# Medical Properties Trust Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Medical Properties Trust Inc](/companies/mpt.md) (CIK 1287865)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 17:11 ET
- Period: 2023-06-30
- Accession: 0000950170-23-040734
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1287865/000095017023040734/mpw-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1287865/000095017023040734/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $337.4m | us-gaap:Revenues |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $687.6m | us-gaap:Revenues |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $153.4m | us-gaap:CostOfGoodsAndServicesSold |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $104.5m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $202.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | −$148.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | −$144.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$42.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$9.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 598,344,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 598,323,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $212.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-06-30 | $324.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $19.20bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $10.89bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $10.24bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $8.31bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,932 characters.

The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities. Such discussion and analysis should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

### Forward-Looking Statements.

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

- the political, economic, business, real estate, and other market conditions in the U.S. (both national and local), Europe (in particular the United Kingdom, Germany, Switzerland, Spain, Italy, Finland, and Portugal), Australia, South America (in particular Colombia), and other foreign jurisdictions where we may own healthcare facilities or transact business, which may have a negative effect on the following, among other things:
- the financial condition of our tenants, our lenders, or institutions that hold our cash balances or are counterparties to certain hedge agreements, 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, refinance existing debt, and our future interest expense; and
- the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our real estate assets or on an unsecured basis;
- the impact of factors that may affect our business, our joint ventures or the business of our tenants/borrowers that are beyond our control, including natural disasters, health crises, or pandemics (such as COVID-19) and subsequent government actions in reaction to such matters;
- the risk that a condition to closing under the agreements governing any or all of our pending transactions (including the transactions described in Note 3 and Note 9 to the condensed consolidated financial statements) that have not closed as of the date hereof may not be satisfied;
- the possibility that the anticipated benefits from any or all of the transactions we have entered into or will enter into may take longer to realize than expected or will not be realized at all;
- the competitive environment in which we operate;
- the execution of our business plan;
- financing risks, including due to rising inflation and interest rates;
- acquisition and development risks;
- potential environmental contingencies and other liabilities;
- adverse developments affecting the financial health of one or more of our tenants, including insolvency;
- other factors affecting the real estate industry generally or the healthcare real estate industry in particular;
- our ability to maintain our status as a REIT for U.S. federal and state income tax purposes;
- our ability to attract and retain qualified personnel;
- changes in foreign currency exchange rates;
- changes in federal, state, or local tax laws in the U.S., Europe, Australia, South America, or other jurisdictions in which we may own healthcare facilities or transact business;
- healthcare and other regulatory requirements of the U.S., Europe, Australia, South America, and other foreign countries; and
- the accuracy of our methodologies and estimates regarding environmental, social, and governance ("ESG") metrics and targets, tenant willingness and ability to collaborate towards reporting ESG metrics and meeting ESG goals and targets, and the impact of governmental regulation on our and our tenants' ESG efforts.

### Key Factors that May Affect Our Operations

Our revenue is derived from rents we earn pursuant to the lease agreements with our tenants, from interest income from loans to our tenants and other facility owners, and from profits or equity interests in certain of our tenants’ operations. Our tenants operate in the healthcare industry, generally providing medical, surgical, rehabilitative, and behavioral health care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory, market, and other conditions (such as the impact of the COVID-19 pandemic) that may affect their profitability, which could impact our results. Accordingly, we monitor certain key performance indicators that we believe provide us with early indications of conditions that could affect the level of risk in our portfolio.

Key factors that we may consider in underwriting prospective deals and in our ongoing monitoring of our tenants’ (and guarantors’) performance, as well as the condition of our properties, include, but are not limited to, the following:

- the scope and breadth of clinical services and programs, including utilization trends (both inpatient and outpatient) by service type;
- the size and composition of medical staff and physician leadership at our facilities, including specialty, tenure, and number of procedures performed and/or referrals;
- an evaluation of our operators’ administrative team, as applicable, including background and tenure within the healthcare industry;
- staffing trends, including ratios, turnover metrics, recruitment and retention strategies at corporate and individual facility levels;
- facility operating performance measured by current, historical, and prospective operating margins (measured by a tenant's earnings before interest, taxes, depreciation, amortization, management fees, and facility rent) of each tenant and at each facility;
- the ratio of our tenants' operating earnings to facility rent and to other fixed costs, including debt costs;
- changes in revenue sources of our tenants, including the relative mix of public payors (including Medicare, Medicaid/MediCal, and managed care in the U.S., as well as equivalent payors in Europe, Australia, and South America) and private payors (including commercial insurance and private pay patients);
- historical support (financial or otherwise) from governments and/or other public payor systems during major economic downturns/depressions;
- trends in tenants' cash collections, including comparison to recorded net patient service revenues, knowing and assessing current revenue cycle management systems and potential future planned upgrades or replacements;
- tenants’ free cash flow;
- the potential impact of healthcare pandemics/epidemics, legislation, and other regulations (including changes in reimbursement) on our tenants’, borrowers’, and guarantors' profitability and liquidity;
- the potential impact of any legal, regulatory, or compliance proceedings with our tenants (including at the facility level);
- the potential impact of supply chain and inflation-related challenges as they relate to new developments or capital addition projects;
- an ongoing assessment of the operating environment of our tenants, including demographics, competition, market position, status of compliance, accreditation, quality performance, and health outcomes as measured by The Centers for Medicare and Medicaid Services, Joint Commission, and other governmental bodies in which our tenants operate;
- the level of investment in the hospital infrastructure and health IT systems; and
- physical real estate due diligence, typically including property condition and Phase 1 environmental assessments, along with annual property inspections thereafter.

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

- trends in interest rates and other costs due to general inflation and availability and increased costs from labor shortages could adversely impact the operations of our tenants and their ability to meet their lease obligations;
- changes in healthcare regulations that may limit the opportunities for physicians to participate in the ownership of healthcare providers and healthcare real estate;
- reductions (or non-timely increases) in reimbursements from Medicare, state healthcare programs, and commercial insurance providers that may reduce our tenants’ or borrowers’ profitability and our revenues;
- 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 2022 Annual Report on Form 10-K for a discussion of our critical accounting policies, which include investments in real estate, purchase price allocation, loans, credit losses, losses from rent and interest receivables, investments accounted for under the fair value option election, and our accounting policy on consolidation. During the six months ended June 30, 2023, there were no material changes to these policies.

### Overview

We are a self-advised REIT focused on investing in and owning net-leased healthcare facilities across the U.S. and selectively in foreign jurisdictions. Medical Properties Trust, Inc. was incorporated under Maryland law on August 27, 2003, and MPT Operating Partnership, L.P. was formed under Delaware law on September 10, 2003. We conduct substantially all of our business through MPT Operating Partnership, L.P. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases, which require the tenant to bear most of the costs associated with the property. The majority of our leased assets are owned 100%; however, we do own some leased assets through joint ventures with other partners that share our view that healthcare facilities are part of the infrastructure of any community, which we refer to as investments in unconsolidated real estate joint ventures. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we may make loans to certain of our operators through our TRS, the proceeds of which are typically used for working capital and other purposes. From time-to-time, we may make noncontrolling investments in our tenants, which we refer to as investments in unconsolidated operating entities. These investments are typically made in conjunction with larger real estate transactions with the tenant that give us a right to share in such tenant’s profits and losses and provide for certain minority rights and protections. Our business model facilitates acquisitions and recapitalizations, and allows operators of healthcare facilities to serve their communities by unlocking the value of their real estate assets to fund facility improvements, technology upgrades, and other investments in operations.

At June 30, 2023, our portfolio consisted of 444 properties leased or loaned to 55 operators, of which six are under development and seven are in the form of mortgage loans. We manage our business as a single business segment.

At June 30, 2023, all of our investments are located in the U.S., Europe, Australia, and South America. Our total assets are made up of the following (dollars in thousands):

|  | As of June 30, 2023 | % of Total | As of December 31, 2022 | % of Total |
| --- | ---: | ---: | ---: | ---: |
| Real estate assets - at cost | $15,065,754 | 78.4% | $15,917,839 | 81.0% |
| Accumulated real estate depreciation and amortization | (1,251,165) | -6.5% | (1,193,312) | -6.1% |
| Cash and cash equivalents | 324,050 | 1.7% | 235,668 | 1.2% |
| Investments in unconsolidated real estate joint ventures | 1,487,118 | 7.7% | 1,497,903 | 7.6% |
| Investments in unconsolidated operating entities | 1,812,150 | 9.4% | 1,444,872 | 7.4% |
| Other | 1,766,468 | 9.3% | 1,755,030 | 8.9% |
| Total assets | $19,204,375 | 100.0% | $19,658,000 | 100.0% |

32

### Results of Operations

### Three Months Ended June 30, 2023 Compared to June 30, 2022

Net loss for the three months ended June 30, 2023, was $(42.0) million ($(0.07) per diluted share) compared to net income of $189.6 million ($0.32 per diluted share) for the three months ended June 30, 2022. This decrease in net income is primarily driven by accelerating the amortization of the approximate $286 million in-place lease intangible and the write-off of approximately $95 million of straight-line rent receivables, both associated with the Steward Transaction (see Note 3 to the condensed consolidated financial statements for more detail) along with higher interest expense, partially offset by an increase in Prospect revenue in the second quarter of 2023 as a result of the Prospect Transaction (as more fully described in Note 3 to the condensed consolidated financial statements) and the approximate $158 million tax benefit recognized in the second quarter of 2023 related to entering the United Kingdom REIT regime (as more fully described in Note 5 to the condensed consolidated financial statements). Normalized funds from operations (“FFO”), after adjusting for certain items (as more fully described in the section titled “Reconciliation of Non-GAAP Financial Measures” in Item 2 of this Quarterly Report on Form 10-Q), was $285.3 million for the 2023 second quarter, or $0.48 per diluted share, as compared to $274.7 million, or $0.46 per diluted share, for the 2022 second quarter.

A comparison of revenues for the three months ended June 30, 2023 and 2022 is as follows (dollar amounts in thousands):

|  | 2023 | % of Total | 2022 | % of Total | Year over Year Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Rent billed | $247,491 | 73.4% | $241,209 | 60.3% | 2.6% |
| Straight-line rent | (39,329) | -11.7% | 58,518 | 14.6% | -167.2% |
| Income from financing leases | 68,468 | 20.3% | 51,873 | 13.0% | 32.0% |
| Interest and other income | 60,765 | 18.0% | 48,626 | 12.1% | 25.0% |
| Total revenues | $337,395 | 100.0% | $400,226 | 100.0% | -15.7% |

Our total revenues for the 2023 second quarter are down $62.8 million, or 15.7%, over the same period in the prior year. This decrease is made up of the following:

- Operating lease revenue (includes rent billed and straight-line rent) – down $91.5 million over the prior year of which approximately $12 million is due to disposals in 2022 and 2023, approximately $95 million as a result of the write-off of straight-line rent associated with the Steward Transaction (as described in more detail in Note 3 to the condensed consolidated financial statements), and $1 million of unfavorable foreign currency fluctuations. This decrease is partially offset by approximately $10 million in incremental revenue from acquisitions, capital additions, and the commencement of rent on a development property in the second quarter of 2023. In addition, rent revenues are up approximately $7 million quarter-over-quarter from increases in CPI above the contractual minimum escalations in our leases.
- Income from financing leases – up $16.6 million primarily due to recording $55.3 million of rent revenue on Prospect in the second quarter of 2023 from the Prospect Transaction as described in Note 3 to the condensed consolidated financial statements, compared to $35.4 million in the second quarter of 2022, and the increase in CPI above the lease contractual minimum escalations by approximately $0.5 million. This increase was partially offset by $3.8 million of lower revenues from the disposal of two Prime financing leases in the third quarter of 2022.
- Interest and other income – up $12.1 million from the prior year due to the following:
- Interest from loans – up $9.4 million due to approximately $4 million of incremental revenue earned on new investments, along with approximately $1 million of interest revenue on the CHF 60 million mortgage loan from Infracore (which was repaid in the second quarter of 2023), and approximately $0.5 million of higher income from annual escalations due to increases in CPI. We also recorded approximately $13.5 million of interest income related to Prospect in the first six months of 2023 (compared to $4.3 million in the first half of 2022) as a result of the Prospect Transaction as described in Note 3 to the condensed consolidated financial statements. This increase is partially offset by a decrease of approximately $5 million from loan payoffs (including $3.8 million due to the repayment of the initial acquisition loan as part of the Lifepoint Transaction described in Note 3 to the condensed consolidated financial statements) and $0.3 million of unfavorable foreign currency fluctuations.
- Other income – up $2.7 million from the prior year as we had more direct reimbursements from our tenants for ground leases, property taxes, and insurance.

Interest expense for the quarters ended June 30, 2023 and 2022 totaled $104.5 million and $87.7 million, respectively. This increase is primarily related to an increase in borrowings on our revolver and higher interest rates on our Credit Facility and term loans compared to the prior year, partially offset by a decrease due to the A$730 million paydown of our Australia term loan in the second quarter of 2023. Our weighted-average interest rate was 3.9% for the quarter ended June 30, 2023 compared to 3.3% for the same period in 2022.

Real estate depreciation and amortization during the second quarter of 2023 increased to $364.4 million from $84.3 million in 2022. Of this increase, $286 million relates to accelerating the amortization of lease intangibles as part of the Steward Transaction described in more detail in Note 3 to the condensed consolidated financial statements.

Property-related expenses totaled $24.7 million and $21.1 million for the quarters ended June 30, 2023 and 2022, respectively. Of the property expenses in the second quarter of 2023 and 2022, approximately $21.1 million and $18.3 million, respectively, represents costs (primarily property insurance premiums) that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.

General and administrative expenses totaled $35.6 million for the 2023 second quarter, a $3.3 million decrease from the 2022 second quarter of $38.9 million, primarily due to a decrease in share-based compensation. The decrease in share-based compensation is a result of a $6.7 million cumulative benefit catch-up from adjusting the payout probability of certain performance awards, partially offset by an incremental $2.3 million of expense from the acceleration of stock awards for a retiring executive officer.

During the three months ended June 30, 2022, we disposed of two facilities resulting in a net gain of $16.4 million.

Earnings from equity interests was $12.2 million for the quarter ended June 30, 2023, down $2.6 million from the same period in 2022. This decrease is primarily due to higher interest costs from increasing interest rates at certain of our unconsolidated real estate joint ventures.

Other expense for the second quarter of 2023 was $10.5 million and included approximately $2.5 million of expenses associated with responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. See Item 1 of Part II for further details on the lawsuit. This expense also included approximately $8 million of unfavorable non-cash fair value adjustments on our investment in Aevis and other investments marked to fair value during the second quarter of 2023. For the second quarter of 2022, we had other income of $2.0 million primarily from $1.0 million of favorable adjustments on our investment in Aevis and other investments marked to fair value.

Income tax expense includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income-based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $148.3 million income tax benefit for the three months ended June 30, 2023 is primarily based on the $158 million benefit received by entering the United Kingdom REIT regime. In comparison, we incurred $10.7 million in income tax expense in the second quarter of 2022.

We utilize the asset and liability method of accounting for income taxes. Deferred tax assets are recorded to the extent we believe these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon our review of all positive and negative evidence, including our three-year cumulative pre-tax book loss position in certain entities, we concluded that a valuation allowance of approximately $93 million should be reflected against certain of our international and domestic net deferred tax assets at June 30, 2023. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and potentially incur higher income tax expense in future periods as income is earned.

### Six Months Ended June 30, 2023 Compared to June 30, 2022

Net loss for the six months ended June 30, 2023, was $(9.2) million ($(0.02) per diluted share) compared to net income of $821.3 million ($1.37 per diluted share) for the six months ended June 30, 2022. This decrease in net income is driven by accelerating the amortization of the approximate $286 million in-place lease intangible and the write-off of approximately $95 million of straight-line rent receivables, both associated with the Steward Transaction (see Note 3 to the condensed consolidated financial statements for more detail), the gain on sale of real estate in the 2022 first quarter from the Macquarie Transaction, and the 2023 impairment charge in the first quarter associated with the Australia Transaction, both as described in Note 3 to the condensed consolidated financial statements. This decrease was partially offset by the approximate $158 million tax benefit recognized in the second quarter of 2023 related to entering the United Kingdom REIT regime (as more fully described in Note 5 to the condensed consolidated financial statements). Normalized FFO, after adjusting for certain items (as more fully described in the section titled “Reconciliation of Non-GAAP Financial Measures” in Item 2 of this Quarterly Report on Form 10-Q), was $507.5 million for the first six months of 2023, or $0.85 per diluted share, as compared to $557.2 million, or $0.93 per diluted share, for the first six months of 2022. This decrease in Normalized FFO is primarily due to various disposals throughout 2022 and 2023, including the Macquarie Transaction and the Australia Transaction (both described in more detail in Note 3 to the condensed consolidated financial statements).

A comparison of revenues for the six months ended June 30, 2023 and 2022 is as follows (dollar amounts in thousands):

|  | 2023 | % of Total | 2022 | % of Total | Year over Year Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Rent billed | $495,648 | 72.1% | $504,611 | 62.3% | -1.8% |
| Straight-line rent | 17,364 | 2.5% | 119,562 | 14.8% | -85.5% |
| Income from financing leases | 81,663 | 11.9% | 103,649 | 12.8% | -21.2% |
| Interest and other income | 92,931 | 13.5% | 82,204 | 10.1% | 13.0% |
| Total revenues | $687,606 | 100.0% | $810,026 | 100.0% | -15.1% |

Our total revenues for the first six months of 2023 are down $122.4 million, or 15.1%, over the same period in the prior year. This decrease is made up of the following:

- Operating lease revenue (includes rent billed and straight-line rent) – down $111.1 million over the prior year of which approximately $42 million is due to disposals in 2022 and 2023 (primarily related to the Macquarie Transaction as described in Note 3 to the condensed consolidated financial statements), approximately $95 million as a result of the write-off of straight-line rent associated with the Steward Transaction, and $9.9 million of unfavorable foreign currency fluctuations. This decrease is partially offset by approximately $21 million in incremental revenue from acquisitions, capital additions, and the commencement of rent on a development property in the first quarter of 2022 and the second quarter of 2023. In addition, rent revenues are up approximately $15 million period-over-period from increases in CPI above the contractual minimum escalations in our leases.
- Income from financing leases – down $22.0 million due to recording $55.3 million of rent on Prospect in the first half of 2023 from the Prospect Transaction as described in Note 3 to the condensed consolidated financial statements, compared to $70.8 million recorded in the first half of 2022, and approximately $7 million of lower revenues from the disposal of two Prime financing leases in the third quarter of 2022. This decrease is partially offset by the increase in CPI above the lease contractual minimum escalations by approximately $1 million.
- Interest and other income – up $10.7 million from the prior year due to the following:
- Interest from loans – up $10.1 million due to approximately $9 million of incremental revenue earned on new investments, along with approximately $2 million of interest revenue on the CHF 60 million mortgage loan from Infracore (which was repaid in the second quarter of 2023), and approximately $1 million of higher income from annual escalations due to increases in CPI. We also recorded approximately $13.5 million of interest income related to Prospect in the first six months of 2023 (compared to $7.5 million in the first half of 2022) as a result of the Prospect Transaction as described in Note 3 to the condensed consolidated financial statements. This increase is partially offset by a decrease of approximately $8 million from loan payoffs (including $6 million due to the repayment of the initial acquisition loan as part of the Lifepoint Transaction

described in Note 3 to the condensed consolidated financial statements) and $1 million of unfavorable foreign currency fluctuations.

- Other income – up $0.6 million from the prior year as we had more direct reimbursements from our tenants for ground leases, property taxes, and insurance.

Interest expense for the six months ended June 30, 2023 and 2022 totaled $202.1 million and $178.9 million, respectively. This increase is primarily related to an increase in borrowings and higher interest rates on our Credit Facility and term loans compared to the prior year, partially offset by a decrease due to the A$730 million paydown of our Australia term loan in the second quarter of 2023. Our weighted-average interest rate was 3.8% for the six months ended June 30, 2023 compared to 3.2% for the same period in 2022.

Real estate depreciation and amortization during the first six months of 2023 increased to $448.3 million from $169.7 million in the same period of 2022. Of this increase, $286 million relates to accelerating the amortization of lease intangibles as part of the Steward Transaction as described in Note 3 to the condensed consolidated financial statements.

Property-related expenses totaled $31.8 million and $29.7 million for the six months ended June 30, 2023 and 2022, respectively. Of the property expenses in the first six months of 2023 and 2022, approximately $25.3 million and $24.6 million, respectively, represents costs (primarily property insurance premiums) that were reimbursed by our tenants and included in the “Interest and other income” line on our condensed consolidated statements of net income.

General and administrative expenses totaled $77.3 million for the first six months of 2023 compared to $80.3 million in the same period of 2022, primarily due to a decrease in share-based compensation. The decrease in share-based compensation is a result of a $6.7 million cumulative benefit catch-up from adjusting the payout probability of certain performance awards, partially offset by an incremental $2.3 million of expense from the acceleration of stock awards for a retiring executive officer.

During the six months ended June 30, 2022, we completed the Macquarie Transaction in which we sold the real estate of eight Massachusetts-based general acute care hospitals, resulting in a gain on real estate of approximately $600 million, partially offset by approximately $125 million of write-offs of non-cash straight-line rent receivables. We also disposed of four other facilities and two ancillary properties resulting in a net gain of $31 million.

In the first quarter of 2023, we recorded an $89.5 million net impairment charge, of which $79 million related to the Australia Transaction and $11 million was a non-cash impairment charge on the three Prime properties as more fully described in Note 3 to the condensed consolidated financial statements. The impairment charge in the first six months of 2022 related to our Watsonville facility.

With the interest rate swap no longer classified as an effective cash flow hedge due to the Australia Transaction disclosed in Note 3 to the condensed consolidated financial statements, we expect some earnings volatility from marking the swap to fair value in future quarters until all of the related debt is extinguished.

Earnings from equity interests was $23.6 million for the six months ended June 30, 2023, up $1.5 million from the same period in 2022. This increase is primarily due to additional income generated on our Massachusetts-based partnership with MAM entered into during March 2022, partially offset by higher interest costs from increasing interest rates at certain of our unconsolidated real estate joint ventures.

Debt refinancing and unutilized financing costs were $0.8 million for the first six months of 2023, as a result of the prepayment on the A$1.2 billion Australian term loan, compared to $9.4 million on the first six months of 2022, as a result of the termination of our $1 billion interim credit facility in March 2022 and the amendment of our Credit Facility (see Note 4 to the condensed consolidated financial statements for more detail).

Other expense for the first six months of 2023 was $15.7 million and included approximately $10.2 million of expenses associated with responding to certain defamatory statements published by certain parties, including those who are defendants to a lawsuit we filed on March 30, 2023. See Item 1 of Part II for further details on the lawsuit. This expense also includes approximately $4.3 million of unfavorable non-cash fair value adjustments on our investment in Aevis and other investments marked to fair value during the first half of 2023. For the first six months of 2022, we had other income of $16.8 million primarily from $9.0 million of favorable adjustments on our investment in Aevis and other investments marked to fair value.

Income tax expense includes U.S. federal and state income taxes on our TRS entities, as well as non-U.S. income-based or withholding taxes on certain investments located in jurisdictions outside the U.S. The $144.7 million income tax benefit for the six months ended June 30, 2023 is primarily based on the $158 million benefit received by entering the United Kingdom REIT regime and a $5.0 million tax benefit recognized in the first quarter of 2023 related to the expected sale of our Australia facilities. In comparison, we incurred $22.0 million in income tax expense in the first six months of 2022.

We utilize the asset and liability method of accounting for income taxes. Deferred tax assets are recorded to the extent we believe these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon our review of all positive and negative evidence, including our three-year cumulative pre-tax book loss position in certain entities, we concluded that a valuation allowance of approximately $93 million should be reflected against certain of our international and domestic net deferred tax assets at June 30, 2023. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and potentially incur higher income tax expense in future periods as income is earned.

### Reconciliation of Non-GAAP Financial Measures

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

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

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

The following table presents a reconciliation of net (loss) income attributable to MPT common stockholders to FFO and Normalized FFO for the three and six months ended June 30, 2023 and 2022 (in thousands except per share data):

| FFO information: | For the Three Months Ended June 30, 2023 | June 30, 2022 | For the Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net (loss) income attributable to MPT common stockholders | $(42,037) | $189,597 | $(9,243) | $821,278 |
| Participating securities’ share in earnings | (469) | (345) | (984) | (747) |
| Net (loss) income, less participating securities’ share in earnings | $(42,506) | $189,252 | $(10,227) | $820,531 |
| Depreciation and amortization | 382,244 | 101,976 | 484,204 | 201,435 |
| Gain on sale of real estate | (167) | (16,355) | (229) | (467,993) |
| Real estate impairment charges | — | — | 52,104 | — |
| Funds from operations | $339,571 | $274,873 | $525,852 | $553,973 |
| Write-off (recovery) of unbilled rent and other | 95,642 | 1,943 | 135,268 | (328) |
| Other impairment charges | — | — | — | 4,875 |
| Litigation and other | 2,502 | — | 10,228 | — |
| Share-based compensation adjustments | (4,363) | (966) | (4,363) | (966) |
| Non-cash fair value adjustments | 8,374 | (943) | 4,253 | (8,966) |
| Tax rate changes and other | (157,230) | (825) | (164,535) | (825) |
| Debt refinancing and unutilized financing costs | 816 | 619 | 816 | 9,435 |
| Normalized funds from operations | $285,312 | $274,701 | $507,519 | $557,198 |
| **Per diluted share data:** |  |  |  |  |
| Net (loss) income, less participating securities’ share in earnings | $(0.07) | $0.32 | $(0.02) | $1.37 |
| Depreciation and amortization | 0.64 | 0.17 | 0.81 | 0.33 |
| Gain on sale of real estate | — | (0.03) | — | (0.78) |
| Real estate impairment charges | — | — | 0.09 | — |
| Funds from operations | $0.57 | $0.46 | $0.88 | $0.92 |
| Write-off (recovery) of unbilled rent and other | 0.16 | — | 0.23 | — |
| Other impairment charges | — | — | — | — |
| Litigation and other | — | — | 0.01 | — |
| Share-based compensation adjustments | — | — | — | — |
| Non-cash fair value adjustments | 0.01 | — | — | (0.01) |
| Tax rate changes and other | (0.26) | — | (0.27) | — |
| Debt refinancing and unutilized financing costs | — | — | — | 0.02 |
| Normalized funds from operations | $0.48 | $0.46 | $0.85 | $0.93 |

### LIQUIDITY AND CAPITAL RESOURCES

### 2023 Cash Flow Activity

During the first six months of 2023, we generated approximately $212.2 million of cash flows from operating activities, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows (along with cash on-hand and borrowings on our revolving credit facility) to fund our dividends of $350.3 million.

In regard to other investing and financing activities in the first six months of 2023, we did the following:

a) sold seven Australian properties as part of the Australia Transaction resulting in proceeds of A$730 million and used such proceeds to pay down our Australian term loan;

b) received $389 million of loan principal proceeds, including approximately $200 million from the Lifepoint Transaction, $100 million from Steward after the completion of their sale of Utah properties to CHIC, and CHF 60 million from the payoff of a loan by Infracore; and

c) funded approximately $230 million of new investments, including $75 million to Prospect as part of its recapitalization plan that was implemented on May 23, 2023.

See Note 3 to the condensed consolidated financial statements for further details on the transactions above.

Subsequent to quarter-end, we received $100 million from the sale of three properties to Prime. In addition, we agreed to participate in Steward's syndicated four-year asset-backed credit facility and funded approximately $140 million.

### 2022 Cash Flow Activity

During the first half of 2022, we generated approximately $344.0 million of cash flows from operating activities primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows along with cash on-hand to fund our dividends of $350.5 million. During the first six months of 2022, we received approximately $1.8 billion of proceeds from disposals (including the Macquarie Transaction as described in Note 3 to the condensed consolidated financial statements). We used these proceeds, along with additional advances from our revolver, to pay off our interim credit facility, fund $0.8 billion of new acquisitions, and make other investments. We exercised the $500 million accordion feature to our revolving credit facility during the first six months of 2022 and extended the term on both the revolver and term loan portions of our Credit Facility - see Note 4 to the condensed consolidated financial statements for additional details.

#### Short-term Liquidity Requirements:

Our short-term liquidity requirements typically consist of general and administrative expenses, dividends in order to comply with REIT requirements, interest payments on our debt, and planned funding commitments on development and capital improvement projects, for which we receive a return in the form of additional rent once completed. Our monthly rent and interest receipts and distributions from our joint venture arrangements are typically enough to cover our short-term liquidity requirements.

However, with increasing interest rates, loss of cash rent from Prospect for the time being, a bond maturing in December 2023 of approximately $500 million, and a term loan maturing in May 2024 of approximately $315 million, we have looked to other initiatives to improve cash flows including:

- completing the sale of the four remaining Australian properties that will generate proceeds of approximately $315 million, which is currently expected to close by early fourth quarter of 2023,
- completing the binding sale of three Connecticut facilities to Yale New Haven that is expected to generate $355 million and close before the end of 2023, and
- implementing a REIT tax structure in the United Kingdom that we expect will result in $2 million of quarterly tax savings.

With these initiatives, liquidity of approximately $0.8 billion (including cash on-hand and availability under our revolving credit facility) at August 4, 2023, and routine cash receipts of rent and interest, we believe we can fund our short-term liquidity requirements.

*Long-term Liquidity Requirements:*

Our long-term liquidity requirements generally consist of the same requirements described above under “Short-term Liquidity Requirements” along with the acquisition of real estate and the funding of debt maturities. At this time, we do not expect any material acquisitions of real estate in the foreseeable future; however, see below for our debt that is coming due over the next five years.

As described previously, our monthly rent and interest receipts and distributions from our joint venture arrangements along with our current liquidity of approximately $0.8 billion at August 4, 2023, are typically enough to cover our short-term liquidity requirements. However, to address upcoming debt maturities or to make any new strategic investments, we may need to look to other sources, which may include one or a combination of the following:

- strategic property sales or joint ventures, including current binding commitments to sell four remaining Australian properties that will generate proceeds of approximately $315 million and three Connecticut facilities that is expected to generate $355 million,
- monetizing our investment in operators, including our investment in PHP Holdings,
- dividends, while still complying with REIT requirements,
- sale of equity securities,
- extending the maturity of existing term loans,
- entering into new bank term loans or issuing new USD, EUR, or GBP denominated debt securities, and
- entering into new secured loans on real estate.

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

Principal payments due on our debt (which exclude the effects of any discounts, premiums, or debt issue costs recorded) as of August 4, 2023 are as follows (in thousands):

|  |  |
| --- | ---: |
| 2023 | $509,960 |
| 2024 | 442,463 |
| 2025 | 1,442,730 |
| 2026 | 3,164,399 |
| 2027 | 1,600,000 |
| Thereafter | 3,411,155 |
| Total | $10,570,707 |

### Contractual Commitments

We presented our contractual commitments in our 2022 Annual Report on Form 10-K. Except for changes noted below, there have been no significant changes through August 4, 2023. Excluded from this table is $50 million of unused loan to Prospect as part of the Prospect Transaction discussed in Note 3 to the condensed consolidated financial statements.

The following table updates our contractual commitments schedule for these updates as of August 4, 2023 (in thousands):

| Contractual Commitments | 2023(1) | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Purchase obligations | $159,529 | $235,837 | $27,946 | $— | $— | $— | $423,312 |
| Revolving credit facility | 40,816 | 99,959 | 99,959 | 1,526,350 | — | — | 1,767,084 |
| Australian term loan facility | 3,592 | 312,262 | — | — | — | — | 315,854 |

(1) This column represents obligations post August 4, 2023.

### Distribution Policy

The table below is a summary of our distributions declared during the two year period ended June 30, 2023:

| Declaration Date | Record Date | Date of Distribution | Distribution per Share |
| --- | --- | --- | ---: |
| April 27, 2023 | June 15, 2023 | July 13, 2023 | $0.29 |
| February 16, 2023 | March 16, 2023 | April 13, 2023 | $0.29 |
| November 10, 2022 | December 8, 2022 | January 12, 2023 | $0.29 |
| August 18, 2022 | September 15, 2022 | October 13, 2022 | $0.29 |
| May 26, 2022 | June 16, 2022 | July 14, 2022 | $0.29 |
| February 17, 2022 | March 17, 2022 | April 14, 2022 | $0.29 |
| November 11, 2021 | December 9, 2021 | January 13, 2022 | $0.28 |
| August 19, 2021 | September 16, 2021 | October 14, 2021 | $0.28 |

It is our policy to make sufficient cash distributions to stockholders in order for us to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended, and to efficiently manage corporate income and excise taxes on undistributed income. However, our Credit Facility limits the amount of dividends we can pay- see Note 4 to the condensed consolidated financial statements for further information.

## Market risk

As filed, 5,397 characters.

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

In addition, the value of our facilities will be subject to fluctuations based on changes in local and regional economic conditions and changes in the ability of our tenants to generate profits.

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

### Interest Rate Sensitivity

For fixed rate debt, interest rate changes affect the fair market value but do not impact net income to common stockholders or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact net income to common stockholders and cash flows, assuming other factors are held constant. At June 30, 2023, our outstanding debt totaled $10.2 billion, which consisted of fixed-rate debt of approximately $8.8 billion (after considering interest rate swaps in-place) and variable rate debt of $1.4 billion. If market interest rates increase by 10%, the fair value of our debt at June 30, 2023 would decrease by approximately $221.4 million. Changes in the fair value of our fixed rate debt will not have any impact on us unless we decided to repurchase the debt in the open market.

If market rates of interest on our variable rate debt increase by 10%, the increase in annual interest expense on our variable rate debt would decrease future earnings and cash flows by $8.9 million per year. If market rates of interest on our variable rate debt decrease by 10%, the decrease in interest expense on our variable rate debt would increase future earnings and cash flows by $8.9 million per year. This assumes that the average amount outstanding under our variable rate debt for a year is $1.4 billion, the balance of such variable rate debt at June 30, 2023.

### Foreign Currency Sensitivity

With our investments in the United Kingdom, Germany, Spain, Italy, Portugal, Switzerland, Finland, Australia, and Colombia, we are subject to fluctuations in the British pound, euro, Swiss franc, Australian dollar, and Colombian peso to U.S. dollar currency exchange rates. Although we generally deem investments in these countries to be of a long-term nature (other than Australia as previously discussed in Note 3 to the condensed consolidated financial statements), are typically able to match any non-U.S. dollar borrowings with investments in such currencies, and historically have not needed to repatriate a material amount of earnings back to the U.S., increases or decreases in the value of the respective non-U.S. dollar currencies to U.S. dollar exchange rates may impact our financial condition and/or our results of operations. Based solely on our 2023 operating results to-date and on an annualized basis, a 10% change to the following exchange rates would have impacted our net income, FFO, and Normalized FFO by the amounts below (in thousands):

|  | Net Income Impact(1) | FFO Impact(1) | NFFO Impact |
| --- | ---: | ---: | ---: |
| British pound (£) | $9,919 | $19,250 | $19,250 |
| Euro (€) | 2,186 | 6,601 | 6,605 |
| Swiss franc (CHF) | 2,681 | 5,050 | 4,051 |
| Colombian peso (COP) | 1,368 | 1,435 | 1,435 |

(1) Excludes the approximate $158 million one-time tax benefit in the second quarter of 2023 as a result of entering the United Kingdom REIT regime on July 1, 2023 (as discussed in further detail in Note 5 to the condensed consolidated financial statements).

We have excluded the foreign currency sensitivity around Australian dollars in the table above due to the Australia Transaction as described in Note 3 to the condensed consolidated financial statements.

## Controls and procedures

As filed, 2,031 characters.

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

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

As required by Rule 13a-15(b), under the Securities Exchange Act of 1934, as amended, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

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

## Risk factors

As filed, 140 characters.

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, 2022.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-040734. Last ingested by Listed: Oct 29, 2026, 08:19 ET. No prices; not investment advice.