquisition date. ASU 2014-08 also requires additional disclosures regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations. We adopted ASU 2014-08 for the quarter ended March 31, 2014. The application of this guidance is prospective from the date of adoption and should result in our not generally having to reflect single property disposals as discontinued operations in the future.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. We are currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on our financial position and results of operations.

 

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Variable Interest Entities

At September 30, 2014, we had loans to and/or equity investments in several variable interest entities (“VIEs”) for which we are not the primary beneficiary. 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, 2014 (in thousands):

 

VIE Type

   Maximum Loss
Exposure(1)
     Asset Type
Classification
   Carrying
Amount(2)
 

Loans, net

   $ 256,193       Mortgage and other loans    $ 210,528   

Equity investments

   $ 47,095       Other assets    $ 5,293   

 

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(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 investee) that most significantly impact the VIE’s economic performance. As of September 30, 2014, we were not required to provide 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) except as discussed in Note 3 related to the debtor-in-possession financing commitment to Monroe.

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 for additional description of the nature, purpose and activities of our more significant VIEs and interests therein.

3. Real Estate and Lending Activities

Acquisitions

2014 Activity

On September 19, 2014, we acquired an acute care hospital in Fairmont, West Virginia for an aggregate purchase price of $15 million from Alecto Healthcare Services. The facility was simultaneously leased back to the seller under a 15-year initial term with three five-year extension options. In addition, we made a $5 million working capital loan to the tenant with a five year term and a commitment to fund up to $5 million in capital improvements.

On July 1, 2014, we acquired an acute care hospital in Peasedown St. John, United Kingdom from Circle Health Ltd., through its subsidiary Circle Hospital (Bath) Ltd. The sale/leaseback transaction, excluding any transfer taxes, is valued at approximately £28.3 million (approximately $48.0 million). The lease has an initial term of 15-years with a tenant option to extend the lease for an additional 15 years. The lease includes annual rent increases, which will equal the year-over-year change in the retail price index with a floor of 2% and a cap of 5%. With the transaction, we incurred approximately £1.1 (approximately $1.9 million) million of transfer and other taxes that have been expensed as acquisition costs.

On March 31, 2014, we acquired a general acute care hospital and an adjacent parcel of land for an aggregate purchase price of $115 million from a joint venture of LHP Hospital Group, Inc. and Hackensack University Medical Center Mountainside. The facility was simultaneously leased back to the seller under a lease with a 15-year initial term with a 3-year extension option, followed by a further 12-year extension option at fair market value. The lease provides for consumer price-indexed annual rent increases, subject to a specified floor and ceiling. The lease includes a customary right of first refusal with respect to a subsequent proposed sale of the facility.

2013 Activity

On September 26, 2013, we acquired three general acute care hospitals from affiliates of IASIS Healthcare LLC (“IASIS”) for a combined purchase price of $281.3 million. Each of the facilities were leased back to IASIS under leases with initial 15-year terms plus two renewal options of five years each, and consumer price-indexed rent increases limited to a 2.5% ceiling annually. The lessees have a right of first refusal option with respect to subsequent proposed sales of the facilities. All of our leases with affiliates of IASIS are cross-defaulted with each other. In addition to the IASIS acquisitions transactions, we amended our lease with IASIS for the Pioneer Valley Hospital in West Valley City, Utah, which extended the lease to 2028 from 2019 and adjusted the rent.

On July 18, 2013, we acquired the real estate of Esplanade Rehab Hospital in Corpus Christi, Texas (now operating as Corpus Christi Rehabilitation Hospital). The total purchase price was $10.5 million including $0.5 million for adjacent land. The facility is leased to an affiliate of Ernest Health Inc. (“Ernest”) under the master lease agreement entered into with Ernest in 2012 that initially provided for a 20-year term with three five-year extension options, plus consumer price-indexed rent increases, limited to a 2% floor and 5% ceiling annually. This lease is accounted for as a direct financing lease (“DFL”). In addition, we made a $5.3 million loan on this property with terms similar to the lease terms.

On June 11, 2013, we acquired the real estate of two acute care hospitals in Kansas from affiliates of Prime Healthcare Services, Inc. (“Prime”) for a combined purchase price of $75 million and leased the facilities to the operator under a master lease agreement. The master lease is for 10 years and contains two renewal options of five years each, and the rent increases annually based on the greater of the consumer price-index or 2%. This lease is accounted for as a DFL.

As part of these acquisitions, we acquired the following assets during the first nine months:

 

    2014     2013  

Assets Acquired

   

Land

  $ 13,058      $ 16,220  

Building

    152,096        265,030  

Intangible lease assets — subject to amortization (weighted average useful life 15 years)

    12,828        —    

Net investments in direct financing leases

    —         85,000   

Other loans

    5,000        5,250   
 

 

 

   

 

 

 

Total assets acquired

  $ 182,982      $ 371,500   
 

 

 

   

 

 

 

The purchase price allocation attributable to the facilities acquired in 2014 along with the facilities acquired from RHM Klinik-und Altenheimbetriebe GmbH & Co. KG (“RHM”) in the 2013 fourth quarter is preliminary as we are waiting on additional information to perform our final analysis. When all relevant information is obtained, and if changes to our provisional purchase price allocations are needed, we will retrospectively adjust to reflect the new information obtained about the facts and circumstances that existed as of the respective acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

 

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Development Activities

During the first nine months of 2014, we completed construction and began recording rental income on the following facilities:

 

    Northern Utah Rehabilitation Hospital – This $19 million inpatient rehabilitation facility located in South Ogden, Utah is leased to Ernest pursuant to the 2012 master lease.

 

    Oakleaf Surgical Hospital – This $30.5 million acute care facility located in Altoona, Wisconsin. This facility is leased to National Surgical Hospitals for 15 years and contains two renewal options of five years each plus an additional option for nearly another five years, and the rent increases annually based on changes in the consumer price-index.

 

    First Choice ER (a subsidiary of Adeptus Health) – We completed 16 acute care facilities for this tenant during 2014 totaling approximately $73.7 million. These facilities are leased pursuant to the master lease entered into in 2013.

On August 15, 2014 we executed a binding $8.7 million agreement with Health Care Authority for University of Alabama Birmingham (UAB) Medical West, an Affiliate of UAB Health System for the development of a freestanding emergency department and medical office building. The facilities will be leased to Medical West under 15 year initial lease terms with four extension options of five years each. We began construction on this facility in September 2014 and expect the facility to be completed in the second quarter of 2015.

On July 29, 2014, we executed a binding $150 million agreement with Adeptus Health for the development of acute care hospitals and free-standing emergency departments. These facilities will be leased to Adeptus Health pursuant to a new master lease agreement that has a 15-year initial term with three extension options of five years each that provides for annual rent increases based on changes in the consumer price index with a 2% minimum. This new master lease agreement is cross-defaulted with the original master lease executed with First Choice ER in 2013. We began construction on one of these facilities in the 2014 third quarter pursuant to the master funding and development agreement.

In regards to our Twelve Oaks facility, approximately 55% of this facility is being occupied, pursuant to a 15 year lease.

See table below for a status update on our current development projects (in thousands):

 

Property

 

Location

 

Property Type

 

Operator

  Commitment     Costs Incurred
as of
September 30,
2014
    Estimated
Completion
Date
 

First Choice ER—Commerce City

  Denver, CO   Acute Care Hospital   Adeptus Health   $ 5,372      $ 1,924        4Q 2014   

UAB Medical West

  Hoover, AL   Acute Care Hospital & Medical Office Building   Medical West, an affiliate of UAB     8,653        257        2Q 2015   

First Choice ER—Summerwood

  Houston, TX   Acute Care Hospital   Adeptus Health     6,015        1,535        2Q 2015   

First Choice – Various

  Various   Acute Care Hospital   Adeptus Health     143,985        —          Various   
       

 

 

   

 

 

   
        $ 164,025      $ 3,716     
       

 

 

   

 

 

   

Disposals

On May 20, 2014, the tenant of our Bucks facility gave notice of their intent to exercise the lease’s purchase option. Pursuant to this purchase option, the tenant acquired the facility on August 6, 2014 for $35 million. We wrote down this facility to fair market value less cost to sell, resulting in a $3.1 million real estate impairment charge in the 2014 second quarter. The sale of the Bucks facility is not a strategic shift in our operations, and therefore the results of the Bucks operations have not been reclassified as discontinued operations.

In April 2013, we sold two long-term acute care hospitals, Summit Hospital of Southeast Arizona and Summit Hospital of Southeast Texas, for total proceeds of $18.5 million, resulting in a gain of $2.1 million.

 

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Leasing Operations

All of our leases are accounted for as operating leases except for the master lease of 13 Ernest facilities and five Prime facilities which are accounted for as DFLs. The components of our net investment in DFLs consisted of the following (dollars in thousands):

 

     As of September 30,
2014
    As of December 31,
2013
 

Minimum lease payments receivable

   $ 1,615,867      $ 1,647,567   

Estimated residual values

     212,266        211,863   

Less: Unearned income

     (1,391,747     (1,428,406
  

 

 

   

 

 

 

Net investment in direct financing leases

   $ 436,386      $ 431,024   
  

 

 

   

 

 

 

Monroe Facility

As of September 30, 2014 and December 31, 2013, our net investment (exclusive of the related real estate) in Monroe was as follows:

 

     As of September 30,
2014
    As of December 31,
2013
 

Loans

   $ 35,443      $ 31,341   

Less: Loan impairment reserve

     (32,943 )     (12,000 )
  

 

 

   

 

 

 

Loans, net

     2,500       19,341   

Interest, rent and other receivables

     —         20,972   
  

 

 

   

 

 

 

Net investment

   $ 2,500     $ 40,313   
  

 

 

   

 

 

 

The current operator of our Monroe facility has not made all payments required by the real estate lease agreement and working capital loan agreement, and we have deemed these assets to be impaired. During 2010, we recorded a $12 million impairment charge on the working capital loan and fully reserved for unbilled straight-line rent receivables as well. Since 2010, we have not recognized any interest income on the Monroe loan and have not recorded any unbilled rent revenue. In addition, we stopped recording billed rental revenue on April 1, 2013.

During the first quarter of 2014, we executed a non-binding letter of intent with a third party with respect to a restructuring of our investment in the form of a new joint venture that would acquire the real estate of our Monroe facility and related assets in exchange for a combination of cash and promissory notes along with the potential of additional cash, if any, to be generated from our share in this new joint venture’s operations. Based on those new developments and the fair value of the loan’s underlying collateral at that time (using Level 2 inputs), we recorded an approximate $20.5 million impairment charge in the 2014 first quarter. Subsequent to the 2014 first quarter, we terminated this non-binding letter of intent.

In July 2014, we entered into an agreement with Prime to manage the Monroe Hospital. In addition, we entered into a non-binding letter of intent with Prime to lease the facility for initial cash rents of $2.1 million. These agreements contemplate a bankruptcy filing by the existing tenant and do not provide us with any recovery on the past due receivables. Based on these new developments and the fair value of our real estate and the underlying collateral of our loan (using Level 2 inputs), we recorded a $26.5 million impairment charge in the 2014 second quarter. As of September 30, 2014, the bankruptcy of the existing tenant is progressing as planned. In July 2014, the new third party, Prime, was awarded the operations of the Monroe facility, and we expect for them to take over operations and begin leasing the facility from us in the near term. As part of the bankruptcy process, we agreed to provide up to $5 million in debtor-in-possession financing of which we have provided $2.5 million as of September 30, 2014 and another $1 million on October 31, 2014. At September 30, 2014, our investment in Monroe is $27.5 million which we believe is fully recoverable. However, no assurances can be made that we will not have additional impairment charges in the future.

 

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Florence facility

On March 6, 2013, the tenant of our facility in Phoenix, Arizona filed for Chapter 11 bankruptcy. At September 30, 2014, we have approximately $1 million of outstanding receivables but the tenant continues to pay us in accordance with bankruptcy orders. We have a letter of credit for approximately $1.2 million to cover any rent and other monetary payments not made. Although no assurances can be made that we will not have any impairment charges in the future, we believe our real estate investment in Florence of $27.6 million at September 30, 2014, is fully recoverable.

Gilbert facility

In the first quarter of 2014, the tenant of our facility in Gilbert, Arizona filed for Chapter 11 bankruptcy; however, we sent notice of termination of the lease prior to the bankruptcy filing. As a result of the lease terminating, we recorded a charge of approximately $1 million to reserve against the straight-line rent receivables. In addition, we accelerated the amortization of the related lease intangible asset resulting in $1.1 million of additional expense in the 2014 first quarter. At September 30, 2014, we have $0.1 million of outstanding receivables, which we believe are collectible. Although no assurances can be made that we will not have any impairment charges or write-offs of receivables in the future, we believe our real estate investment in Gilbert of $14.2 million at September 30, 2014, is fully recoverable.

Loans

The following is a summary of our loans (in thousands):

 

     As of
September 30,
2014
     As of
December 31,
2013
 

Mortgage loans

   $ 385,093       $ 388,756   

Acquisition loans

     108,028         109,655   

Working capital and other loans

     36,038         47,983   

Convertible loan

     3,352         3,352   
  

 

 

    

 

 

 
   $ 532,511       $ 549,746   
  

 

 

    

 

 

 

The decrease in our working capital and other loans is primarily due to the impairment charge incurred on our Monroe loan during 2014 (– see Note 3, Leasing Operations for further discussion) partially offset by new loans or advances made.

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, 2014, $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

For the three months ended September 30, 2014 and 2013, revenue from affiliates of Prime (including rent and interest from mortgage loans) accounted for 26.4% and 33.9%, respectively, of total revenue. For the nine months ended September 30, 2014 and 2013, revenue from affiliates of Prime (including rent and interest from mortgage loans) accounted for 27.8% and 32.6%, respectively, of total revenue. From an investment concentration perspective, Prime represented 22.5% and 24.5% of our total assets at September 30, 2014 and December 31, 2013, respectively.

For the three months ended September 30, 2014 and 2013, revenue from affiliates of Ernest (including rent and interest from mortgage and acquisition loans) accounted for 18.3% and 20.8%, respectively, of total revenue. For the nine months ended September 30, 2014 and 2013, revenue from affiliates of Ernest (including rent and interest from mortgage and acquisition loans) accounted for 18.7% and 20.6%, respectively, of total revenue. From an investment concentration perspective, Ernest represented 15.3% and 15.9% of our total assets at September 30, 2014 and December 31, 2013, respectively.

 

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On an individual property basis, we had no investment of any single property greater than 4% of our total assets as of September 30, 2014.

From a geographic perspective, investments located in California represented 17.2% of our total assets at September 30, 2014, down from 18.7% at December 31, 2013. Investments located in Texas represented 22.5% of our total assets at September 30, 2014, down slightly from 22.7% at December 31, 2013. In addition, we further expanded our portfolio into Europe with the RHM portfolio acquisition in 2013 and the Circle (Bath) acquisition this quarter, which represents less than 9% of total assets at September 30, 2014.

4. Debt

The following is a summary of our debt (dollar amounts in thousands):

 

     As of September 30, 2014     As of December 31, 2013  
     Balance      Interest Rate     Balance      Interest Rate  

Revolving credit facility

   $ —          Variable      $ 105,000         Variable   

2006 Senior Unsecured Notes

     125,000         Various        125,000         Various   

2011 Senior Unsecured Notes

     450,000         6.875 %     450,000         6.875 %

2012 Senior Unsecured Notes:

          

Principal amount

     350,000         6.375 %     350,000         6.375 %

Unamortized premium

     2,610         —         2,873         —    
  

 

 

      

 

 

    
     352,610           352,873      

2013 Senior Unsecured Notes (A)

     252,620         5.750 %     274,860         5.750 %

2014 Senior Unsecured Notes

     300,000         5.500 %     —          —    

Term loans

     138,751         Various        113,948         Various   
  

 

 

      

 

 

    
   $ 1,618,981         $ 1,421,681      
  

 

 

      

 

 

    

 

(A) These notes are Euro-denominated and reflect the exchange rates at September 30, 2014 and December 31, 2013, respectively.

As of September 30, 2014, principal payments due for our debt (which exclude the effects of any premiums recorded) are as follows (in thousands):

 

2014

   $ 69   

2015

     283   

2016

     125,298   

2017

     320   

2018

     12,781   

Thereafter

     1,477,620   
  

 

 

 

Total

   $ 1,616,371   
  

 

 

 

Credit Facility

On June 19, 2014, we closed on a new $900 million senior unsecured credit facility (the “Credit Facility”). The Credit Facility is comprised of a $775 million senior unsecured revolving credit facility (the “Revolving credit facility”) and a $125 million senior unsecured term loan facility (the “Term Loan”). The Credit Facility has an accordion feature that allows us to expand the size of the facility by up to $250 million through increases to the Revolving credit facility, Term Loan, both or as a separate term loan tranche (See Note 11 for further update on the accordion feature). The Credit Facility replaced our existing $400 million unsecured revolving credit facility and $100 million unsecured term loan. This transaction resulted in a refinancing charge of approximately $0.3 million in the 2014 second quarter.

The Revolving credit facility matures in June 2018 and can be extended for an additional 12 months at our option. The Revolving credit facility’s interest rate is (1) the higher of the “prime rate”, federal funds rate plus 0.50%, or Eurodollar rate plus 1.00%, plus a spread initially set at 1.00%, but that is adjustable from 0.70% to 1.25% based on current total leverage, or (2) LIBOR

 

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plus a spread initially set at 2.00%, but that is adjustable from 1.70% to 2.25% based on current total leverage. The pricing grid for the Revolving credit facility may be further adjusted subject to an investment grade rating being obtained. In addition to interest expense, we are required to pay a quarterly commitment fee on the undrawn portion of the revolving credit facility, ranging from 0.25% to 0.35% per year. At September 30, 2014, we had no borrowings outstanding on the Revolving credit facility.

The Term Loan matures in June 2019. The Term Loan’s interest rate is (1) the higher of the “prime rate”, federal funds rate plus 0.50%, or Eurodollar rate plus 1.00%, plus a spread initially set at 0.95%, but that is adjustable from 0.60% to 1.20% based on current total leverage, or (2) LIBOR plus a spread initially set at 1.95%, but that is adjustable from 1.60% to 2.20% based on current total leverage. The pricing grid for the Term Loan may be similarly adjusted subject to an investment grade rating being obtained. At September 30, 2014, the interest rate in effect was 2.11%.

2014 Senior Unsecured Notes

On April 17, 2014, we completed a $300 million senior unsecured notes offering (“2014 Senior Unsecured Notes”). Interest on the notes will be payable semi-annually on May 1 and November 1 of each year, commencing on November 1, 2014. The 2014 Senior Unsecured Notes will pay interest in cash at a rate of 5.50% per year. The notes mature on May 1, 2024. We may redeem some or all of the 2014 Senior Unsecured Notes at any time prior to May 1, 2019 at a “make-whole” redemption price. On or after May 1, 2019, we may redeem some or all of the notes at a premium that will decrease over time. In addition, at any time and from time to time prior to May 1, 2017, we may redeem up to 35% of the aggregate principal amount of the 2014 Senior Unsecured Notes using the proceeds of one or more equity offerings. The 2014 Senior Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by certain subsidiary guarantors. In the event of a change of control, each holder of the 2014 Senior Unsecured Notes may require us to repurchase some or all of our 2014 Senior Unsecured Notes at a repurchase price equal to 101% of the aggregate principal amount of the 2014 Senior Unsecured Notes plus accrued and unpaid interest to the date of purchase.

Interest Rate Swap

During the second quarter 2010, we entered into an interest rate swap to manage our exposure to variable interest rates by fixing $65 million of our 2006 Senior Unsecured Notes, which started July 31, 2011 (date on which the interest rate turned variable) through maturity date (or July 2016), at a rate of 5.507%. We also entered into an interest rate swap to fix $60 million of our 2006 Senior Unsecured Notes which started October 31, 2011 (date on which the related interest rate turned variable) through the maturity date (or October 2016) at a rate of 5.675%. The fair value of the interest rate swaps was $6.7 million and $9.0 million as of September 30, 2014 and December 31, 2013, respectively, which is reflected in accounts payable and accrued expenses on the consolidated balance sheets.

We designated our 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 in the periods; therefore, there was no income statement effect recorded during the three and nine month periods ended September 30, 2014 or 2013. We do not expect any of the current losses included in accumulated other comprehensive loss to be reclassified into earnings in the next 12 months. At September 30, 2014 and December 31, 2013, we had $3.5 million and $5.0 million, respectively, posted as collateral, which is currently reflected in other assets on our consolidated balance sheets.

Covenants

Our debt facilities impose certain restrictions on us, including, but not limited to, restrictions on our ability to: incur debt; create or incur liens; provide guarantees in respect of obligations of any other entity; make redemptions and repurchases of our capital stock; prepay, redeem or repurchase debt; engage in mergers or consolidations; enter into affiliated transactions; dispose of real estate or other assets; and change our business. In addition, the credit agreement governing our Credit Facility limit the amount of dividends we can pay to 95% of normalized adjusted funds from operations, as defined in the agreements, on a rolling four quarter basis. The indentures governing our 2011, 2012, 2013 and 2014 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 2011, 2012, 2013 and 2014 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, unsecured leverage ratio, consolidated adjusted net worth, 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, 2014, we were in compliance with all such financial and operating covenants.

 

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5. Common Stock/Partners’ Capital

Medical Properties Trust, Inc.

On March 11, 2014, we completed an underwritten public offering of 7.7 million shares of our common stock, resulting in net proceeds of approximately $100.2 million, after deducting estimated offering expenses. We also granted the underwriters a 30-day option to purchase up to an additional 1.2 million shares of common stock. The option, which was exercised in full, closed on April 8, 2014 and resulted in additional net proceeds of approximately $16 million.

In January 2014, we put an at-the-market equity offering program in place, giving us the ability to sell up to $250 million of stock with a commission of 1.25%. During the first nine months of 2014, we sold 0.9 million shares of our common stock under our at-the-market equity offering program, at an average price of $13.21 per share resulting in total proceeds, net of commission, of $12.3 million.

On August 20, 2013, we completed an offering of 11.5 million shares of common stock (including 1.5 million shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a price of $12.75 per share, resulting in net proceeds (after underwriting discount and expenses) of $140.4 million.

On February 28, 2013, we completed an offering of 12.7 million shares of our common stock (including 1.7 million shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a price of $14.25 per share, resulting in net proceeds (after underwriting discount and expenses) of $172.9 million.

MPT Operating Partnership, L.P.

At September 30, 2014, the Company has a 99.9% 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, 2014 and 2013, the partnership issued 9.8 million and 24.2 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 7,643,651 shares of common stock for awards under the Equity Incentive Plan for which 6,436,291 shares remain available for future stock awards as of September 30, 2014. We awarded the following during the nine months ended September 2014 and 2013:

Time-based awards—We granted 345,984 and 258,736 shares in 2014 and 2013, respectively, of time-based restricted stock to management, independent directors and certain employees. These awards vest quarterly based on service, over three years, in equal amounts.

 

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Performance-based awards—Our management team and certain employees were awarded 324,754 and 222,566 of performance based awards in 2014 and 2013, respectively. 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 (for the 2013 awards) and December 31, 2018 (for the 2014 awards). Dividends on these awards are paid only upon achievement of the performance measures.

Multi-year Performance-based awards—We awarded 500,000 and 550,000 shares in 2014 and 2013, respectively, of multi-year performance-based awards to management. 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 2011, 2012, 2013 and 2014 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, 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, 2014     December 31, 2013  

Asset (Liability)

   Book Value     Fair Value     Book Value     Fair Value  

Interest and rent receivables

   $ 50,240      $ 44,091      $ 58,565      $ 44,415   

Loans (1)

     335,061        350,770        351,713        358,383   

Debt, net

     (1,618,981 )     (1,698,142 )     (1,421,681 )     (1,486,090 )

 

(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 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.

 

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At September 30, 2014, these amounts were as follows (in thousands):

 

Asset Type

   Fair
Value
     Cost      Asset Type
Classification
 

Mortgage loans

   $ 100,000       $ 100,000         Mortgage loans   

Acquisition loans

     97,450         97,450         Other loans   

Equity investments

     3,300         3,300         Other assets   
  

 

 

    

 

 

    
   $ 200,750       $ 200,750      
  

 

 

    

 

 

    

Our mortgage loans with Ernest are recorded at fair value based on Level 3 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, 2014.

In regards to the underlying projection of revenues and expenses used in the discounted cash flow model, such projections are provided by Ernest. However, we will modify such projections (including underlying assumptions used) as needed based on our review and analysis of Ernest’s historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry.

In arriving at the DLOM, we started with a DLOM range based on the results of studies supporting valuation discounts for other transactions or structures without a public market. To select the appropriate DLOM within the range, we then considered many qualitative factors including the percent of control, the nature of the underlying investee’s business along with our rights as an investor pursuant to the operating agreement, the size of investment, expected holding period, number of shareholders, access to capital marketplace, etc. To illustrate the effect of movements in the DLOM, we performed a sensitivity analysis below by using basis point variations (dollars in thousands):

 

Basis Point Change in Marketability Discount

   Estimated Increase (Decrease)
In Fair Value
 

+100 basis points

   $ (442 )

- 100 basis points

     442   

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 2014.

8. Discontinued Operations

The following table presents the results of discontinued operations, which include the revenue and expenses of facilities disposed of in 2013, for the three and nine months ended September 30, 2014 and 2013 (dollar amounts in thousands except per share/unit amounts):

 

     For the Three Months
Ended September 30,
     For the Nine Months
Ended September 30,
 
     2014      2013      2014     2013  

Revenues

   $ —         $ 387       $ —        $ 1,625   

Gain on sale

     —           —           —          2,054   

Income

     —           311         (2 )     3,330   

Earnings per share/unit — diluted

   $ —         $ —         $ —        $ 0.02   

 

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9. Earnings Per Share/Common Unit

Medical Properties Trust, Inc.

Our earnings per share were calculated based on the following (amounts in thousands):

 

     For the Three Months
Ended September 30,
 
     2014     2013  

Numerator:

    

Income from continuing operations

   $ 28,663      $ 25,392   

Non-controlling interests’ share in continuing operations

     (126 )     (55 )

Participating securities’ share in earnings

     (179 )     (166 )
  

 

 

   

 

 

 

Income from continuing operations, less participating securities’ share in earnings

     28,358        25,171   

Income from discontinued operations attributable to MPT common stockholders

     —         311   
  

 

 

   

 

 

 

Net income, less participating securities’ share in earnings

   $ 28,358      $ 25,482   
  

 

 

   

 

 

 

Denominator:

    

Basic weighted-average common shares

     171,893        154,758   

Dilutive potential common shares

     746        1,211   
  

 

 

   

 

 

 

Dilutive weighted-average common shares

     172,639        155,969   
  

 

 

   

 

 

 

 

     For the Nine Months
Ended September 30,
 
     2014     2013  

Numerator:

    

Income from continuing operations

   $ 35,769      $ 75,987   

Non-controlling interests’ share in continuing operations

     (192 )     (165 )

Participating securities’ share in earnings

     (584 )     (538 )
  

 

 

   

 

 

 

Income from continuing operations, less participating securities’ share in earnings

     34,993        75,284   

Income (loss) from discontinued operations attributable to MPT common stockholders

     (2 )     3,330   
  

 

 

   

 

 

 

Net income, less participating securities’ share in earnings

   $ 34,991      $ 78,614   
  

 

 

   

 

 

 

Denominator:

    

Basic weighted-average common shares

     169,195        148,204   

Dilutive potential common shares

     657        1,313   
  

 

 

   

 

 

 

Dilutive weighted-average common shares

     169,852        149,517   
  

 

 

   

 

 

 

 

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MPT Operating Partnership, L.P.

Our earnings per common unit were calculated based on the following (amounts in thousands):

 

     For the Three Months
Ended September 30,
 
     2014     2013  

Numerator:

    

Income from continuing operations

   $ 28,663      $ 25,392   

Non-controlling interests’ share in continuing operations

     (126     (55 )

Participating securities’ share in earnings

     (179 )     (166 )
  

 

 

   

 

 

 

Income from continuing operations, less participating securities’ share in earnings

     28,358       25,171   

Income from discontinued operations attributable to MPT Operating Partnership partners

     —         311   
  

 

 

   

 

 

 

Net income, less participating securities’ share in earnings

   $ 28,358      $ 25,482   
  

 

 

   

 

 

 

Denominator:

    

Basic weighted-average units

     171,893        154,758   

Dilutive potential units

     746        1,211   
  

 

 

   

 

 

 

Dilutive weighted-average units

     172,639        155,969   
  

 

 

   

 

 

 
     For the Nine Months
Ended September 30,
 
     2014     2013  

Numerator:

    

Income from continuing operations

   $ 35,769      $ 75,987   

Non-controlling interests’ share in continuing operations

     (192 )     (165 )

Participating securities’ share in earnings

     (584 )     (538 )
  

 

 

   

 

 

 

Income from continuing operations, less participating securities’ share in earnings

     34,993        75,284   

Income (loss) from discontinued operations attributable to MPT Operating Partnership partners

     (2 )     3,330   
  

 

 

   

 

 

 

Net income, less participating securities’ share in earnings

   $ 34,991      $ 78,614   
  

 

 

   

 

 

 

Denominator:

    

Basic weighted-average units

     169,195        148,204   

Dilutive potential units

     657        1,313   
  

 

 

   

 

 

 

Dilutive weighted-average units

     169,852        149,517   
  

 

 

   

 

 

 

 

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10. Commitments and Contingencies

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.

11. Subsequent Events

Median Acquisition and Financing

On October 15, 2014, we entered into definitive agreements pursuant to which we will acquire substantially all the real estate assets of Median Kliniken S.à r.l. (“Median”), a German provider of post-acute and acute rehabilitation services, for an aggregate purchase price that is expected to be approximately €705 million, (or $900 million). The portfolio includes 38 rehabilitation hospitals and two acute care hospitals located across 12 states in the Federal Republic of Germany.

We expect to consummate the transaction through a two step process in partnership with affiliates of Waterland Private Equity Fund V C.V. (“Waterland”). In the first step, an affiliate of Waterland will acquire 94.9% of the outstanding equity interest in Median pursuant to a stock purchase agreement with Median’s current owners. We will indirectly acquire the remaining 5.1% of the outstanding equity interest and provide interim loans in aggregate amounts up to the expected purchase price of the real estate assets. The consummation of the Median acquisition is subject to customary closing conditions, including German antitrust clearance. The loans we make will bear interest at a rate similar to the initial lease rate under the sale and leaseback transactions described below.

Concurrently with or as soon as practical following the closing of the Median acquisition, we will acquire substantially all of Median’s real estate assets under a sale and leaseback agreement. We will either assume or novate any third party debt attributable to the real estate assets or provide the cash required to repay the third party debt. The purchase price we are required to pay for the real estate assets will be offset, pro rata, against amounts of debt that we assume or have provided cash to repay, and/or against the amounts of loans previously made. The sale and leaseback transactions are conditioned on the acquisition of Median described above and is also subject to customary real estate, regulatory and other closing conditions, including waiver of any statutory pre-emption rights by local municipalities. To the extent we are unable to acquire the entire Median portfolio as contemplated, we will have a right of first refusal with regard to any new real estate properties owned or acquired by Median.

Upon our acquisition of the real estate assets, we will lease them back to Median under a 27 year master lease, with annual escalators at the greater of one percent or 70% of the German consumer price index. We expect the transactions to be completed during the first quarter of 2015.

An affiliate of Waterland controls RHM, the operator and lessee of the German facilities that we currently own.

Subject to prevailing market conditions, we intend to finance the Median transactions with the assumption of existing mortgage debt on the facilities, net proceeds of borrowings under our Credit Facility, new secured and unsecured debt issuances, equity issuances, or a combination thereof.

On October 17, 2014, we exercised the $250 million accordion to our existing Credit Facilty which increased the current aggregate committed size of the facility to $1.15 billion. In addition, we negotiated for a new accordion of up to $400 million, for total aggregate capacity of $1.55 billion. We also amended the Credit Facility to increase the alternative currency sublimit to €500 million and certain covenants in order to permit us to consummate and finance the Median transactions. Finally, we have received a commitment letter from J.P. Morgan, pursuant to which JPM and a syndicate of lenders have agreed to fund a new one-year senior unsecured term loan of up to $225 million. The commitment letter is subject to customary conditions for this this type of financing, including, but not limited to, consummation of the Median transactions. The commitment letter provides that, subject to certain exceptions, the commitment will be reduced by the amount of additional debt and equity capital that we raise (or if the term loan is then funded we will be obligated to repay the term loan in such amount).

Other Acquisitions and Financing

On October 31, 2014, we acquired a 237-bed acute care hospital, four medical office buildings and a behavioral health facility in Sherman, Texas for $32.5 million. Alecto Healthcare Services is the tenant and operator pursuant to a 15-year lease agreement with three five-year extension options. In addition we agreed to fund a working capital loan up to $7.5 million, of which $3 million was funded on October 31, 2014.

On September 18, 2014, we entered into definitive agreements to acquire three RHM rehabilitation facilities in Germany for an aggregate purchase price of €63.6 million (approximately $81 million). These facilities include: Bad Mergentheim (211 beds), Bad Tolz (248 beds), and Bad Liebenstein (271 beds). All three properties will be included under our existing master lease agreement with RHM. On November 4, 2014, we closed on the Bad Liebenstein facility and expect to close on the other two facilities in the 2014 fourth quarter.

During November 2014, we sold 0.8 million shares of our common stock under our at-the-market equity offering program, at an average price of $13.62 per share resulting in net proceeds of $10.3 million.

12. Condensed Consolidating Financial Information

The following tables present the condensed consolidating financial information for (a) Medical Properties Trust, Inc. (“Parent” and a guarantor to our 2011, 2012, 2013 and 2014 Senior Unsecured Notes), (b) MPT Operating Partnership, L.P. and MPT Finance Corporation (“Subsidiary Issuers”), (c) on a combined basis, the guarantors of our 2011, 2012, 2013 and 2014 Senior Unsecured Notes (“Subsidiary Guarantors”), and (d) on a combined basis, the non-guarantor subsidiaries (“Non-Guarantor Subsidiaries”). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantee by each 100% owned Subsidiary Guarantor is joint and several, and we believe separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. Furthermore, there are no significant legal restrictions on the Parent’s ability to obtain funds from its subsidiaries by dividend or loan.

The guarantees by the Subsidiary Guarantors may be released and discharged upon: (1) any sale, exchange or transfer of all of the capital stock of a Subsidiary Guarantor; (2) the merger or consolidation of a Subsidiary Guarantor with a Subsidiary Issuer or any other Subsidiary Guarantor; (3) the proper designation of any Subsidiary Guarantor by the Subsidiary Issuers as “unrestricted” for covenant purposes under the indenture governing the 2011, 2012, 2013 and 2014 Senior Unsecured Notes; (4) the legal defeasance or covenant defeasance or satisfaction and discharge of the indenture; (5) a liquidation or dissolution of a Subsidiary Guarantor permitted under the indenture governing the 2011, 2012, 2013 and 2014 Senior Unsecured Notes; or (6) the release or discharge of the Subsidiary Guarantor from its guarantee obligations under our revolving credit facility.

Subsequent to September 30, 2013, certain of our subsidiaries were re-designated as non-guarantors of our 2011, 2012, 2013 and 2014 Senior Unsecured Notes as the underlying properties were sold in 2013 or related mortgage loans paid off in 2014. In addition, certain of our subsidiaries previously classified as non-guarantors are guarantors as of September 30, 2014. With these re-designations, we have restated the 2013 consolidating financial information below to reflect these changes.

 

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Condensed Consolidated Balance Sheet

September 30, 2014

(in thousands)

 

     Parent      Subsidiary
Issuers
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Assets

        

Real estate assets

        

Land, buildings and improvements and intangible lease assets

   $ —        $ —       $ 1,995,236      $ 65,947      $ —       $ 2,061,183   

Mortgage loans

     —          —         285,093        100,000        —         385,093   

Net investment in direct financing leases

     —          —         214,709        221,677        —         436,386   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment in real estate assets

     —          —         2,495,038        387,624        —         2,882,662   

Accumulated depreciation and amortization

     —          —         (181,739 )     (9,543 )     —         (191,282 )

Net investment in real estate assets

     —          —         2,313,299        378,081        —         2,691,380   

Cash and cash equivalents

     —          108,105        23,786        921        —         132,812   

Interest and rent receivables

     —          791        19,198        30,251        —         50,240   

Straight-line rent receivables

     —          —         44,633        11,770        —         56,403   

Other loans

     —          —         1,100        146,318        —         147,418   

Net intercompany receivable

     35,839         1,968,463        —         —         (2,004,302 )     —    

Investment in subsidiaries

     1,407,496         930,769        41,771        —         (2,380,036 )     —    

Other assets

     —          44,516        744        45,627        —         90,887   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,443,335       $ 3,052,644      $ 2,444,531      $ 612,968      $ (4,384,338 )   $ 3,169,140   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

             

Liabilities

             

Debt, net

   $ —        $ 1,605,230      $ —       $ 13,751      $ —       $ 1,618,981   

Accounts payable and accrued expenses

     36,229         40,235        8,265        697        —         85,426   

Net intercompany payable

     —          —         1,593,090        411,212        (2,004,302 )     —    

Deferred revenue

     —          214        24,432        6,184        —         30,830   

Lease deposits and other obligations to tenants

     —          (531 )     23,097        4,231        —         26,797   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     36,229         1,645,148        1,648,884        436,075        (2,004,302 )     1,762,034   

Total equity

     1,407,106         1,407,496        795,647        176,893        (2,380,036 )     1,407,106   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,443,335       $ 3,052,644      $ 2,444,531      $ 612,968      $ (4,384,338 )   $ 3,169,140   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

Condensed Consolidated Statements of Income

For the Three Months Ended September 30, 2014

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Revenues

            

Rent billed

   $ —       $ 69     $ 45,703      $ 6,424      $ (4,133 )   $ 48,063   

Straight-line rent

     —         —         3,850        1,432        —         5,282   

Income from direct financing leases

     —         —         11,695        5,921        (5,308 )     12,308   

Interest and fee income

     —         9,323        14,336        7,338        (15,873 )     15,124   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         9,392        75,584        21,115        (25,314 )     80,777   

Expenses

            

Real estate depreciation and amortization

     —         —         12,814        540        —         13,354   

Impairment charges

     —         —         —         —         —         —    

Property-related

     —         169        732        9,171        (9,372 )     700   

General and administrative

     —         5,448        303        2,921        —         8,672   

Acquisition expenses

     —         469        1,929        2,488       —         4,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —         6,086        15,778        15,120        (9,372 )     27,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (expense)

     —         3,306        59,806        5,995        (15,942 )     53,165   

Other income (expense)

            

Other income (expense)

     —         75        —         —         —         75   

Earnings from equity and other interests

     —         —         —          1,153        —         1,153   

Interest income (expense)

     —         (25,400 )     (8,304 )     (7,719 )     15,942        (25,481 )

Debt refinancing costs

     —         —          —         —         —         —     

Income tax benefit expense

     —         —         (49     (200 )     —         (249
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other income (expense)

     —         (25,325 )     (8,353 )     (6,766 )     15,942        (24,502 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —         (22,019 )     51,453        (771 )     —         28,663   

Income (loss) from discontinued operations

     —         —         —         —          —         —     

Equity in earnings of consolidated subsidiaries net of income taxes

     28,663        50,682        995        —         (80,340 )     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     28,663        28,663        52,448        (771 )     (80,340 )     28,663   

Net income (loss) attributable to non-controlling interests

     (126     (126     —         —         126        (126 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 28,537      $ 28,537      $ 52,448      $ (771 )   $ (80,214 )   $ 28,537   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

Condensed Consolidated Statements of Income

For the Nine Months Ended September 30, 2014

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Revenues

            

Rent billed

   $ —       $ 69     $ 129,167      $ 19,431      $ (11,715 )   $ 136,952   

Straight-line rent

     —         —         7,881        2,767        —         10,648   

Income from direct financing leases

     —         —         34,956        17,691        (15,860 )     36,787   

Interest and fee income

     —         27,815        43,199        22,631        (47,606 )     46,039   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —         27,884        215,203        62,520        (75,181 )     230,426   

Expenses

        

Real estate depreciation and amortization

     —         —         37,556        1,929        —         39,485   

Impairment charges

     —         289        19,002        30,837        —         50,128   

Property-related

     —         508        926        27,474        (27,507 )     1,401   

General and administrative

     —         22,096        560        3,180        —         25,836   

Acquisition expenses

     —         3,355        2,091        2,487       —         7,933   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —         26,248        60,135        65,907        (27,507 )     124,783   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (expense)

     —         1,636        155,068        (3,387     (47,674 )     105,643   

Other income (expense)

        

Other income (expense)

     —         44        —         —         —         44   

Earnings from equity and other interests

     —         —         —         2,059        —         2,059   

Interest income (expense)

     —         (71,944 )     (24,836 )     (22,349 )     47,674        (71,455 )

Debt refinancing costs

     —         (290 )     —         —         —         (290 )

Income tax benefit (expense)

     —         —         (16 )     (216 )     —         (232 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other income (expense)

     —         (72,190 )     (24,852 )     (20,506 )     47,674        (69,874 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —         (70,554 )     130,216        (23,893 )     —         35,769   

Income from discontinued operations

     —         —         —         (2 )     —         (2 )

Equity in earnings of consolidated subsidiaries, net of income taxes

     35,767        106,321        3,158        —         (145,246 )     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     35,767        35,767        133,374        (23,895 )     (145,246 )     35,767   

Net income (loss) attributable to non-controlling interests

     (192 )     (192 )     —         —         192       (192 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 35,575      $ 35,575      $ 133,374      $ (23,895 )   $ (145,054 )   $ 35,575   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Condensed Consolidated Statements of Comprehensive Income

For the Three Months Ended September 30, 2014

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Net income (loss)

   $ 28,663      $ 28,663      $ 52,448       $ (771 )   $ (80,340 )   $ 28,663   

Other comprehensive income (loss):

             

Unrealized gain on interest rate swap

     1,136        1,136        —          —         (1,136 )     1,136   

Foreign currency translation gain (loss)

     (1,319     (1,319     —          —         1,319        (1,319
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income

     28,480        28,480        52,448         (771 )     (80,157 )     28,480   

Comprehensive income attributable to non-controlling interests

     (126 )     (126 )     —          —         126       (126 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to MPT common stockholders

   $ 28,354      $ 28,354      $ 52,448       $ (771 )   $ (80,031 )   $ 28,354   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Condensed Consolidated Statements of Comprehensive Income

For the Nine Months Ended September 30, 2014

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Net income (loss)

   $ 35,767      $ 35,767      $ 133,374       $ (23,895 )   $ (145,246 )   $ 35,767   

Other comprehensive income (loss):

        

Unrealized gain on interest rate swap

     2,342        2,342        —          —         (2,342 )     2,342   

Foreign currency translation gain (loss)

     (1,273     (1,273     —          —         1,273        (1,273
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income

     36,836        36,836        133,374         (23,895 )     (146,315     36,836   

Comprehensive income attributable to non-controlling interests

     (192 )     (192 )     —          —         192        (192 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to MPT common stockholders

   $ 36,644      $ 36,644      $ 133,374       $ (23,895 )   $ (146,123 )   $ 36,644   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2014

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Operating Activities

            

Net cash provided by (used in) operating activities

   $ (98 )   $ (76,425 )   $ 221,310      $ (49,043   $ —       $ 95,744   

Investing Activities

            

Cash paid for acquisitions and other related investments

     —         —         (182,982 )     —         —         (182,982 )

Principal received on loans receivable

     —         —         —         8,381        —         8,381   

Net proceeds from sale of real estate

     —         —         —         34,649       —         34,649  

Investments in loans receivable

     —         —         —         (9,102 )     —         (9,102 )

Construction in progress and other

     —         (1,030 )     (95,489 )     (483 )     —         (97,002 )

Net cash provided by (used in) investing activities

     —         (1,030 )     (278,471 )     33,445        —         (246,056 )

Financing Activities

            

Revolving credit facilities, net

     —         (105,000 )     —         —         —         (105,000 )

Additions to term debt, net of discount

     —         425,000        —         —         —         425,000   

Payments of term debt

     —         (100,176 )     —         (21 )     —         (100,197 )

Distributions paid

     (107,842 )     (108,026 )     —         —         107,842        (108,026 )

Proceeds from sale of common shares/units, net of offering costs

     128,270        128,270        —         —         (128,270 )     128,270   

Lease deposits and other obligations to tenants

     —         (360 )     9,431        1,808        —         10,879   

Net payments relating to intercompany financing

     (20,330 )     (61,206 )     46,446        14,662        20,428        —    

Debt issuance costs paid and other financing activities

     —         (11,757 )     —         —         —         (11,757 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     98        166,745        55,877        16,449        —         239,169   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents for period

     —         89,290        (1,284 )     851        —         88,857   

Effects of exchange rate changes on cash

     —         —         (2,024 )     —         —         (2,024

Cash and cash equivalents at beginning of period

     —         18,815        27,094        70        —         45,979   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —       $ 108,105      $ 23,786      $ 921      $ —       $ 132,812   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

Condensed Consolidated Balance Sheet

December 31, 2013

(in thousands)

 

     Parent      Subsidiary
Issuers
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Assets

             

Real estate assets

             

Land, buildings and improvements and intangible lease assets

   $ —        $ —       $ 1,796,415      $ 69,040      $ —       $ 1,865,455   

Mortgage loans

     —          —         285,106        103,650        —         388,756   

Net investment in direct financing leases

     —          —         212,543        218,481        —         431,024   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment in real estate assets

     —          —         2,294,064        391,171        —         2,685,235   

Accumulated depreciation and amortization

     —          —         (151,624 )     (8,152 )     —         (159,776 )
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in real estate assets

     —          —         2,142,440        383,019        —         2,525,459   

Cash and cash equivalents

     —          18,815        27,094        70        —         45,979   

Interest and rent receivables

     —          336        31,492        26,737        —         58,565   

Straight-line rent receivables

     —          —         37,015        8,814        —         45,829   

Other loans

     —          178        1,100        159,712        —         160,990   

Net intercompany receivable

     35,363         1,907,474        —         —         (1,942,837 )     —    

Investment in subsidiaries

     1,344,598         825,153        42,407        —         (2,212,158 )     —    

Other assets

     —          37,311        1,096        29,466        —         67,873   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,379,961       $ 2,789,267      $ 2,282,644      $ 607,818      $ (4,154,995 )   $ 2,904,695   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

             

Liabilities

             

Debt, net

   $ —        $ 1,407,733      $ —       $ 13,948      $ —       $ 1,421,681   

Accounts payable and accrued expenses

     35,753         36,887        20,500        1,150        —         94,290   

Net intercompany payable

     —          —         1,556,634        386,203        (1,942,837 )     —    

Deferred revenue

     —          232        17,866        6,016        —         24,114   

Lease deposits and other obligations to tenants

     —          (183 )     18,163        2,422        —         20,402   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     35,753         1,444,669        1,613,163        409,739        (1,942,837 )     1,560,487   

Total equity

     1,344,208         1,344,598        669,481        198,079        (2,212,158 )     1,344,208   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,379,961       $ 2,789,267      $ 2,282,644      $ 607,818      $ (4,154,995 )   $ 2,904,695   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

Condensed Consolidated Statements of Income

For the Three Months Ended September 30, 2013

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Revenues

             

Rent billed

   $ —       $ —       $ 29,189       $ 5,650      $ (3,295 )   $ 31,544   

Straight-line rent

     —         —         2,283         601        —         2,884   

Income from direct financing leases

     —         —         10,518         5,751        (4,971 )     11,298   

Interest and fee income

     —         5,004        9,096         7,317        (7,037 )     14,380   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     —         5,004        51,086         19,319        (15,303 )     60,106   

Expenses

             

Real estate depreciation and amortization

     —         —         8,012         702        —         8,714   

Property-related

     —         182        251         8,291        (8,266 )     458   

General and administrative

     —         6,867        —          (582 )     —         6,285   

Acquisition expenses

     —         4,179        —          —         —         4,179   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     —         11,228        8,263         8,411        (8,266 )     19,636   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —         (6,224 )     42,823         10,908        (7,037 )     40,470   

Other income (expense)

             

Other income (expense)

     —         5        —          (2 )     —         3   

Earnings from equity and other interests

     —         —         —           843        —         843   

Interest income (expense)

     —         (16,055 )     455         (7,267 )     7,037        (15,830 )

Income tax benefit (expense)

     —         —         —          (94 )     —         (94 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net other income (expense)

     —         (16,050 )     455         (6,520 )     7,037        (15,078 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —         (22,274 )     43,278         4,388        —         25,392   

Income (loss) from discontinued operations

     —         —         —          311        —         311   

Equity in earnings of consolidated subsidiaries, net of income taxes

     25,703        47,977        1,114         —         (74,794 )     —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     25,703        25,703        44,392         4,699        (74,794 )     25,703   

Net income (loss) attributable to non-controlling interests

     (55 )     (55 )     —          —         55        (55 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 25,648      $ 25,648      $ 44,392       $ 4,699      $ (74,739 )   $ 25,648   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidated Statements of Income

For the Nine Months Ended September 30, 2013

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Revenues

             

Rent billed

   $ —       $ —       $ 86,789       $ 16,328      $ (9,045 )   $ 94,072   

Straight-line rent

     —         —         6,894         1,458        —         8,352   

Income from direct financing leases

     —         —         27,387         16,744        (14,847 )     29,284   

Interest and fee income

     —         15,112        27,363         21,872        (21,211 )     43,136   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     —         15,112        148,433         56,402        (45,103 )     174,844   

Expenses

             

Real estate depreciation and amortization

     —         —         23,720         2,107        —         25,827   

Property-related

     —         458        817         24,137        (23,892 )     1,520   

General and administrative

     —         21,286        —          (124     —         21,162   

Acquisition expenses

     —         6,457        —          —         —         6,457   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     —         28,201        24,537         26,120        (23,892 )     54,966   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —         (13,089 )     123,896         30,282        (21,211 )     119,878   

Other income (expense)

             

Other income (expense)

     —         (38 )     —          (207 )     —         (245 )

Earnings from equity and other interests

     —         —         —           2,511        —         2,511   

Interest income (expense)

     —         (46,297 )     1,082         (21,892 )     21,211        (45,896 )

Income tax benefit (expense)

     —         —         —          (261 )     —         (261 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net other income (expense)

     —         (46,335 )     1,082         (19,849 )     21,211        (43,891 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —         (59,424 )     124,978         10,433        —         75,987   

Income (loss) from discontinued operations

     —         —         —          3,330        —         3,330   

Equity in earnings of consolidated subsidiaries net of income taxes

     79,317        138,741        3,355         —         (221,413 )     —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     79,317        79,317        128,333         13,763        (221,413 )     79,317   

Net income (loss) attributable to non-controlling interests

     (165 )     (165 )     —          —         165        (165 )
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to MPT common stockholders

   $ 79,152      $ 79,152      $ 128,333       $ 13,763      $ (221,248 )   $ 79,152   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidated Statements of Comprehensive Income

For the Three Months Ended September 30, 2013

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     Eliminations     Total
Consolidated
 

Net income

   $ 25,703      $ 25,703      $ 44,392       $ 4,699       $ (74,794 )   $ 25,703   

Other comprehensive income:

              

Unrealized gain on interest rate swap

     182        182        —          —          (182 )     182   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income

     25,885        25,885        44,392         4,699         (74,976 )     25,885   

Comprehensive income attributable to non-controlling interests

     (55 )     (55 )     —          —          55        (55 )
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to MPT common stockholders

   $ 25,830      $ 25,830      $ 44,392       $ 4,699       $ (74,921 )   $ 25,830   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Condensed Consolidated Statements of Comprehensive Income

For the Nine Months Ended September 30, 2013

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
     Non-Guarantor
Subsidiaries
     Eliminations     Total
Consolidated
 

Net income

   $ 79,317      $ 79,317      $ 128,333       $ 13,763       $ (221,413 )   $ 79,317   

Other comprehensive income:

              

Unrealized gain on interest rate swap

     2,788        2,788        —          —          (2,788 )     2,788   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income

     82,105        82,105        128,333         13,763         (224,201 )     82,105   

Comprehensive income attributable to non-controlling interests

     (165 )     (165 )     —          —          165        (165 )
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to MPT common stockholders

   $ 81,940      $ 81,940      $ 128,333       $ 13,763       $ (224,036 )   $ 81,940   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2013

(in thousands)

 

     Parent     Subsidiary
Issuers
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Eliminations     Total
Consolidated
 

Operating Activities

          

Net cash provided by (used in) operating activities

   $ 91      $ (38,891 )   $ 171,742      $ (31,378   $ —       $ 101,564   

Investing Activities

          

Cash paid for acquisitions and other related investments

     —         —         (356,250 )     (15,250 )     —         (371,500 )

Principal received on loans receivable

     —         —         —         4,694        —         4,694   

Net proceeds from sale of real estate

     —         —         —         18,409        —         18,409   

Investments in loans receivable

     —         —         —         (1,445 )     —         (1,445 )

Construction in progress and other

     —         (765 )     (63,690 )     1,033        —         (63,422 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     —         (765 )     (419,940 )     7,441        —         (413,264 )

Financing Activities

          

Revolving credit facilities, net

     —         (80,000 )     —         —         —         (80,000 )

Additions to term debt

     —         153,000        —         —          —         153,000   

Payments of term debt

     —         (11,000     —         (185 )     —         (11,185 )

Distributions paid

     (87,727 )     (87,928 )     —         —         87,727        (87,928 )

Proceeds from sale of common stock/units, net of offering costs

     313,319        313,319        —         —         (313,319 )     313,319   

Lease deposits and other obligations to tenants

     —         —          1,699        1,890        —         3,589   

Net payments relating to intercompany financing

     (225,683 )     (267,545     244,934        22,702        225,592        —    

Debt issuance costs paid and other financing activities

     —         (4,282 )     —         —         —         (4,282 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (91     15,564        246,633        24,407        —         286,513   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents for period

     —         (24,092 )     (1,565 )     470        —         (25,187

Cash and cash equivalents at beginning of period

     —         35,483        1,565        263        —         37,311   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —       $ 11,391      $ —       $ 733      $ —       $ 12,124   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

Forward-Looking Statements.

This report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or future performance, achievements or transactions or events to be materially different from those expressed or implied by such forward-looking statements, including, but not limited to, the risks described in our Annual Report on Form 10-K and as updated in our quarterly reports on Form 10-Q for future periods, and current reports on Form 8-K as we file them with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. Such factors include, among others, the following:

 

    U.S. (both national and local) and European economic, business, real estate and other market conditions;

 

    the competitive environment in which we operate;

 

    the execution of our business plan;

 

    financing risks;

 

    acquisition and development risks;

 

    potential environmental contingencies and other liabilities;

 

    other factors affecting real estate industry generally or the healthcare real estate industry in particular;

 

    our ability to maintain our status as a REIT for federal and state income tax purposes;

 

    our ability to attract and retain qualified personnel;

 

    changes in foreign currency exchange rates;

 

    U.S. (both federal and state) and European healthcare, and other regulatory requirements; and

 

    U.S. national and local economic conditions, as well as conditions in Europe and other foreign jurisdictions where we own or will own healthcare facilities, which may have a negative effect on the following, among other things:

 

    the financial condition of our tenants, our lenders, and institutions that hold our cash balances, which may expose us to increased risks of default by these parties;

 

    our ability to obtain equity or debt financing on attractive terms or at all, which may adversely impact our ability to pursue acquisition and development opportunities and reference existing debt and our future interest expense; and

 

    the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis.

Key Factors that May Affect Our Operations

Our revenues are derived primarily from rents we earn pursuant to the lease agreements with our tenants and from interest income from loans to our tenants and other facility owners. Our tenants operate in the healthcare industry, generally providing medical, surgical and rehabilitative care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory and market conditions that may affect their profitability. Accordingly, we monitor certain key factors, changes to which we believe may provide early indications of conditions that may affect the level of risk in our lease and loan portfolio.

Key factors that we consider in underwriting prospective tenants and borrowers and in monitoring the performance of existing tenants and borrowers include the following:

 

    the historical and prospective operating margins (measured by a tenant’s earnings before interest, taxes, depreciation, amortization and facility rent) of each tenant or borrower and at each facility;

 

    the ratio of our tenants’ and borrowers’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

 

    trends in the source of our tenants’ or borrowers’ revenue, including the relative mix of Medicare, Medicaid/MediCal, managed care, commercial insurance, and private pay patients; and

 

    the effect of evolving healthcare regulations on our tenants’ and borrowers’ profitability.

Certain business factors, in addition to those described above that directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include:

 

    trends in the cost and availability of capital, including market interest rates, that our prospective tenants may use for their real estate assets instead of financing their real estate assets through lease structures;

 

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    changes in healthcare regulations that may limit the opportunities for physicians to participate in the ownership of healthcare providers and healthcare real estate;

 

    reductions in reimbursements from Medicare, state healthcare programs, and commercial insurance providers that may reduce our tenants’ profitability and our lease rates;

 

    competition from other financing sources; and

 

    the ability of our tenants and borrowers to access funds in the credit markets.

CRITICAL ACCOUNTING POLICIES

Refer to our 2013 Annual Report on Form 10-K, for a discussion of our critical accounting policies, which include revenue recognition, investment in real estate, purchase price allocation, loans, losses from rent receivables, stock-based compensation, our fair value option election, and our accounting policy on consolidation. During the nine months ended September 30, 2014, there were no material changes to these policies, except as noted in Note 2 to the condensed consolidated financial statements with respect to discontinued operations.

Overview

We are a self-advised real estate investment trust (“REIT”) focused on investing in and owning net-leased healthcare facilities across the United States and selectively in foreign jurisdictions. We have operated as a REIT since April 6, 2004, and accordingly, elected REIT status upon the filing of our calendar year 2004 federal income tax return. Medical Properties Trust, Inc. was incorporated under Maryland law on August 27, 2004, and MPT Operating Partnership, L.P. was formed under Delaware law on September 10, 2003. We conduct substantially all of our business through MPT Operating Partnership, L.P. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we selectively make loans to certain of our operators through our taxable REIT subsidiaries, the proceeds of which are typically used for acquisitions and working capital. Finally, from time to time, we acquire a profits or other equity interest in our tenants that gives us a right to share in such tenant’s profits and losses.

At September 30, 2014, our portfolio consisted of 123 properties: 111 facilities (of the 115 facilities that we own, of which two are subject to long-term ground leases) are leased to 27 tenants, four are under development, and the remaining eight assets are in the form of mortgage loans to three operators. Our facilities consisted of 59 general acute care hospitals, 23 long-term acute care hospitals, 32 inpatient rehabilitation hospitals, three medical office buildings, and six wellness centers.

All of our investments are currently located in the United States and Europe.

The following is our revenue by operating type (dollar amounts in thousands):

Revenue by property type:

 

     For the Three
Months Ended
September 30, 2014
     % of
Total
    For the Three
Months Ended
September 30, 2013
     % of
Total
 

General Acute Care Hospitals (A)

   $ 49,405         61.2 %   $ 35,753         59.4 %

Long-term Acute Care Hospitals

     13,448         16.6 %     13,364         22.3 %

Rehabilitation Hospitals

     17,509         21.7 %     10,574         17.6 %

Wellness Centers

     415         0.5 %     415         0.7 %
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 80,777         100.0 %   $ 60,106         100.0 %
  

 

 

      

 

 

    

 

     For the Nine
Months Ended
September 30, 2014
     % of
Total
    For the Nine
Months Ended
September 30, 2013
     % of
Total
 

General Acute Care Hospitals (A)

   $ 136,391         59.2 %   $ 102,573         58.7 %

Long-term Acute Care Hospitals

     40,544         17.6 %     40,237         23.0 %

Rehabilitation Hospitals

     52,245         22.7 %     30,788         17.6 %

Wellness Centers

     1,246         0.5 %     1,246         0.7 %
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenue

   $ 230,426         100.0 %   $ 174,844         100.0 %
  

 

 

      

 

 

    

 

(A) Includes two medical office buildings associated with two of our general acute care hospitals.

 

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We have 43 employees as of November 6, 2014. We believe that any foreseeable increase in the number of our employees will have only immaterial effects on our operations and general and administrative expenses. We believe that our relations with our employees are good. None of our employees are members of any labor union.

Results of Operations

Three Months Ended September 30, 2014 Compared to September 30, 2013

Net income for the three months ended September 30, 2014, was $28.5 million, compared to $25.6 million for the three months ended September 30, 2013. Funds from operations (“FFO”), after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $46.6 million, or $0.27 per diluted share for the 2014 third quarter as compared to $38.5 million, or $0.25 per diluted share for the 2013 third quarter. This 21% increase in FFO, on a dollar basis, is primarily due to the increase in revenue from acquisitions made since September 2013 along with the completion of the First Choice and Oakleaf development properties in 2014.

A comparison of revenues for the three month periods ended September 30, 2014 and 2013 is as follows, as adjusted in 2013 for discontinued operations (dollar amounts in thousands):

 

     2014      % of
Total
    2013      % of
Total
    Year over
Year
Change
 

Base rents

   $ 48,063         59.5   $ 31,544         52.5     52.4

Straight-line rents

     5,282         6.5     2,884         4.8     83.1

Income from direct financing leases

     12,308         15.2     11,298         18.8     8.9

Interest from loans and fee income

     15,124         18.8     14,380         23.9     5.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total revenue

   $ 80,777         100.0   $ 60,106         100.0     34.4
  

 

 

      

 

 

      

Our total revenue for the 2014 third quarter is up $20.7 million or 34.4% over the prior year. This increase is made up of the following:

 

    Base rents – up $16.5 million over the prior year of which $0.7 million is from our annual escalation provisions in our leases, $13.2 million is from incremental revenue from acquisitions made in 2013 and 2014, and $2.9 million is incremental revenue from development properties that were completed and put into service in 2013 and 2014. This is partially offset by our Bucks facility that was sold in early August 2014.

 

    Straight-line rents – up $2.4 million over the prior year primarily due to incremental revenue from acquisitions made in 2013 and 2014 and from development properties that were completed and put into service in 2013 and 2014.

 

    Income from direct financing leases – up $1.0 million over the prior year of which $0.1 million is from our annual escalation provisions in our leases and $0.9 million is from incremental revenue from acquisitions made in 2013.

 

    Interest from loans – up $0.7 million over the prior year due to $0.4 million from our annual escalation provisions in our loans and $0.7 million from new loans made since September 2013, partially offset by repayment of loans.

Real estate depreciation and amortization during the third quarter of 2014 increased to $13.4 million from $8.7 million in 2013, due to the incremental depreciation from the properties acquired since September 30, 2013 and the development properties completed in 2013 and 2014.

Acquisition expenses increased from $4.2 million in 2013 to $4.9 million in 2014 primarily as a result of the international acquisition already completed in 2014 and the international acquisitions that are pending.

 

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General and administrative expenses totaled $8.7 million for the 2014 third quarter, which is 10.7% of total revenues, generally flat from 10.5% of total revenues in the prior year third quarter. On a dollar basis, general and administrative expenses were up $2.4 million from the prior year third quarter due to travel and international administrative expenses, which are up as a result of the growth and expansion of our company since the 2013 third quarter.

Interest expense, for the quarters ended September 30, 2014 and 2013, totaled $25.5 million and $15.8 million, respectively. This increase is primarily related to higher average debt balances in the current year quarter associated with our 2014 and 2013 Senior Unsecured Notes, the $150 million tack on offering to our 2012 Senior Unsecured Notes and our new Credit Facility. Our weighted average interest rate was 5.9% for the quarter ended September 30, 2014, which is a slight decline from 6% in 2013. See Note 4 to our Condensed Consolidated Financial Statements in Item 1 to this Form 10-Q for further information on our debt activities.

In addition to the items noted above, net income for the third quarter in 2013 was impacted by discontinued operations related to property disposals prior to 2014. See Note 8 to our Condensed Consolidated Financial Statements in Item 1 to this Form 10-Q for further information.

Nine Months Ended September 30, 2014 Compared to September 30, 2013

Net income for the nine months ended September 30, 2014, was $35.6 million compared to net income of $79.2 million for the nine months ended September 30, 2013 primarily due to the $50.1 million of impairment charges taken in 2014 — See Note 3 to Item 1 of this Form 10-Q for further details. FFO, after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $133.8 million, or $0.79 per diluted share for the first nine months in 2014 as compared to $109.2 million, or $0.73 per diluted share for the first nine months of 2013. This 23% increase in FFO, on a dollar basis, is primarily due to the increase in revenue from acquisitions made subsequent to September 2013.

A comparison of revenues for the nine month periods ended September 30, 2014 and 2013 is as follows (dollar amounts in thousands):

 

     2014      % of
Total
    2013      % of
Total
    Year over
Year
Change
 

Base rents

   $ 136,952         59.4 %   $ 94,072         53.8 %     45.6 %

Straight-line rents

     10,648         4.6 %     8,352         4.8 %     27.5 %

Income from direct financing leases

     36,787         16.0 %     29,284         16.7 %     25.6 %

Interest from loans and fee income

     46,039         20.0 %     43,136         24.7 %     6.7 %
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total revenue

   $ 230,426         100.0 %   $ 174,844         100.0 %     31.8 %
  

 

 

      

 

 

      

Our total revenue for the first nine months of 2014 is up $55.6 million or 31.8% over the prior year. This increase is made up of the following:

 

    Base rents – up $42.9 million over the prior year of which $2.0 million is from our annual escalation provisions in our leases, $34.6 million is from incremental revenue from acquisitions made in the second half of 2013 and 2014, and $6.1 million is incremental revenue from development properties that were completed and put into service in 2013 and 2014. Approximately $1 million of base rents were recorded in 2013 related to our Monroe property but none was recorded in the current year.

 

    Straight-line rents – up $2.3 million primarily due to incremental revenue from acquisitions made in 2013 and 2014 and from development properties that were completed and put into service in 2013 and 2014, partially offset by the $1.0 million write-off of unbilled rent related to our Gilbert property– see Note 3 to Item 1 of this Form 10-Q for further details.

 

    Income from direct financing leases – up $7.5 million over the prior year of which $0.4 million is from our annual escalation provisions in our leases and $7.1 million is from incremental revenue from acquisitions made in 2013.

 

    Interest from loans – up $2.9 million over the prior year of which $1.0 million is from our annual escalation provisions in our loans and $1.8 million is primarily from new loans made since September 2013, partially offset by the repayment of loans in late 2013 and 2014.

 

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Real estate depreciation and amortization during the first nine months of 2014 was $39.5 million, compared to $25.8 million in the same period of 2013 due to the incremental depreciation from the properties acquired since September 2013 and the development properties completed in 2013 and 2014.

During 2014, we recorded a $3.1 million real estate impairment charge on our Bucks facility and a $47.0 million impairment charge on our Monroe facility – see Note 3 to Item 1 of this Form 10-Q for further details.

Acquisition expenses increased from $6.5 million in 2013 to $7.9 million in 2014 primarily as a result of the acquisitions in 2014 and continued activity to pursue potential deals.

General and administrative expenses in the first nine months of 2014 totaled $25.8 million, which is 11.2% of revenues down from 12.1% of revenues in the prior year as revenues are up over the prior year. The drop in general and administrative expenses as a percentage of revenue is primarily due to our business model as we can generally increase our revenue significantly without increasing our head count and related expense at the same rate. On a dollar basis, general and administrative expenses were up $4.7 million from the prior year first nine months due to higher compensation expense, travel and international administrative expenses, which are up as a result of the growth and expansion of our company since September 2013.

Interest expense for the first nine months of 2014 and 2013 totaled $71.7 million and $45.9 million, respectively. This increase is primarily related to higher average debt balances in the current year associated with our 2014 and 2013 Senior Unsecured Notes, the $150 million tack on offering to our 2012 Senior Unsecured Notes and our new Credit Facility. In addition, we recorded a $0.3 million refinancing charge in the 2014 second quarter related to the replacement of our old credit facility. Our weighted average interest rate was 5.9% for the first nine months of 2014, down slightly from 6% in 2013. See Note 4 to our Condensed Consolidated Financial Statements in Item 1 to this Form 10-Q for further information on our debt activities.

In addition to the items noted above, net income for the first nine months of 2013 was impacted by discontinued operations related to property disposals prior to 2014. See Note 8 to our Condensed Consolidated Financial Statements in Item 1 to this Form 10-Q for further information.

Reconciliation of Non-GAAP Financial Measures

Investors and analysts following the real estate industry utilize funds from operations, or FFO, as a supplemental performance measure. FFO, reflecting the assumption that real estate asset values rise or fall with market conditions, principally adjusts for the effects of GAAP depreciation and amortization of real estate assets, which assumes that the value of real estate diminishes predictably over time. We compute FFO in accordance with the definition provided by the National Association of Real Estate Investment Trusts, or NAREIT, which represents net income (loss) (computed in accordance with GAAP), excluding gains (losses) on sales of real estate and impairment charges on real estate assets, plus real estate depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.

In addition to presenting FFO in accordance with the NAREIT definition, we also disclose normalized FFO, which adjusts FFO for items that relate to unanticipated or non-core events or activities or accounting changes that, if not noted, would make comparison to prior period results and market expectations less meaningful to investors and analysts.

We believe that the use of FFO, combined with the required GAAP presentations, improves the understanding of our operating results among investors and the use of normalized FFO makes comparisons of our operating results with prior periods and other companies more meaningful. While FFO and normalized FFO are relevant and widely used supplemental measures of operating and financial performance of REITs, they should not be viewed as a substitute measure of our operating performance since the measures do not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which can be significant economic costs that could materially impact our results of operations. FFO and normalized FFO should not be considered an alternative to net income (loss) (computed in accordance with GAAP) as indicators of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity.

 

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The following table presents a reconciliation of net income attributable to MPT common stockholders to FFO and normalized FFO for the three and nine months ended September 30, 2014 and 2013 ($ amounts in thousands, except per share data):

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30, 2014     September 30, 2013     September 30, 2014     September 30, 2013  

FFO information:

        

Net income attributable to MPT common stockholders

   $ 28,537      $ 25,648      $ 35,575      $ 79,152   

Participating securities’ share in earnings

     (179 )     (166 )     (584 )     (538 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income , less participating securities’ share in earnings

   $ 28,358      $ 25,482      $ 34,991      $ 78,614   

Depreciation and amortization:

        

Continuing operations

     13,354        8,714        39,485        25,827   

Discontinued operations

     —          75        —          327   

Real estate impairment charges

     —          —          5,974        —     

Gain on sale of real estate

     —          —          —          (2,054 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

   $ 41,712      $ 34,271      $ 80,450      $ 102,714   

Write-off of straight line rent

     —          —          950        —     

Loan and other impairment charge

     —          —          44,154        —     

Debt refinancing costs

     —          —          290        —     

Acquisition costs

     4,886        4,179        7,933        6,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

Normalized funds from operations

   $ 46,598      $ 38,450      $ 133,777      $ 109,171   
  

 

 

   

 

 

   

 

 

   

 

 

 

Per diluted share data:

        

Net income , less participating securities’ share in earnings

   $ 0.16     $ 0.16      $ 0.21      $ 0.53   

Depreciation and amortization:

        

Continuing operations

     0.08        0.06        0.22        0.17   

Discontinued operations

     —          —          —          —     

Real estate impairment charges

     —          —          0.04        —     

Gain on sale of real estate

     —          —          —          (0.01 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Funds from operations

   $ 0.24      $ 0.22      $ 0.47      $ 0.69   

Write-off of straight line rent

     —          —          0.01        —     

Loan and other impairment charge

     —          —          0.26        —     

Debt refinancing costs

     —          —          —          —     

Acquisition costs

     0.03        0.03        0.05        0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Normalized funds from operations

   $ 0.27      $ 0.25      $ 0.79      $ 0.73   
  

 

 

   

 

 

   

 

 

   

 

 

 

Disclosure of Contractual Obligations

The following table summarizes known material contractual obligations (including interest) as of September 30, 2014, excluding the impact of subsequent events (amounts in thousands):

 

Contractual Obligations

   Less Than
1 Year
     1-3 Years      3-5 Years      After
5 Years
     Total  

2006 Senior Unsecured Notes(1)

   $ 6,985       $ 132,894       $ —        $ —        $ 139,879   

2011, 2012 and 2014 Senior Unsecured Notes

     70,392         139,500         139,500         1,300,156         1,649,548   

2013 Senior Unsecured Notes(5)

     14,526         29,051         29,051         267,146         339,774   

Revolving credit facility(2)

     2,625         5,250         2,625         —          10,500   

Term loans

     3,809         7,625         142,727         —          154,161   

Operating lease commitments(3)

     2,742         5,544         5,250         41,459         54,995   

Purchase obligations(4)

     196,512         —          —          —          196,512   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 297,591       $ 319,864       $ 319,153       $ 1,608,761       $ 2,545,369   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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(1) The interest rates on these notes are currently variable rates, but we entered into interest rate swaps to fix these interest rates until maturity. For $65 million of our $125 million senior notes, the rate is 5.507% and for $60 million of our $125 million senior notes the rate is 5.675%. See Note 4 to our Condensed Consolidated Financial Statements in Item 1 to this Form 10-Q for further information.
(2) As of September 30, 2014, we have a $775 million revolving credit facility. However, this tables assumes balance and rate in effect at September 30, 2014 (which was $— million as of September 30, 2014) remains in effect through maturity. This also reflects unused credit facility fees assuming balance remains in effect through maturity.
(3) Most of our contractual obligations to make operating lease payments are related to ground leases for which we are reimbursed by our tenants along with corporate office and equipment leases.
(4) Represents future expenditures related to development projects including the new $150 million development agreement with Adeptus Health.
(5) Our 2013 Senior Unsecured Notes are Euro-denominated. We used the exchange rate at September 30, 2014, (or 1.26) in preparing this table.

LIQUIDITY AND CAPITAL RESOURCES

2014 Cash Flow Activity

During the nine months ended September 30, 2014, we generated $95.7 million of cash flow from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $108.0 million and certain investing activities including the additional funding of our development activities.

In regards to other financing activities in which we used such net proceeds to ultimately fund our $183 million of acquisitions in 2014, to fund other investment activities, and to pay down our revolving credit facility, we did the following:

 

  a) On March 11, 2014, we completed an underwritten public offering of 7.7 million shares of our common stock, resulting in net proceeds of approximately $100.2 million, after deducting estimated offering expenses. We also granted the underwriters a 30-day option to purchase up to an additional 1.2 million shares of common stock. The option, which was exercised in full, closed on April 8, 2014 and resulted in additional net proceeds of approximately $16 million.

 

  b) On April 17, 2014, we completed a $300 million senior unsecured notes offering.

 

  c) On June 19, 2014, we closed on a new $900 million senior unsecured credit facility (the “Credit Facility”). The Credit Facility is comprised of a $775 million senior unsecured revolving credit facility and a $125 million senior unsecured term loan facility. The Credit Facility replaces our previous $400 million unsecured revolving credit facility and $100 million unsecured term loan.

 

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2013 Cash Flow Activity

During the first nine months of 2013, operating cash flows, which primarily consisted of rent and interest from mortgage and other loans, were $101.6 million, which with cash on-hand, were principally used to fund our dividends of $87.9 million and certain of our investing activities.

On August 20, 2013, we completed an offering of 11.5 million shares of common stock (including 1.5 million shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a price of $12.75 per share, resulting in net proceeds (after underwriting discount and expenses) of $140.4 million. In addition, in August 2013, we completed a $150 million tack on offering to our 2012 Senior Unsecured Notes, resulting in net proceeds of $150.3 million (reflective of the pricing premium we received). These proceeds were used to fund the acquisition of the three IASIS properties more fully described in Note 3.

We completed an offering of 12.7 million shares of our common stock (including 1.7 million shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares) in February 2013, resulting in net proceeds (after underwriting discount) of $172.9 million. Proceeds from this offering and subsequent property sales were used to pay down $80 million on our revolving credit facility while funding our other acquisitions and development activities.

Short-term Liquidity Requirements: As of September 30, 2014, we have less than $0.1 million in debt principal payments due in 2014 — see debt maturity schedule below. However, with the Median and other transactions discussed in Note 11, we have short term commitments up to $1.2 billion. At November 6, 2014 (and after the amendments to our Credit Facility in October as described in Note 11), our availability under our revolving credit facility plus cash on-hand approximated $1.2 billion. In addition, we have a $250 million bridge loan available if needed. We believe these available funds are sufficient to address our near term commitments including the Median acquisitions. However, we will continue to look for more longer term financing as discussed below under Long-term Liquidity Requirements.

We established an at-the-market equity offering program in January 2014 under which we may sell up to $250 million in shares (of which $12.5 million has been sold through November 6, 2014) which may be used for general corporate purposes as needed. We believe any excess availability in our Credit Facility (after funding Median), our current monthly cash receipts from rent and loan interest, and the availability under our at-the-market equity offering program is sufficient to fund our operations, debt and interest obligations, our non-Median firm commitments (including capital expenditures, if any, and expected funding requirements on our development projects), and dividends in order to comply with REIT requirements for the next twelve months.

Long-term Liquidity Requirements: As of September 30, 2014, we have less than $0.4 million in debt principal payments due between now and July 2016 . With our liquidity at November 6, 2014 of approximately $1.2 billion along with our current monthly cash receipts from rent and loan interest and with the availability under our at-the-market equity offering program, we believe we have the liquidity available to us to fund our operations, debt and interest obligations, dividends in order to comply with REIT requirements, and firm commitments (including capital expenditures, if any, and expected funding requirements on our development projects) currently. As we consider longer term financing for our Median and other acquisitions, we believe the following sources are generally available in the current market and we may access one or a combination of them:

 

    assumptions of existing or placing new secured loans on the Median real estate,

 

    amending or entering into new bank term loans,

 

    issuance of new debt securities, including senior unsecured notes,

 

    sale of equity securities,

 

    entering into joint venture arrangements, and/or

 

    proceeds from strategic property sales.

However, there is no assurance that conditions will remain favorable for such possible transactions or that our plans will be successful.

As of September 30, 2014, principal payments due for our debt (which exclude the effects of any premiums recorded) are as follows (in thousands):

 

2014

   $ 69   

2015

     283   

2016

     125,298   

2017

     320   

2018

     12,781   

Thereafter

     1,477,620   
  

 

 

 

Total

   $ 1,616,371   
  

 

 

 

 

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Distribution Policy

The table below is a summary of our distributions declared during the two year period ended September 30, 2014:

 

Declaration Date

   Record Date    Date of Distribution    Distribution per Share  

August 21, 2014

   September 18, 2014    October 15, 2014    $ 0.21   

May 15, 2014

   June 12, 2014    July 10, 2014    $ 0.21   

February 21, 2014

   March 14, 2014    April 11, 2014    $ 0.21   

November 7, 2013

   December 3, 2013    January 7, 2014    $ 0.21   

August 15, 2013

   September 12, 2013    October 10, 2013    $ 0.20   

May 23, 2013

   June 13, 2013    July 11, 2013    $ 0.20   

February 14, 2013

   March 14, 2013    April 11, 2013    $ 0.20   

October 30, 2012

   November 23, 2012    January 5, 2013    $ 0.20   

August 16, 2012

   September 13, 2012    October 11, 2012    $ 0.20   

We intend to pay to our stockholders, within the time periods prescribed by the Internal Revenue Code (“Code”), all or substantially all of our annual taxable income, including taxable gains from the sale of real estate and recognized gains on the sale of securities. It is our policy to make sufficient cash distributions to stockholders in order for us to maintain our status as a REIT under the Code and to avoid corporate income and excise taxes on undistributed income. See Note 4 to our condensed consolidated financial statements in Item 1 to this Form 10-Q for any restrictions placed on dividends by our Credit Facility.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate or foreign currency exposure. For interest rate hedging, these decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. For foreign currency, these decisions are principally based on how our investments are financed, the long-term nature of our investments, the need to repatriate earnings back to the U.S. and the general trend in foreign currency exchange rates.

In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits, all of which may affect our ability to refinance our debt if necessary. The changes in the value of our facilities would be impacted also by changes in “cap” rates, which is measured by the current base rent divided by the current market value of a facility.

Our primary exposure to market risks relates to fluctuations in interest rates and foreign currency. The following analyses present the sensitivity of the market value, earnings and cash flows of our significant financial instruments to hypothetical changes in interest rates and exchange rates as if these changes had occurred. The hypothetical changes chosen for these analyses reflect our view of changes that are reasonably possible over a one-year period. These forward looking disclosures are selective in nature and only address the potential impact from these hypothetical changes. They do not include other potential effects which could impact our business as a result of changes in market conditions. In addition, they do not include measures we may take to minimize our exposure such as entering into future interest rate swaps to hedge against interest rate increases on our variable rate debt.

Interest Rate Sensitivity

For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At September 30, 2014, our outstanding debt totaled $1.6 billion, which consisted of fixed-rate debt of $1.5 billion (including $125.0 million of floating debt swapped to fixed) and variable rate debt of $125.0 million. If market interest rates increase by one percentage point, the fair value of our fixed rate debt at September 30, 2014 would decrease by $12.2 million. Changes in the fair value of our fixed rate debt will not have any impact on us unless we decided to repurchase the debt in the open market.

If market rates of interest on our variable rate debt increase by 1%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $1.3 million per year. If market rates of interest on our variable rate debt decrease by 1%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $1.3 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $125 million, the balance of such variable rate debt at September 30, 2014.

 

 

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Foreign Currency Sensitivity

With our acquisition of the properties in Germany in 2013 and the United Kingdom in 2014, we are subject to fluctuations in the Euro and British Pound to US dollar currency exchange rates. Increases or decreases in the value of the Euro to US dollar and the British Pound to US dollar exchange rates may impact our financial condition and/or our results of operations. Based solely on operating results for the first nine months of 2014 and on an annualized basis, if the Euro exchange rate were to change by 1%, our net income would change by less than $0.1 million. Based solely on operating results for the first nine months of 2014 and on an annualized basis, if the British Pound exchange rate were to change by 1%, our net income would change by less than $0.1 million.

Item 4. Controls and Procedures.

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b), under the Securities Exchange Act of 1934, as amended, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed by us in the reports that we file with the SEC.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

There have been no material changes to the Risk Factors as presented in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) Not applicable.

(c) None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

 

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Item 5. Other Information.

(a) None.

(b) None.

Item 6. Exhibits.

 

Exhibit

Number

  

Description

31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)
31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)
31.3    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)
31.4    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)
32.1    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Medical Properties Trust, Inc.)
32.2    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (MPT Operating Partnership, L.P.)
Exhibit 101.INS    XBRL Instance Document
Exhibit 101.SCH    XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB    XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MEDICAL PROPERTIES TRUST, INC.
By:  

/s/ R. Steven Hamner

  R. Steven Hamner
 

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

MPT OPERATING PARTNERSHIP, L.P.
By:  

/s/ R. Steven Hamner

  R. Steven Hamner
 

Executive Vice President and Chief Financial Officer of the sole member of the general partner of MPT Operating Partnership, L.P.

(Principal Financial and Accounting Officer)

Date: November 10, 2014

 

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INDEX TO EXHIBITS

 

Exhibit

Number

  

Description

31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)
31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (Medical Properties Trust, Inc.)
31.3    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)
31.4    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. (MPT Operating Partnership, L.P.)
32.1    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Medical Properties Trust, Inc.)
32.2    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (MPT Operating Partnership, L.P.)
Exhibit 101.INS    XBRL Instance Document
Exhibit 101.SCH    XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB    XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

45