MEDICAL PROPERTIES TRUST INC (MPT)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to “our,” “we,” and “us” in this management’s discussion and analysis of financial condition and results of operations refer to Medical Properties Trust, Inc. and its consolidated subsidiaries, including MPT Operating Partnership, L.P.

Overview

We are a self-advised healthcare REIT that was incorporated in Maryland on August 27, 2003, primarily for the purpose of investing in and owning healthcare facilities to be leased to healthcare operators under long-term net leases. We may also make mortgage loans to healthcare operators that are collateralized by the underlying real estate. We conduct our business operations in one segment. We currently have healthcare investments in the U.S., Europe, and South America. Our existing tenants are, and our prospective tenants will generally be, healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations. We offer financing to these operators through 100% lease and mortgage financing and generally seek lease and loan terms on a long-term basis (typically at least 15 years) with a series of shorter renewal terms, generally in five year increments, at the option of our tenants and borrowers. We also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases. Our existing portfolio’s minimum escalators are typically 2.0%. In addition, most of our leases and loans include rate increases based on the general rate of inflation (based on CPI or similar indices) if greater than the minimum contractual increases. Beyond rent or mortgage interest, our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility. Finally, from time-to-time, we may make noncontrolling investments in our tenants, typically 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.

We may make other loans to certain of our operators through our TRSs, which the operators use for working capital. Although it represents less than 1% of our total assets at December 31, 2024, we consider our lending business an important element of our overall business strategy for two primary reasons: (1) it provides opportunities to make income-earning investments that could yield attractive risk-adjusted returns in an industry in which our management has expertise, and (2) by making debt capital available to certain qualified operators, we believe we create a competitive advantage for our company over other buyers of, and financing sources for, healthcare facilities.

At December 31, 2024, our portfolio (including real estate assets in joint ventures) consisted of 396 properties, of which 388 properties are leased or loaned to 53 operators, including facilities under development or in the form of mortgage loans.

The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024.

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Selected Financial Data

The following sets forth selected consolidated financial and operating data. You should read the following selected financial data in conjunction with the consolidated financial statements and notes thereto of each of Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. and their respective subsidiaries included in Item 8 of this Annual Report on Form 10-K.

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(1)
See section titled “Non-GAAP Financial Measures” for an explanation of why these non-GAAP financial measures are useful along with a reconciliation to our GAAP earnings.

2024 Highlights

In 2024, our focus was on improving our liquidity position, managing our near-term debt maturities, and securing as much value as possible while exiting our relationship with Steward. In regard to improving liquidity, we set a target to generate $2 billion of liquidity in 2024, which we surpassed by approximately $800 million through a combination of real estate asset sales (discussed below) that resulted in approximately $500 million of gains on sale and closing on a new secured loan facility with a 10-year term for approximately £631 million (approximately $800 million). In addition, we reduced our dividend from $0.15 per share to $0.08 per share for the last two quarters of the year, which resulted in cash savings of approximately $40 million per quarter. With these liquidity proceeds in 2024 and those from our private offering of notes (discussed below) shortly after year-end, along with our ability to extend our revolving credit facility for an additional year (subject to certain conditions), we have successfully cleared all debt maturities through June 30, 2027, other than one issue of unsecured notes of €500 million due in October 2026. In regard to Steward, the bankruptcy court approved a global settlement in September 2024 between Steward, its lenders, the unsecured creditors committee, and us. The settlement is more fully described in "Significant Tenants"; however, in summary, the settlement effectively ended our relationship with Steward and allowed us to regain control of 23 of our properties and begin the process of re-tenanting the properties as discussed below.

See below for more detail on our 2024 activities:

•
Disposal transactions:

(1)
Generated approximately $130 million from the sale of our interest in the Priory syndicated term loan and remaining minority interest in Lifepoint Behavioral in the 2024 first quarter;

(2)
Sold five properties in April 2024 to Prime Healthcare Services, Inc. ("Prime") for $350 million, including a $100 million interest-bearing mortgage loan that was subsequently fully paid in August 2024, realizing a gain on sale of approximately $53 million;

(3)
Sold our controlling interest in five Utah hospitals in April 2024 for an aggregate agreed valuation of approximately $1.2 billion to a newly formed joint venture with an institutional asset manager. We recognized a gain on sale of the real estate of approximately $380 million and retained an approximately 25% interest in the partnership valued initially at approximately $108 million. In conjunction with this transaction closing, the joint venture placed new non-recourse secured financing on the properties, providing $190 million of additional cash to us. In total, we received approximately $1.1 billion of cash proceeds from this transaction;

(4)
Completed the sale of eight properties to Dignity Health in July 2024 for approximately $160 million, realizing a gain on sale of $85 million;

(5)
Completed the sale of 11 properties to UCHealth in August 2024 for approximately $86 million, realizing a gain on sale of $40 million;

(6)
Completed the sale of Watsonville Community Hospital in Watsonville, California in October 2024 for proceeds of approximately $40 million, and two freestanding emergency department facilities in Texas for approximately $5 million. In addition, we received approximately $47 million in October 2024 from proceeds generated by the sale of three Space Coast properties as previously described in “Significant Tenants”; and

(7)
Completed several small transactions that resulted in approximately $9 million in net proceeds.

•
Additional financing transactions:

(1)
Paid off the remaining A$470 million (approximately $306 million) Australian term loan facility in April 2024;

(2)
Funded and early discharged our British pound sterling secured term loan of approximately £105 million that was due in December 2024; and

(3)
Amended our credit facility in April and August 2024 which (i) reduced revolving commitments thereunder from $1.8 billion to $1.28 billion, (ii) modified certain covenants; (iii) required proceeds from asset sales and debt transactions be used to repay certain loans outstanding; (iv) increased borrowing spreads from 225 basis points to

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300 basis points; and (v) limited the payment of dividends in cash to $0.08 per share in any fiscal quarter – see Note 4 to Item 8 of this Annual Report on Form 10-K for more information regarding these amendments.

•
Tenant and property activity:

(1)
Incurred approximately $2.4 billion of impairment charges and negative fair value adjustments in 2024 primarily related to Steward and Prospect as more fully described in Note 3 to Item 8 of this Annual Report on Form 10-K;

(2)
Re-leased 18 of the former 23 Steward operated facilities to six operators including Honor Health, Quorum Health, HSA, Insight Health, College Health, and Tenor Health (effective January 2025);

(3)
Recovered from our casualty insurers cash in excess of our recovery receivable related to the 2020 storm losses at our Norwood redevelopment;

(4)
Completed a building improvement project on an existing general acute care facility in Idaho Falls, Idaho in October 2024 for a total amount of approximately $50 million and commenced collection of rent; and

(5)
Entered into a new forbearance and restructuring agreement in December 2024 with a former tenant that represented approximately 1% of our total assets and received $10 million at the signing of this agreement for unpaid rent.

•
Selected as one of Newsweek’s Most Responsible Companies in 2024.

Subsequent to December 31, 2024, the following activities took place:

•
Repaid the remaining outstanding balance of the British pound sterling term loan due 2025 at maturity in January 2025 of £493 million, with a combination of cash on hand and available capacity under our revolving Credit Facility;

•
Due to its ongoing operational and liquidity challenges, Prospect filed for Chapter 11 bankruptcy in January 2025 with the United States Bankruptcy Court for the Northern District of Texas;

•
Sold two properties in January 2025 for approximately $20 million; and

•
Completed a private notes offering of $1.5 billion in aggregate principal amount of senior secured notes due 2032 and €1.0 billion aggregate principal amount of senior secured notes due 2032, proceeds of which were used to fund the redemption in full of our 3.325% senior notes due 2025, 2.500% senior notes due 2026, and 5.250% senior notes due 2026, including related accrued interest, fees and expenses. Remaining proceeds were used to paydown our revolving credit facility, resulting in approximately $1.2 billion of availability at February 28, 2025. Concurrent with the notes offering, we amended our credit facility which, among other things, (i) modified certain financial covenants and eliminated others including the minimum consolidated tangible net worth covenant; (ii) lowered borrowing spreads from 300 basis points to 225 basis points; (iii) removed the limitation on the payment of dividends in cash of $0.08 per share in any fiscal quarter; and (iv) provided for the Credit Facility to be secured and guaranteed ratably with the newly issued secured notes – see Note 4 to Item 8 of this Annual Report on Form 10-K for more information regarding this amendment.

2023 Highlights

In 2023, economic uncertainty, high interest rates, and inflationary pressures affected our business (and that of some of our tenants) and caused us to look at several initiatives to improve cash flows, reduce costs, and secure the value of our non-performing assets. In 2023, we completed strategic property sales, highlighted by the sale of our 11 Australia properties for A$1.2 billion. We used the proceeds from this sale to partially paydown our A$1.2 billion Australian term loan as well as our revolving credit facility. In regard to cost reduction, we implemented a REIT tax structure in the U.K. in the second quarter of 2023 that provides quarterly income tax savings. In addition, we reduced our dividend from $0.29 per share per quarter to $0.15 starting with our dividend declared in the 2023 third quarter, which equates to annual cash savings of approximately $330 million.

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A summary of additional 2023 activity is as follows:

•
Recorded approximately $700 million in various charges related to our investments in Steward and moved to the cash basis of accounting at December 31, 2023;

•
Agreed to a restructuring of our investments in Prospect, that included a new investment in PHP Holdings (see Note 3 to Item 8 of this Annual Report on Form 10-K for more information on this transaction);

•
Reserved approximately $95 million of billed rent/interest receivables and straight-line rent receivables associated with two other domestic tenants and a loan to our international joint venture and began applying cash basis accounting on these investments;

•
Received approximately $205 million from Lifepoint to pay off our initial acquisition loan, plus accrued interest, as part of their acquisition of a majority ownership interest in Springstone (now Lifepoint Behavioral);

•
Sold three facilities to Prime for approximately $100 million;

•
Catholic Health Initiatives Colorado ("CHIC") acquired the Utah hospital operations of five general acute care facilities previously operated by Steward, and we received $100 million from Steward as a result of this transaction (see Note 3 to Item 8 of this Annual Report on Form 10-K for further details);

•
Received CHF 60 million from the payoff of a loan by Infracore;

•
Paid off our £400 million 2.550% Senior Unsecured Notes due 2023 (of which £50 million was purchased before the maturity date at a discounted price);

•
Acquired three inpatient rehabilitation facilities for a total of €70 million that are leased to MEDIAN and five behavioral health hospitals for £44 million that are leased to Priory;

•
Completed two developments for approximately $70 million that are leased to Ernest Health, Inc. (“Ernest”); and

•
Selected as one of Modern Healthcare's Best Places to Work in healthcare in 2023, for the third consecutive year.

Critical Accounting Estimates

In order to prepare financial statements in conformity with GAAP in the U.S., we must make estimates about certain types of transactions and account balances. We believe that our estimates of the amount and timing of credit losses, fair value adjustments (either as part of a purchase price allocation, recurring accounting for those investments that we have selected under the fair value option method, or impairment analyses), and periodic depreciation of our real estate assets, along with our assessment as to whether investments we make in certain businesses/entities should be consolidated with our results, have significant effects on our financial statements. Each of these items involves estimates that require us to make subjective judgments. We rely on our experience, collect historical and current market data, and develop relevant assumptions to arrive at what we believe to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to the critical accounting policies described below. In addition, application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties and, as a result, actual results could materially differ from these estimates. See Note 2 to Item 8 of this Annual Report on Form 10-K for more information regarding our accounting policies and recent accounting developments. Our accounting estimates include the following:

Credit Losses:

Losses from Rent Receivables: For our leases, we review tenant provided financial data and monitor the performance of our tenants in areas generally consisting of: admission levels and surgery/procedure volumes by type; current operating margins; ratio of our tenant's operating margins both to facility rent and to facility rent plus other fixed costs; trends in revenue, cash collections, patient mix; and the effect of evolving healthcare regulations, adverse economic and political conditions, such as rising inflation and interest rates, and other events ongoing on a tenant's profitability and liquidity.

Losses from Operating Lease Receivables: We utilize the information above along with the tenant's payment and default history in evaluating (on a property-by-property basis) whether or not a provision for losses on outstanding billed rent and/or straight-line rent receivables is needed. A provision for losses on rent receivables (including straight-line rent receivables) is ultimately recorded when it becomes probable that the receivable will not be collected in full. The provision is an amount which reduces the receivable to its estimated net realizable value based on a determination of the eventual amounts to be collected either from the debtor or from existing collateral, if any.

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Losses on Financing Lease Receivables: We apply a forward-looking “expected credit loss” model to all of our financing receivables, including financing leases and loans. To do this, we group our financial instruments into two primary pools of similar credit risk: secured and unsecured. The secured instruments include our investments in financing receivables as all are secured by the underlying real estate, among other collateral. Within the two primary pools, we further group our instruments into sub-pools based on several tenant/borrower characteristics, including years of experience in the healthcare industry and in a particular market or region and overall capitalization. We then determine a credit loss percentage per pool based on our history over a period of time that closely matches the remaining terms of the financial instruments being analyzed and adjust as needed for current trends or unusual circumstances. We apply these credit loss percentages to the book value of the related instruments to establish a credit loss reserve on our financing lease receivables and such credit loss reserve (including the underlying assumptions) is reviewed and adjusted quarterly. If a financing receivable is underperforming and is deemed uncollectible based on the lessee’s overall financial condition, we will adjust the credit loss reserve based on the fair value of the underlying collateral.

We exclude interest receivables from the credit loss reserve model. Instead, such receivables are impaired and an allowance recorded when it is deemed probable that we will be unable to collect all amounts due. Like operating lease receivables, the need for an allowance is based upon our assessment of the lessee’s overall financial condition, economic resources and payment record, the prospects for support from any financially responsible guarantors, and, if appropriate, the realizable value of any collateral. Financing leases are placed on non-accrual status when we determine that the collectability of contractual amounts is not reasonably assured. If on non-accrual status, we generally account for the financing lease on a cash basis, in which income is recognized only upon receipt of cash.

Loans: Loans consist of mortgage loans, working capital loans, and other loans. Mortgage loans are collateralized by interests in real property. Working capital and other loans are generally collateralized by interests in receivables and corporate and individual guarantees. We record loans at cost. Like our financing lease receivables, we establish credit loss reserves on all outstanding loans based on historical credit losses of similar instruments. Such credit loss reserves, including the underlying assumptions, are reviewed and adjusted quarterly. If a loan’s performance worsens and foreclosure is deemed probable for our collateral-based loans (after considering the borrower’s overall financial condition as described above for leases), we will adjust the allowance for expected credit losses based on the current fair value of such collateral at the time the loan is deemed uncollectible. If the loan is not collateralized, the loan will be reserved for/written-off once it is determined that such loan is no longer collectible. Interest receivables on loans are excluded from the forward-looking credit loss reserve model; however, we assess their collectability similar to how we assess collectability for interest receivables on financing leases described above.

Investments in Real Estate: We maintain our investments in real estate at cost, and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset. While our tenants are generally responsible for all operating costs at a facility, in the event we incur costs of repairs and maintenance, we expense those costs as incurred. We compute depreciation using the straight-line method over the weighted-average useful life of approximately 38.6 years for buildings and improvements.

When circumstances indicate a possible impairment of the value of our real estate investments, we review the recoverability of the facility’s carrying value. The review of the recoverability is generally based on our estimate of the future undiscounted cash flows from the facility’s use and eventual disposition. Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends, and residual value, as well as the effects of leasing demand, competition, and other factors. If impairment exists due to the inability to recover the carrying value of a facility on an undiscounted basis, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the facility. In making estimates of fair value for purposes of impairment assessments, we will look to a number of sources including independent appraisals, available broker data, or our internal data from recent transactions involving similar properties in similar markets. Given the highly specialized aspects of our properties, no assurance can be given that future impairment charges will not be taken.

Acquired Real Estate Purchase Price Allocation: For properties acquired for operating leasing purposes, we currently account for such acquisitions based on asset acquisition accounting rules. Under this accounting method, we allocate the purchase price of acquired properties to net tangible and identified intangible assets acquired based on their relative fair values. In making estimates of fair value for purposes of allocating purchase prices of acquired real estate, we may utilize a number of sources, including available real estate broker data, independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, internal data from previous acquisitions or developments, and other market data, including market comparables for significant assumptions such as market rental, capitalization, and discount rates. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

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We record above-market and below-market in-place lease values, if any, for the facilities we own which are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any resulting capitalized above-market lease values as a reduction of rental income over the lease term. We amortize any resulting capitalized below-market lease values as an increase to rental income over the lease term. Because our strategy to a large degree involves the origination and acquisition of long-term lease arrangements at market rates with independent parties, we do not expect the above-market or below-market in-place lease values to be significant for many of our transactions.

We measure the aggregate value of other lease intangible assets to be acquired based on the difference between (i) the property valued with new or in-place leases adjusted to market rental rates and (ii) the property valued as if vacant when acquired. Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market conditions, and costs to execute similar leases. We also consider information obtained about each targeted facility as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the intangible assets acquired. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which we expect to be about six months (based on experience) but can be longer depending on specific local market conditions. Management also estimates costs to execute similar leases including leasing commissions, legal costs, and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination.

Other intangible assets acquired may include customer relationship intangible values, which are based on management’s evaluation of the specific characteristics of each prospective tenant’s lease and our overall relationship with that tenant. Characteristics to be considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality, and expectations of lease renewals, including those existing under the terms of the lease agreement, among other factors. At December 31, 2024, we have not assigned any value to customer relationship intangibles.

We amortize the value of lease intangibles to expense over the term of the respective leases, which have a weighted-average useful life of 28.3 years at December 31, 2024. If a lease is terminated early, the unamortized portion of the lease intangible is charged to expense, as was the case in 2023 with the re-leasing of the Utah properties to CommonSpirit as more fully described in Note 3 to Item 8 of this Annual Report on Form 10-K.

Investments in Unconsolidated Entities: Investments in entities in which we have the ability to significantly influence (but not control) are accounted for by the equity method. This includes the five investments in unconsolidated real estate joint ventures at December 31, 2024. Under the equity method of accounting, our share of the investee’s earnings or losses are included in the “Earnings from equity interests” line of our consolidated statements of net income. Except for our joint venture with Primotop (for which we handle the accounting of), we have elected to record our share of such investee’s earnings or losses on a lag basis (not to exceed three months). The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the interest in the investee entity. Subsequently, our investments are increased/decreased by our share in the investees’ earnings/losses and decreased by cash distributions from our investees. To the extent that our cost basis is different from the basis reflected at the investee entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the investee.

We evaluate our equity method investments for impairment based upon a comparison of the fair value of the equity method investment to its carrying value, when impairment indicators exist. If we determine a decline in the fair value of an investment in an unconsolidated investee entity below its carrying value is other-than-temporary, an impairment is recorded.

Investments in entities in which we do not control nor do we have the ability to significantly influence and for which there is no readily determinable fair value are accounted for at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions involving the investee. Cash distributions on these types of investments are recorded to either income upon receipt (if a return on investment) or as a reduction of our investment (if the distributions received are in excess of our share of the investee’s earnings). For similar investments but for which there are readily determinable fair values, such investments are measured at fair value, with unrealized gains and losses recorded in income.

Fair Value Option Election: We elected to account for certain investments using the fair value option method, which means we mark these investments to fair market value on a recurring basis. At December 31, 2024, the amount of investments recorded using the fair value option were approximately $266 million made up of loans and equity investments (see Note 10 to Item 8 of this Annual Report on Form 10-K for additional details). Our loans are recorded at fair value based on Level 2 or Level 3 inputs by discounting the

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estimated cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities.

For our equity investment in the international joint venture and our investment in PHP Holdings at December 31, 2024, fair value is determined based on Level 3 inputs, by using a market approach (for our equity investment in the international joint venture) and a market approach based on the agreed upon price in the pending transaction (for our investment in PHP Holdings), which requires significant estimates of our investee such as projected revenue, expenses, and working capital and appropriate consideration of the underlying risk profile of the forecasted assumptions associated with the investee. We classify our valuations of these investments as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuations require management judgment due to the absence of quoted market prices. For the market approach used for our investment in PHP Holdings, our unobservable inputs include purchase price adjustments related to expected balance sheet measures at the time of the transaction close, and an adjustment for a marketability discount (“DLOM”). In regard to the underlying projections used in the discounted cash flow model, such projections are provided by the investees. However, we may modify such projections as needed based on our review and analysis of historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry. The DLOM on our investment in PHP Holdings was approximately 14.2% at December 31, 2024. In arriving at the DLOM, we 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. See Note 10 to Item 8 of this Annual Report on Form 10-K for additional details.

Principles of Consolidation: Property holding entities and other subsidiaries of which we own 100% of the equity or have a controlling financial interest evidenced by ownership of a majority voting interest are consolidated. All inter-company balances and transactions are eliminated. For entities in which we own less than 100% of the equity interest, we consolidate the property if we have the direct or indirect ability to control the entity’s activities based upon the terms of the respective entity's ownership agreements. For these entities, we record a non-controlling interest representing equity held by non-controlling interests.

We continually evaluate all of our transactions and investments to determine if they represent variable interests in a variable interest entity. If we determine that we have a variable interest in a variable interest entity, we then evaluate if we are the primary beneficiary of the variable interest entity. The evaluation is a qualitative assessment as to whether we have the ability to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. We consolidate each variable interest entity in which we, by virtue of or transactions with our investments in the entity, are considered to be the primary beneficiary. At December 31, 2024 and 2023, we determined that we were not the primary beneficiary of any variable interest entity in which we hold a variable interest because we do not control the activities (such as the day-to-day operations) that most significantly impact the economic performance of these entities.

Liquidity and Capital Resources

Our typical sources of cash include our monthly rent and interest receipts, distributions from our real estate joint ventures, borrowings under our revolving credit facility, public and private issuances of debt, public issuances of our equity securities, and proceeds from bank debt, asset dispositions (either one-off or group asset sales through joint venture transactions), and principal payments on loans. Our primary uses of cash include dividend distributions, debt service (including principal and interest), new investments (including acquisitions, developments, or capital improvement projects), loan advances, property expenses, and general and administrative expenses.

Absent our requirements to make distributions to maintain our REIT qualification (as described earlier and further described in Note 5 within Item 8 of this Annual Report on Form 10-K) and our current contractual commitments discussed later in this section, we do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

See below for highlights of our sources and uses of cash for the past two years:

2024 Cash Flow Activity

We generated cash of approximately $245 million from operating activities during 2024, primarily consisting of rent and interest from mortgage and other loans and distributions from our real estate joint ventures. In addition to operating cash flows, we generated approximately $1.85 billion from the Utah Transaction and the sale of about 30 properties (as further discussed in Note 3 to Item 8 of this Annual Report on Form 10-K), along with approximately $130 million from the sale of our interest in the syndicated Priory term loan and remaining minority interest in Lifepoint Behavioral. In May 2024, we closed on a new secured term loan, generating proceeds of approximately $800 million. We used our operating cash flows, asset sale proceeds, and term loan proceeds to fund our investment activities and our dividends of $321 million, pay down over $1 billion of our revolving credit facility and £207 million (or $266 million) on our British pound sterling term loan due 2025, and to pay off both our Australian term loan facility of A$470 million (or $306 million) and our British pound sterling secured term loan due 2024 of £105 million (or $134 million).

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See below for further details of these transactions along with additional liquidity activity in 2024:

a)
we completed the sales of 11 properties to UCHealth for approximately $86 million of proceeds and eight properties to Dignity Health for approximately $160 million of proceeds;

b)
we completed the sale of five properties to Prime for cash proceeds of $250 million along with a $100 million interest-bearing mortgage loan that was fully repaid on August 29, 2024;

c)
we completed the Utah Transaction (as discussed in Note 3 to Item 8 of this Annual Report on Form 10-K) that generated cash proceeds of approximately $1.1 billion. With the proceeds from these asset sales, we paid off and terminated our $306 million Australian term loan facility that was due in May 2024 and paid down a portion of our revolving credit facility;

d)
on May 24, 2024, we closed on a secured loan facility with a consortium of institutional investors for an aggregate principal amount of approximately £631 million (approximately $800 million) secured by a portfolio of 27 properties located in the U.K. currently leased to affiliates of Circle. See Note 4 to Item 8 of this Annual Report on Form 10-K for further details. We used the majority of the net proceeds of the facility to pay down portions of our revolving credit facility and British pound sterling term loan due 2025, and to pay off our British pound sterling secured term loan due 2024;

e)
received cash related to our Norwood property that exceeded our recovery receivables (as discussed in Note 3 to Item 8 of this Annual Report on Form 10-K);

f)
completed the sale of Watsonville Community Hospital in Watsonville, California in October 2024 for proceeds of approximately $40 million, and two freestanding emergency department facilities in Texas for approximately $5 million. In addition, we received approximately $47 million in October 2024 from proceeds generated by the sale of three Space Coast properties as previously described in “Significant Tenants”;

g)
reduced our dividend from $0.15 per share to $0.08 per share for the last two quarters of the year, which resulted in cash savings of approximately $40 million per quarter;

h)
reduced revolving commitments under our revolving credit facility from $1.8 billion to $1.28 billion as part of a series of amendments more fully described below under “Debt Amendments, Restrictions, and Covenant Compliance”;

i)
on November 8, 2024, Astrana Health entered into a binding agreement to purchase the majority of PHP Holdings for approximately $745 million and the assumption of certain liabilities. After satisfaction of certain obligations, we expect to receive approximately $150 million in total proceeds. We expect to receive the majority of these proceeds in the first half of 2025, with the remainder by 2027; and

j)
primarily as a result of our Quarterly Report on Form 10-Q for the period ended March 31, 2024, not being filed timely, we are currently ineligible to file a new short-form registration statement on Form S-3 for sales of securities, including under an ATM program, until June 1, 2025, which may impair our ability to raise capital in the public markets. While we are able to use other registration avenues for offerings (such as the private notes offering we completed in early 2025 as discussed below), such avenues are less expeditious and efficient than a shelf registration statement on Form S-3.

Subsequent to December 31, 2024, we repaid the remaining outstanding balance of the British pound sterling term loan due 2025 of £493 million, with a combination of cash on hand and available capacity under our revolving credit facility. In addition, we completed a private offering of $1.5 billion in aggregate principal amount of senior secured notes due 2032 and €1.0 billion aggregate principal amount of senior secured notes due 2032. The net proceeds from the offering were approximately $2.5 billion after deducting discounts, commissions, and other offering related expenses. See Note 14 to Item 8 of this Annual Report on Form 10-K for additional details. We used the net proceeds from the offering to fund the redemption of our 3.325% Senior Unsecured Notes due 2025, 2.500% Senior Unsecured Notes due 2026, and 5.250% Senior Unsecured Notes due 2026, with the remainder of net proceeds used to paydown our revolving credit facility by approximately $800 million.

2023 Cash Flow Activity

We generated cash of approximately $506 million from operating activities during 2023, primarily consisting of rent and interest from mortgage and other loans and distributions from our real estate joint ventures. We used these operating cash flows (along with cash on-hand and borrowings on our revolving credit facility) to fund our dividends of $615 million.

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

a)
sold all 11 Australian properties ("Australia Transaction") resulting in proceeds of A$1.2 billion and used such proceeds to pay down our Australian term loan by A$730 million, with the remaining proceeds used to pay down our revolving credit facility;

b)
sold three properties to Prime resulting in proceeds of $100 million;

c)
received approximately $500 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, CHF 60 million from the payoff of a loan by Infracore, and approximately $100 million from the sale of our interest in Steward's asset-backed credit facility to a third-party;

d)
funded approximately $290 million of new investments, including $125 million to Prospect as part of its recapitalization plan that was implemented on May 23, 2023;

e)
funded approximately $195 million to Steward, including our participation in its syndicated four-year asset-backed credit facility and loans for general working capital purposes;

f)
paid off our £400 million 2.550% Senior Unsecured Notes due 2023 (of which we purchased approximately £50 million before the maturity date at a discount); and

g)
reduced our quarterly dividend per share from $0.29 to $0.15 in the 2023 third quarter, which provided for annual cash savings of approximately $330 million based on shares outstanding at the time.

Debt Amendments, Restrictions, and Covenant Compliance

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 limits the amount of dividends we can pay to 95% of NAFFO, as defined in the agreements, on a rolling four quarter basis. The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95% of funds from operations, proceeds of equity issuances, and certain other net cash proceeds. Finally, our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150% of our unsecured indebtedness.

In addition to these restrictions, the Credit Facility contains customary financial and operating covenants, along with 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.

On April 12, 2024, we amended the Credit Facility and certain other agreements to (i) reduce revolving commitments from $1.8 billion to $1.4 billion, (ii) apply certain proceeds from asset sales and debt transactions to repay the Australian term loan facility and certain other outstanding obligations, including revolving loans under the Credit Facility to the extent necessary to reduce the outstanding borrowings to no more than the amended $1.4 billion commitment, (iii) lower the maximum permitted secured leverage ratio from 40% to 25%, and (iv) waive the 10% cap on unencumbered asset value attributable to tenants subject to a bankruptcy event for purposes of determining compliance with the unsecured leverage ratio for the trailing four fiscal quarter period ended June 30, 2024, and for purposes of determining pro forma compliance with the unsecured leverage ratio for certain asset sale and debt transactions.

On August 6, 2024, we entered into an amendment to the Credit Facility and the British pound sterling term loan due 2025 to (i) further reduce our maximum borrowing in the Credit Facility from $1.4 billion to $1.28 billion, (ii) increase borrowing spreads to 300 basis points during the Modified Covenant Period (defined below) and then to 225 basis points after the Modified Covenant Period, and (iii) require that proceeds of certain future asset sales and debt transactions (during the Modified Covenant Period) be applied to repay certain outstanding obligations, including our revolving loans (by 15% of such proceeds but for which the revolving loans can be reborrowed) and our British pound sterling term loan due 2025 (by 50% of such proceeds).

The amendments also amended certain covenants including increasing the maximum total leverage ratio covenant from 60% to 65% and the maximum unsecured leverage ratio covenant from 65% to 70% and decreasing the minimum unsecured interest coverage ratio from 1.75:1.00 to 1.45:1.00. The amendments were effective as of June 30, 2024 and were to continue in effect through and including September 30, 2025 (the “Modified Covenant Period”) at which point the credit agreement provided that covenants would automatically reset to their prior levels. In addition, the amendments permanently reduced the minimum consolidated adjusted net worth covenant from approximately $6.7 billion to $5 billion, in each case plus the sum of certain equity proceeds. The amendments

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also limited the payment of dividends in cash during the Modified Covenant Period to $0.08 per share in any fiscal quarter, but the amendments did not provide any additional restrictions on the payment of dividends outside of the Modified Covenant Period.

On February 13, 2025 and concurrent with the closing of our private notes offering discussed previously, we further amended the Credit Facility and (i) removed the Modified Covenant Period and any restrictions related thereto from the existing Credit Facility, which restrictions included additional mandatory prepayments and a restriction on cash dividends to $0.08 per share per fiscal quarter, (ii) permanently removed financial covenants regarding minimum consolidated tangible net worth, maximum unsecured indebtedness to unencumbered asset value and minimum unsecured net operating income to unsecured interest expense, (iii) amended certain definitions used in the financial covenant regarding maximum total indebtedness to total asset value to conform to corresponding definitions in our existing unsecured indentures and the secured notes issued concurrently and set the covenant level at 60%, (iv) provided notice that we plan to exercise both of our maturity extension options such that the maturity of the revolving portion of our Credit Facility would move to June 30, 2027 (subject to the satisfaction of the other conditions), (v) reset the interest rate to SOFR plus 225 basis points, (vi) provided for the loans thereunder to be secured and guaranteed ratably with the newly issued secured notes, (vii) set the maximum secured leverage ratio at 40%, and (viii) added mandatory prepayments of senior debt or addition of additional collateral in connection with any failure to (x) maintain a 65% maximum ratio of secured first lien debt to the undepreciated real estate value of the secured pool properties or (y) maintain a minimum senior secured debt service coverage ratio of 1.15:1.00 (increasing to 1.30:1.00 in 12 months).

As of December 31, 2024, we are in compliance with all such financial and operating covenants, as amended.

Short-term Liquidity Requirements:

Our short-term liquidity requirements typically consist of general and administrative expenses, dividends in order to comply with REIT requirements, interest payments on our debt, and planned funding commitments on development and capital improvement projects for the next twelve months. Our monthly rent and interest receipts and distributions from our joint venture arrangements are typically enough to cover our short-term liquidity requirements.

As disclosed earlier, on February 13, 2025, we completed a private offering of $1.5 billion in aggregate principal amount of senior secured notes due 2032 and €1.0 billion aggregate principal amount of senior secured notes due 2032, resulting in total net proceeds of approximately $2.5 billion, after deducting discounts, commissions, and other offering related expenses. We used these net proceeds to fund the redemption in full of our 3.325% Senior Unsecured Notes due 2025, 2.500% Senior Unsecured Notes due 2026, and 5.250% Senior Unsecured Notes due 2026. We also used approximately $800 million of net proceeds from this offering to pay down our Credit Facility, leaving a remaining balance of $104 million at February 28, 2025.

After this offering and the subsequent payoffs of the notes mentioned above, we have no debt maturities coming due in the next twelve months. In addition, we have liquidity of $1.4 billion (including cash on hand and availability under our $1.28 billion revolving credit facility) at February 28, 2025. We believe this liquidity along with the expected cash receipts of rent and interest pursuant to our contractual agreements with our tenants/borrowers is sufficient to 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 coming due after the next twelve months. At this time, we do not expect any material acquisitions of real estate in the foreseeable future.

As described previously, our monthly rent and interest receipts and distributions from our joint venture arrangements along with our current liquidity of approximately $1.4 billion at February 28, 2025, are typically enough to cover our short-term liquidity requirements. However, to further improve cash flows and to fund future debt maturities, we may need to look to other sources, which may include one or a combination of the following:

•
further property sales or joint ventures;

•
monetizing our investments in operators, including our investment in PHP Holdings that is expected to close in the first half of 2025;

•
reducing our dividend (or moving to a stock dividend), while still complying with REIT requirements and credit facility covenants;

•
identifying and implementing cost reduction opportunities;

•
entering into new secured loans on real estate;

•
extending the maturity or refinancing our existing Credit Facility and other term loans;

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•
entering into new bank term loans or issuing new USD, EUR, or GBP denominated debt securities; and

•
sale of equity securities.

However, there is no assurance that conditions will be favorable for such possible transactions or that our plans will be successful. In addition, the Prospect bankruptcy related proceedings discussed previously may negatively impact the timing, value, and/or our ability to sell certain Prospect assets, such as the three Connecticut facilities and PHP Holdings.

As a result of our Quarterly Report on Form 10-Q for the period ended March 31, 2024, not being filed timely, we are currently ineligible to file a new shelf registration statement on Form S-3 for sales of securities, including under an ATM program, until June 1, 2025, which may impair our ability to raise capital in the public markets. While we are able to use other registration avenues for offerings, such avenues can be less expeditious and efficient than a shelf registration statement on Form S-3.

Contractual Commitments

The following table summarizes known material contractual commitments including debt service commitments (principal and interest payments) as of February 28, 2025 and includes the secured notes offering closed on February 13, 2025 and related use of funds discussed previously (amounts in thousands):

(1)
We used the exchange rates at February 28, 2025 in preparing this table. For any variable rate debt, we have assumed that the interest rate in effect at February 28, 2025 remains in effect through maturity.

(2)
No debt principal maturities until October 15, 2026 for €500 million.

(3)
As of February 28, 2025, we have a $1.28 billion revolving credit facility. This table assumes the balance outstanding under the revolver (which was $104 million as of February 28, 2025) remains in effect through maturity, which currently is June 30, 2026 but can be extended by one year at our election, which we noticed the lenders of our plan to extend as part of our February 13, 2025 Credit Facility amendment.

(4)
Much 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.

(5)
Includes approximately $40 million of future expenditures related to development projects and $76 million of future expenditures on committed capital improvement projects.

Results of Operations

Our operating results may vary significantly from year-to-year due to a variety of reasons including acquisitions made during the year, incremental revenues and expenses from acquisitions made in the prior year, revenues and expenses from completed development properties, property disposals, annual escalation provisions, interest rate changes, foreign currency exchange rate changes, new or amended debt agreements, issuances of shares through an equity offering, impact from accounting changes, lease terminations/re-tenanting, etc. Thus, our operating results for the current year are not necessarily indicative of the results that may be expected in future years.

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Net loss for the year ended December 31, 2024, was $(2.4) billion ($(4.02) per share) compared to net loss of $(556.5) million ($(0.93) per share) for the year ended December 31, 2023. The net loss for both years was primarily related to loss of rent along with

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impairment charges and negative fair value adjustments on our investments in Steward and Prospect. The additional net loss in 2024 is primarily driven by the approximate $2.2 billion of impairment charges and negative fair value adjustments in 2024 related to Steward, Prospect, and the international joint venture, compared to the more than $700 million of impairment charges on Steward investments in 2023, as further described in Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. In addition, we had an approximate $550 million unfavorable fair value adjustment to our investment in PHP Holdings in 2024 along with lower revenues from Steward and property sales. In 2023, we recognized a $161 million tax benefit related to entering the U.K. REIT regime (as more fully described in Note 5 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K), with no similar benefit in 2024. These changes were partially offset by approximately $479 million of gains on real estate sales in 2024 along with lower real estate depreciation due to these sales. Normalized FFO, after adjusting for certain items (as more fully described in the section titled “Non-GAAP Financial Measures” in this Item 7 of this Annual Report on Form 10-K), was $483 million for 2024, or $0.80 per share, as compared to $951 million, or $1.59 per share, for 2023. This 49% decrease in Normalized FFO is primarily due to lower revenues from Steward and from the various disposals in 2023 and 2024.

A comparison of revenues for the years ended December 31, 2024 and 2023 is as follows (dollar amounts in thousands):

Our total revenues for 2024 increased by $123.7 million or 14% over the prior year. This change is made up of the following:

•
Operating lease revenue (includes rent billed and straight-line rent) — up $207.7 million from the prior year. Compared to 2023, we realized $14 million of incremental operating lease revenue from acquisitions in 2023 and the completion of capital addition and development projects, including the commencement of rent on two development properties in 2024. With the re-leasing of former Steward properties post the global settlement in the 2024 third quarter, we recorded approximately $10 million of revenue in the year. In addition, our 2024 operating lease revenues were benefited by $22 million from increases in CPI above the contractual minimum escalations in our leases and $9 million from favorable foreign currency fluctuations.

However, with our strategy to improve our liquidity position and reduce near-term maturities, we did have significant property sales in 2023 and 2024. These disposals resulted in a loss of operating lease revenue in 2024 compared to 2023 of approximately $173 million.

Finally, our operating lease revenues were significantly impacted by Steward in both 2024 and 2023 as detailed below:

a)
with Steward’s sale of its Utah operations to CommonSpirit in May 2023, this effectively canceled the old lease with Steward resulting in approximately $95 million of write-offs of straight-line rent receivables in 2023;

b)
with Steward’s operational and liquidity challenges surfacing in late 2023, we moved to the cash basis of accounting in December 2023, which resulted in approximately $400 million of reserves against unpaid rent and straight-line rent receivables which more than offset the roughly $200 million of revenue previously recorded in 2023; and

c)
in 2024, we received approximately $40 million in cash rent and this was reflected as revenue in the year.

See Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for more details regarding the activity above.

•
Income from financing leases — down $63.5 million primarily due to receiving cash of approximately $25 million for rent revenue from Prospect (cash basis tenant) in 2024, whereas we recorded $82 million of rent for this tenant in 2023. In addition, financing lease income was lower by $7.5 million from the disposal of three Prime financing leases in the third quarter of 2023. These decreases were partially offset by approximately $1 million from the increase in CPI above the lease contractual minimum escalations.

•
Interest and other income — down $20.5 million from the prior year due to the following:

o
Interest from loans — down $4.9 million, primarily due to an approximate $16.9 million decrease from loan payoffs in 2024 and 2023 (including $12.8 million from the sale of our interest in the Priory syndicated term loan in the first quarter of 2024) and approximately $10.5 million more interest revenue in 2023 compared to the same period of 2024 as a result of the Prospect Transaction as described in Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K.

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These decreases are partially offset by approximately $16 million of net reserves recorded in 2023 related to interest receivables from Steward and our international joint venture (as the $81 million of write-offs in the 2023 fourth quarter exceeded the amount of revenue recorded in the year), approximately $4 million of interest income from the Prime mortgage loan we received as a result of the Prime disposal (as further described in Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K including the repayment on August 29, 2024), approximately $1 million of higher income from annual escalations due to increases in CPI, approximately $0.8 million from loans made to new operators of the former Steward facilities, and approximately $1 million of favorable foreign currency fluctuations.

o
Other income — down $15.6 million from the prior year as we had less direct reimbursements from our cash basis tenants (such as Steward) for ground leases, property taxes, and insurance.

Interest Expense

Interest expense for 2024 and 2023 totaled $417.8 million and $411.2 million, respectively. This increase is primarily related to additional interest from our British pound sterling secured term loan due 2034 that closed in May 2024 and an increase in our specific interest rates due to a credit rating adjustment in March 2023 and our Credit Facility amendment on August 6, 2024. Overall, our weighted-average interest rate was 4.3% for 2024, compared to 3.9% for 2023.

Real Estate Depreciation and Amortization

Real estate depreciation and amortization during 2024 decreased to $447.7 million from $603.4 million in 2023 due to accelerating the amortization of lease intangibles as part of the sale of hospital operations by Steward and re-leasing of the five Utah facilities to CommonSpirit in May 2023 (approximately $286 million) and the sale of various properties in 2024 and 2023. This decrease is partially offset by approximately $170 million of additional amortization expense recorded in 2024 primarily to fully amortize the intangibles associated with two master leases, including the Steward master lease that was terminated effective September 11, 2024.

Property-related

Property-related expenses for 2024 decreased to $27.3 million, compared to $41.6 million in 2023. Of the property expenses in 2024 and 2023, approximately $14 million and $29 million, respectively, represents costs (primarily property taxes and insurance premiums) that were reimbursed by our tenants and included in the “Interest and other income” line on our consolidated statements of net income. The remaining non-reimbursed property expenses are consistent year over year and include expenses incurred at our vacant facilities along with costs incurred to manage our portfolio, including physical inspections.

General and Administrative

General and administrative expenses decreased to $133.8 million in 2024 compared to $145.6 million in 2023 due to various lower corporate costs including travel costs. For 2024, general and administrative expenses included $33.0 million of stock compensation expense (slightly lower than 2023), of which $4.6 million related to certain 2024 stock grants with cash-settled features that are marked to fair value quarterly.

Gain on Sale of Real Estate

During 2024, the gain on sale of real estate of $478.7 million primarily related to the disposal of five Prime facilities, the sale of a 75% interest in five Utah facilities as part of the Utah Transaction, and the sale of eight Dignity Health facilities and 11 UCHealth facilities as more fully described in Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. We did not have any significant gain/loss on property sales in 2023.

Real Estate and Other Impairment Charges, Net

In 2024, we recognized $1.8 billion of real estate and other impairment charges and negative fair value adjustments, primarily associated with our investments in Steward, Prospect, and the international joint venture (including approximately $18 million related to our investment in three hospitals in Colombia) as further described in Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. In 2023, we recorded $376.9 million of impairment charges, of which $271 million related to our Steward properties, $86 million related to the Australia Transaction, and $11 million was a non-cash impairment charge on the three Prime properties sold.

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(Loss) Earnings from Equity Interests

Loss from equity interests was ($366.6) million for 2024, compared to $14 million of earnings for 2023, primarily due to the $410 million charge in the second quarter of 2024 associated with the real estate impairment in our Massachusetts-based partnership with Macquarie as further described in Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. This was partially offset by our share of income on our new Utah partnership as a result of the Utah Transaction in the second quarter of 2024. In 2023, we recorded a $30 million reserve of billed and straight-line rent on Steward leased properties that are included in our Massachusetts-based partnership with Macquarie (see Note 3 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further details).

Debt Refinancing and Unutilized Financing (Costs) Benefit

Debt refinancing and unutilized financing costs were $4.3 million for 2024. These costs were incurred as a result of the reduction in revolving commitments under our Credit Facility and partial paydown of our British pound sterling term loan due 2025, both of which are described in more detail in Note 4 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K. We had a debt refinancing and unutilized financing net benefit in 2023 of $0.3 million including a $1.1 million benefit related to the purchase of £50 million of our 2.550% Senior Unsecured Notes due 2023 at a discounted price, partially offset by $0.8 million of costs associated with the partial prepayment of our A$1.2 billion Australian term loan in the second quarter of 2023.

Other (Including Fair Value Adjustments on Securities)

Other expense for 2024 was $615.6 million, compared to $7.6 million of income in the prior year. For 2024, we recognized an approximate $550 million unfavorable fair value adjustments to our investment in PHP Holdings. In addition, we incurred a $7.8 million economic loss from the sale of our interest in the Priory syndicated term loan and approximately $51.3 million of legal and other professional expenses associated with the Steward bankruptcy and responding to certain defamatory statements published by certain parties, among other things. For 2023, we had an approximate $45 million favorable non-cash fair value adjustment on our investment in PHP Holdings and a CHF 20 million (approximately $22 million) unrealized gain on our equity investment in Swiss Medical Network, partially offset by unfavorable non-cash fair value adjustments on other investments marked to fair value in 2023 and approximately $16 million of expenses associated with responding to certain defamatory statements previously mentioned.

Income Tax

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 $44.1 million income tax expense for 2024 is primarily based on the income generated by our investments in the U.K. and Germany, and included $5 million of additional tax expense in the second quarter of 2024 as a result of the gain on the interest rate swap associated with the internal restructuring of the British pound sterling term loan due 2025. In comparison, we had a $130.7 million income tax benefit in 2023 that was primarily based on the $161 million benefit received by entering the U.K. REIT regime effective July 1, 2023 and a $5.0 million tax benefit recognized in the first quarter of 2023 related to the sale of our Australia facilities. For more detailed information, see Note 5 to Item 8 of this Annual Report on Form 10-K.

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 $419 million should be reflected against certain of our international and domestic net deferred tax assets at December 31, 2024. In the future, if we determine that it is more likely than not that we will realize our net deferred tax assets, we will reverse the applicable portion of the valuation allowance, recognize an income tax benefit in the period in which such determination is made, and potentially incur higher income tax expense in future periods as income is earned. For more detailed information, see Note 5 to Item 8 of this Annual Report on Form 10-K.

Non-GAAP Financial Measures

We consider non-GAAP financial measures to be useful supplemental measures of our operating performance. A non-GAAP financial measure is a measure of financial performance, financial position, or cash flows that excludes or includes amounts that are not so excluded from or included in the most directly comparable measure calculated and presented in accordance with GAAP. Described below are the non-GAAP financial measures used by management to supplement our evaluation of operating performance and that we consider useful to investors, together with reconciliations of these measures to the most directly comparable GAAP measures.

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Funds From Operations and Normalized Funds From Operations

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 attributable to MPT common stockholders to FFO and Normalized FFO for the years ended December 31, 2024 and 2023 (in thousands except per share data):

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Distribution Policy

We have elected to be taxed as a REIT commencing with our taxable year that began on April 6, 2004 and ended on December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute (in the form of cash or stock) at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. It is our current intention to comply with these requirements and maintain such status going forward.

The table below is a summary of our distributions declared (and paid in cash) during the three year period ended December 31, 2024:

On February 13, 2025, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.08 per share of common stock to be paid on April 10, 2025, to shareholders of record on March 10, 2025.

We intend to pay to our stockholders, within the time periods prescribed by the 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 distributions to stockholders in order for us to maintain our status as a REIT under the Code and to efficiently manage corporate income and excise taxes on undistributed income, although there is no assurance as to further dividends because they depend on future earnings, capital requirements, and our financial condition. Although we have only made cash distributions historically, we may consider making stock dividends in the future for liquidity purposes, while still complying with REIT requirements. In addition, our Credit Facility limits the amount of cash dividends we can make — see Note 4 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for further information.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to “our,” “we,” and “us” in this management’s discussion and analysis of financial condition and results of operations refer to Medical Properties Trust, Inc. and its consolidated subsidiaries, including MPT Operating Partnership, L.P.

Overview

We are a self-advised healthcare REIT that was incorporated in Maryland on August 27, 2003, primarily for the purpose of investing in and owning healthcare facilities to be leased to healthcare operators under long-term net leases. We may also make mortgage loans to healthcare operators that are collateralized by the underlying real estate. We conduct our business operations in one segment. We currently have healthcare investments in the U.S., Europe, and South America. Our existing tenants are, and our prospective tenants will generally be, healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations. We offer financing to these operators through 100% lease and mortgage financing and generally seek lease and loan terms on a long-term basis (typically at least 15 years) with a series of shorter renewal terms, generally in five year increments, at the option of our tenants and borrowers. We also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases. Our existing portfolio’s minimum escalators are typically 2.0%. In addition, most of our leases and loans include rate increases based on the general rate of inflation (based on CPI or similar indices) if greater than the minimum contractual increases. Beyond rent or mortgage interest, our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility. Finally, from time-to-time, we may make noncontrolling investments in our tenants, typically 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.

We may make other loans to certain of our operators through our TRSs, which the operators use for working capital. Although it represents approximately 1.6% of our total assets at December 31, 2023, we consider our lending business an important element of our overall business strategy for two primary reasons: (1) it provides opportunities to make income-earning investments that could yield attractive risk-adjusted returns in an industry in which our management has expertise, and (2) by making debt capital available to certain qualified operators, we believe we create a competitive advantage for our company over other buyers of, and financing sources for, healthcare facilities.

At December 31, 2023, our portfolio (including real estate assets in joint ventures) consisted of 439 properties, of which 434 properties are leased or loaned to 54 operators, including facilities under development or in the form of mortgage loans.

The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

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Selected Financial Data

The following sets forth selected consolidated financial and operating data. You should read the following selected financial data in conjunction with the consolidated financial statements and notes thereto of each of Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. and their respective subsidiaries included in Item 8 to this Annual Report on Form 10-K.

(1)
See section titled “Non-GAAP Financial Measures” for an explanation of why these non-GAAP financial measures are useful along with a reconciliation to our GAAP earnings.

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2023 Highlights

In 2023, economic uncertainty, high interest rates, and inflationary pressures affected our business (and that of some of our tenants) and caused us to look at several initiatives to improve cash flows, reduce costs, and secure the value of our non-performing assets. Due to operational and liquidity challenges (as discussed previously above in "Significant Tenants" and in Note 3 to Item 8 of this Annual Report on Form 10-K), we recorded an approximate $700 million charge related to our investments in Steward and moved to the cash basis of accounting at December 31, 2023. In 2023, we completed strategic property sales, highlighted by the sale of our 11 Australia properties for A$1.2 billion. We used the proceeds from this sale to partially paydown our A$1.2 billion Australian term loan as well as our revolving credit facility. In regard to cost reduction, we implemented a REIT tax structure in the U.K. in the second quarter of 2023 that we expect will result in quarterly tax savings. In addition, we reduced our dividend from $0.29 per share per quarter to $0.15 starting with our dividend declared in the 2023 third quarter, which equates to annual cash savings of approximately $330 million. To help secure the value of our $1.7 billion investment in Prospect, we agreed to a restructuring, that included a new $700 million investment in PHP Holdings at December 31, 2023 (see Note 3 to Item 8 of this Annual Report on Form 10-K for more information on this transaction).

A summary of additional 2023 activity is as follows:

•
Reserved approximately $95 million of billed rent/interest receivables and straight-line rent receivables associated with two other domestic tenants and a loan to our international joint venture and began applying cash basis accounting on these investments;

•
Received approximately $205 million from Lifepoint to pay off our initial acquisition loan, plus accrued interest, as part of their acquisition of a majority ownership interest in Springstone (now Lifepoint Behavioral);

•
Sold three facilities to Prime Healthcare Services, Inc. ("Prime") for approximately $100 million;

•
CHIC acquired the Utah hospital operations of five general acute care facilities previously operated by Steward, and we received $100 million from Steward as a result of this transaction (see Note 3 to Item 8 of this Annual Report on Form 10-K for further details);

•
Received CHF 60 million from the payoff of a loan by Infracore SA ("Infracore");

•
Paid off our £400 million 2.550% Senior Unsecured Notes due 2023 (of which £50 million was purchased before the maturity date at a discounted price);

•
Acquired three inpatient rehabilitation facilities for a total of €70 million that are leased to MEDIAN and five behavioral health hospitals for £44 million that are leased to Priory;

•
Completed two developments for approximately $70 million that are leased to Ernest Health, Inc. (“Ernest”); and

•
Selected as one of Modern Healthcare's Best Places to Work in healthcare in 2023, for the third consecutive year;

Subsequent to December 31, 2023, the following activity took place:

•
Selected as one of Newsweek's Most Responsible Companies in 2024;

•
In the first quarter of 2024, we sold our interest in the Priory syndicated term loan for aggregate proceeds of £90 million; and

•
Entered into definitive agreements to sell five properties leased to Prime for net proceeds of approximately $250 million and a $100 million mortgage loan to be repaid in approximately nine months.

See Note 13 to Item 8 of this Annual Report on Form 10-K for further details of our subsequent events.

2022 Highlights

In 2022, the value of our well-underwritten hospital investments was confirmed through strategic property sales that generated gains over $535 million and cash proceeds of approximately $2.2 billion. These sales were highlighted by the previously described partnership with MAM in which we sold the real estate of eight Massachusetts-based general acute care hospitals with a fair value of approximately $1.7 billion, using proceeds to pay off an interim credit facility. Despite the economic uncertainty, high interest rates, and inflationary pressures that were prevalent throughout most of 2022, we invested approximately $1 billion in hospital real estate, including expanding our footprint in Europe with our investment in four facilities in Finland. We also increased our availability and extended and improved pricing on our revolving credit and term loan facility in 2022. In addition, we initiated a stock repurchase

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program, through which we repurchased 1.6 million shares of common stock for $17.9 million through December 31, 2022. Lastly, we increased our dividend to $0.29 per share per quarter in 2022, which was the 8th consecutive year for such an increase.

A summary of additional 2022 activity is as follows:

•
Acquired an additional six behavioral health facilities in the UK for approximately £233 million that are leased to Priory;

•
Funded £96.5 million towards a £100 million participation in a syndicated term loan originated on behalf of Priory;

•
Completed the Bakersfield development for $47 million and commenced development of five additional facilities, including three in Spain;

•
Re-tenanted our Watsonville facility, after the previous tenant filed for bankruptcy, and recovered $32 million on a working capital loan that was previously reserved;

•
Acquired six general acute care facilities, three located throughout Spain, two in the U.S., and one in Colombia, for approximately $135 million that are leased to three different operators;

•
Selected as one of Modern Healthcare's Best Places to Work in healthcare in 2022;

•
Achieved internal growth by approximately $30 million from increases in CPI above the contractual minimum escalations in our leases and loans; and

•
Recorded a $283 million impairment charge related to our tenant, Prospect, including $171 million impairment on the Pennsylvania real estate and a $112 million reserve on non-cash rent. In addition, we began recording rent on our Prospect leases on a cash only basis as of December 31, 2022.

Critical Accounting Estimates

In order to prepare financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S., we must make estimates about certain types of transactions and account balances. We believe that our estimates of the amount and timing of credit losses, fair value adjustments (either as part of a purchase price allocation, recurring accounting for those investments that we have selected under the fair value option method, or impairment analyses), and periodic depreciation of our real estate assets, along with our assessment as to whether investments we make in certain businesses/entities should be consolidated with our results, have significant effects on our financial statements. Each of these items involves estimates that require us to make subjective judgments. We rely on our experience, collect historical and current market data, and develop relevant assumptions to arrive at what we believe to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to the critical accounting policies described below. In addition, application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties (such as uncertainties caused by the COVID-19 pandemic) and, as a result, actual results could materially differ from these estimates. See Note 2 to Item 8 of this Annual Report on Form 10-K for more information regarding our accounting policies and recent accounting developments. Our accounting estimates include the following:

Credit Losses:

Losses from Rent Receivables: For our leases, we review tenant provided financial data and monitor the performance of our tenants in areas generally consisting of: admission levels and surgery/procedure volumes by type; current operating margins; ratio of our tenant's operating margins both to facility rent and to facility rent plus other fixed costs; trends in revenue, cash collections, patient mix; and the effect of evolving healthcare regulations, adverse economic and political conditions, such as rising inflation and interest rates, and other events ongoing on a tenant's profitability and liquidity.

Losses from Operating Lease Receivables: We utilize the information above along with the tenant's payment and default history in evaluating (on a property-by-property basis) whether or not a provision for losses on outstanding billed rent and/or straight-line rent receivables is needed. A provision for losses on rent receivables (including straight-line rent receivables) is ultimately recorded when it becomes probable that the receivable will not be collected in full. The provision is an amount which reduces the receivable to its estimated net realizable value based on a determination of the eventual amounts to be collected either from the debtor or from existing collateral, if any.

Losses on Financing Lease Receivables: We apply a forward-looking “expected credit loss” model to all of our financing receivables, including financing leases and loans. To do this, we have grouped our financial instruments into two primary pools of similar credit risk: secured and unsecured. The secured instruments include our investments in financing receivables as all are secured by the underlying real estate, among other collateral. Within the two primary pools, we further grouped our instruments into sub-pools based on several tenant/borrower characteristics, including years of experience in the healthcare industry and in a particular market or region and overall capitalization. We then determined a credit loss percentage per pool based on our history over a period of time that closely matches the remaining terms of the financial instruments being

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analyzed and adjusted as needed for current trends or unusual circumstances. We have applied these credit loss percentages to the book value of the related instruments to establish a credit loss reserve on our financing lease receivables and such credit loss reserve (including the underlying assumptions) is reviewed and adjusted quarterly. If a financing receivable is underperforming and is deemed uncollectible based on the lessee’s overall financial condition, we will adjust the credit loss reserve based on the fair value of the underlying collateral.

We exclude interest receivables from the credit loss reserve model. Instead, such receivables are impaired and an allowance recorded when it is deemed probable that we will be unable to collect all amounts due. Like operating lease receivables, the need for an allowance is based upon our assessment of the lessee’s overall financial condition, economic resources and payment record, the prospects for support from any financially responsible guarantors, and, if appropriate, the realizable value of any collateral. Financing leases are placed on non-accrual status when we determine that the collectability of contractual amounts is not reasonably assured. If on non-accrual status, we generally account for the financing lease on a cash basis, in which income is recognized only upon receipt of cash.

Loans: Loans consist of mortgage loans, working capital loans, and other loans. Mortgage loans are collateralized by interests in real property. Working capital and other loans are generally collateralized by interests in receivables and corporate and individual guarantees. We record loans at cost. Like our financing lease receivables, we establish credit loss reserves on all outstanding loans based on historical credit losses of similar instruments. Such credit loss reserves, including the underlying assumptions, are reviewed and adjusted quarterly. If a loan’s performance worsens and foreclosure is deemed probable for our collateral-based loans (after considering the borrower’s overall financial condition as described above for leases), we will adjust the allowance for expected credit losses based on the current fair value of such collateral at the time the loan is deemed uncollectible. If the loan is not collateralized, the loan will be reserved for/written-off once it is determined that such loan is no longer collectible. Interest receivables on loans are excluded from the forward-looking credit loss reserve model; however, we assess their collectability similar to how we assess collectability for interest receivables on financing leases described above.

Investments in Real Estate: We maintain our investments in real estate at cost, and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset. While our tenants are generally responsible for all operating costs at a facility, in the event we incur costs of repairs and maintenance, we expense those costs as incurred. We compute depreciation using the straight-line method over the weighted-average useful life of approximately 39.1 years for buildings and improvements.

When circumstances indicate a possible impairment of the value of our real estate investments, we review the recoverability of the facility’s carrying value. The review of the recoverability is generally based on our estimate of the future undiscounted cash flows from the facility’s use and eventual disposition. Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends, and residual value, as well as the effects of leasing demand, competition, and other factors. If impairment exists due to the inability to recover the carrying value of a facility on an undiscounted basis, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the facility. In making estimates of fair value for purposes of impairment assessments, we will look to a number of sources including independent appraisals, available broker data, or our internal data from recent transactions involving similar properties in similar markets. Given the highly specialized aspects of our properties, no assurance can be given that future impairment charges will not be taken.

Acquired Real Estate Purchase Price Allocation: For properties acquired for operating leasing purposes, we currently account for such acquisitions based on asset acquisition accounting rules. Under this accounting method, we allocate the purchase price of acquired properties to net tangible and identified intangible assets acquired based on their relative fair values. In making estimates of fair value for purposes of allocating purchase prices of acquired real estate, we may utilize a number of sources, including available real estate broker data, independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, internal data from previous acquisitions or developments, and other market data, including market comparables for significant assumptions such as market rental, capitalization, and discount rates. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

We record above-market and below-market in-place lease values, if any, for the facilities we own which are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any resulting capitalized above-market lease values as a reduction of rental income over the lease term. We amortize any resulting capitalized below-market lease values as an increase to rental income over the lease term. Because our strategy to a large degree involves the origination and acquisition of long-term lease arrangements at market rates with independent parties, we do not expect the above-market or below-market in-place lease values to be significant for many of our transactions.

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We measure the aggregate value of other lease intangible assets to be acquired based on the difference between (i) the property valued with new or in-place leases adjusted to market rental rates and (ii) the property valued as if vacant when acquired. Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market conditions, and costs to execute similar leases. We also consider information obtained about each targeted facility as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the intangible assets acquired. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which we expect to be about six months (based on experience) but can be longer depending on specific local market conditions. Management also estimates costs to execute similar leases including leasing commissions, legal costs, and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination.

Other intangible assets acquired may include customer relationship intangible values, which are based on management’s evaluation of the specific characteristics of each prospective tenant’s lease and our overall relationship with that tenant. Characteristics to be considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality, and expectations of lease renewals, including those existing under the terms of the lease agreement, among other factors. At December 31, 2023, we have not assigned any value to customer relationship intangibles.

We amortize the value of lease intangibles to expense over the term of the respective leases, which have a weighted-average useful life of 28.0 years at December 31, 2023. If a lease is terminated early, the unamortized portion of the lease intangible is charged to expense, as was the case in 2023 with the Steward Utah Transaction as more fully described in Note 3 to Item 8 of this Annual Report on Form 10-K.

Investments in Unconsolidated Entities: Investments in entities in which we have the ability to significantly influence (but not control) are accounted for by the equity method. This includes the five investments in unconsolidated real estate joint ventures at December 31, 2023. Under the equity method of accounting, our share of the investee’s earnings or losses are included in the “Earnings from equity interests” line of our consolidated statements of net income. Except for our joint ventures with Primotop and MAM (for which we handle the accounting of), we have elected to record our share of such investee’s earnings or losses on a lag basis (not to exceed three months). The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the interest in the investee entity. Subsequently, our investments are increased/decreased by our share in the investees’ earnings/losses and decreased by cash distributions from our investees. To the extent that our cost basis is different from the basis reflected at the investee entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the investee.

We evaluate our equity method investments for impairment based upon a comparison of the fair value of the equity method investment to its carrying value, when impairment indicators exist. If we determine a decline in the fair value of an investment in an unconsolidated investee entity below its carrying value is other-than-temporary, an impairment is recorded.

Investments in entities in which we do not control nor do we have the ability to significantly influence and for which there is no readily determinable fair value (such as our investment in Steward) are accounted for at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions involving the investee. Cash distributions on these types of investments are recorded to either income upon receipt (if a return on investment) or as a reduction of our investment (if the distributions received are in excess of our share of the investee’s earnings). For similar investments but for which there are readily determinable fair values, such investments are measured at fair value, with unrealized gains and losses recorded in income.

Fair Value Option Election: We elected to account for certain investments using the fair value option method, which means we mark these investments to fair market value on a recurring basis. At December 31, 2023, the amount of investments recorded using the fair value option were approximately $1.1 billion made up of loans and equity investments (see Note 10 to Item 8 of this Annual Report on Form 10-K for additional details). Our loans are recorded at fair value based on Level 2 or 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.

For our equity investments in PHP Holdings and the international joint venture, fair value is determined 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 forecasted assumptions associated with the investee. We classify our valuations of these investments as Level 3, as we use certain unobservable inputs to the valuation methodology that are significant to the fair value measurement, and the valuations require management judgment due to the absence of quoted market prices. For the cash flow models, our unobservable inputs include use of a discount rate (which is based on a weighted-average cost of capital) and an

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adjustment for a marketability discount (“DLOM”). In regard to the underlying projections used in the discounted cash flow model, such projections are provided by the investees. However, we will modify such projections as needed based on our review and analysis of historical results, meetings with key members of management, and our understanding of trends and developments within the healthcare industry. The DLOM on our investment in PHP Holdings was approximately 8% at December 31, 2023. In arriving at the DLOM, we 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 the capital marketplace, etc. See Note 10 to Item 8 of this Annual Report on Form 10-K for additional details.

Principles of Consolidation: Property holding entities and other subsidiaries of which we own 100% of the equity or have a controlling financial interest evidenced by ownership of a majority voting interest are consolidated. All inter-company balances and transactions are eliminated. For entities in which we own less than 100% of the equity interest, we consolidate the property if we have the direct or indirect ability to control the entity’s activities based upon the terms of the respective entity's ownership agreements. For these entities, we record a non-controlling interest representing equity held by non-controlling interests.

We continually evaluate all of our transactions and investments to determine if they represent variable interests in a variable interest entity. If we determine that we have a variable interest in a variable interest entity, we then evaluate if we are the primary beneficiary of the variable interest entity. The evaluation is a qualitative assessment as to whether we have the ability to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. We consolidate each variable interest entity in which we, by virtue of or transactions with our investments in the entity, are considered to be the primary beneficiary. At December 31, 2023 and 2022, we determined that we were not the primary beneficiary of any variable interest entity in which we hold a variable interest because we do not control the activities (such as the day-to-day operations) that most significantly impact the economic performance of these entities.

Liquidity and Capital Resources

Our typical sources of cash include our monthly rent and interest receipts, distributions from our real estate joint ventures, borrowings under our revolving credit facility, public issuances of debt and equity securities, and proceeds from bank debt, asset dispositions (either one-off or group asset sales through joint venture transactions), and principal payments on loans. Our primary uses of cash include dividend distributions, debt service (including principal and interest), new investments (including acquisitions, developments, or capital improvement projects), loan advances, property expenses, and general and administrative expenses.

Absent our requirements to make distributions to maintain our REIT qualification (as described earlier and further described in Note 5 within Item 8 of this Annual Report on Form 10-K) and our current contractual commitments discussed later in this section, we do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

See below for highlights of our sources and uses of cash for the past two years:

2023 Cash Flow Activity

We generated cash of approximately $506 million from operating activities during 2023, primarily consisting of rent and interest from mortgage and other loans and distributions from our real estate joint ventures. We used these operating cash flows (along with cash on-hand and borrowings on our revolving credit facility) to fund our dividends of $615 million.

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

a)
sold all 11 Australian properties ("Australia Transaction") resulting in proceeds of A$1.2 billion and used such proceeds to pay down our Australian term loan by A$730 million, with the remaining proceeds used to pay down our revolving credit facility;

b)
sold three properties to Prime resulting in proceeds of $100 million;

c)
received approximately $500 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, CHF 60 million

52

from the payoff of a loan by Infracore, and approximately $100 million from the sale of our temporary interest in Steward's asset-backed credit facility to a third-party;

d)
funded approximately $290 million of new investments, including $125 million to Prospect as part of its recapitalization plan that was implemented on May 23, 2023;

e)
funded approximately $195 million to Steward, including our temporary participation in its syndicated four-year asset-backed credit facility and loans for general working capital purposes;

f)
paid off our £400 million 2.550% Senior Unsecured Notes due 2023 (of which we purchased approximately £50 million before the maturity date at a discount); and

g)
reduced our quarterly dividend per share from $0.29 to $0.15 in the 2023 third quarter, which would result in annual cash savings of approximately $330 million.

Subsequent to December 31, 2023, we received £90 million (approximately $115 million) for the sale of our interest in the Priory syndicated term loan and entered into definitive agreements to sell five properties to Prime for $250 million and a $100 million mortgage loan to be paid in approximately nine months. In addition, we entered into binding agreements to sell additional assets that are expected to generate an additional $17 million. Also, subsequent to December 31, 2023, we have funded $97.5 million to Steward as part of a new bridge loan facility. See Note 13 to Item 8 of this Annual Report on Form 10-K for further details of these transactions.

2022 Cash Flow Activity

We generated cash of approximately $740 million from operating activities during 2022, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows to fund our dividends of $699 million.

In regard to investing and financing activities in 2022, we did the following:

a)
Invested approximately $1.3 billion in hospital real estate, representing 16 facilities across five countries;

b)
Funded $524.2 million of development, capital addition, and other projects;

c)
Completed the Macquarie Transaction in which we contributed eight Massachusetts-based general acute care hospitals to form a partnership ("Macquarie Transaction"), generating proceeds of approximately $1.3 billion, which were partially used to pay off our $1 billion interim credit facility;

d)
Exercised the $500 million accordion feature to our revolving credit facility and extended the term on both the revolver and term loan portions of our Credit Facility;

e)
Authorized a stock repurchase program for up to $500 million of common stock, of which we repurchased 1.6 million shares of common stock for approximately $17.9 million through December 31, 2022; and

f)
Separate from the Macquarie Transaction, we sold 15 facilities and five ancillary properties generating net proceeds of approximately $522 million.

Debt Restrictions and REIT Requirements

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 limits the amount of dividends we can pay to 95% of NAFFO, as defined in the agreements, on a rolling four quarter basis. The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95% of funds from operations, proceeds of equity issuances, and certain other net cash proceeds. Finally, our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150% of our unsecured indebtedness.

In addition to these restrictions, the 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 December 31, 2023, we were in compliance with all such financial and operating covenants.

In order for us to continue to qualify as a REIT we are required to distribute annual dividends equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. See section titled

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“Distribution Policy” within this Item 7 of this Annual Report on Form 10-K for further information on our dividend policy along with the historical dividends paid on a per share basis.

Short-term Liquidity Requirements:

Our short-term liquidity requirements typically consist of general and administrative expenses, dividends in order to comply with REIT requirements, interest payments on our debt, and planned funding commitments on development and capital improvement projects, for the next twelve months. Our monthly rent and interest receipts and distributions from our joint venture arrangements are typically enough to cover our short-term liquidity requirements.

However, with increasing interest rates, loss of a substantial portion of cash rent and interest from Steward, and $1.3 billion of debt coming due within the next twelve months, we are looking to other initiatives to improve cash flows including:

•
pursuing transactions to raise at least $2 billion in new liquidity in 2024, for which we have executed binding agreements that we expect will generate $480 million, including;

o
sale of five Prime properties for $250 million and a $100 million mortgage loan to be repaid in nine months, subject only to customary conditions and notice provisions;

o
sale of our interest in a Priory syndicated term loan for £90 million (approximately $115 million) - closed and funded in February 2024; and

o
disposal of a non-controlling interest in a tenant and two South Carolina hospitals for approximately $17 million.

•
completing the binding sale of three Connecticut facilities to Yale New Haven that is expected to generate $355 million;

•
extending the maturity of existing term loans (including the £700 million British pound sterling loan due in January 2025); and

•
managing the form (cash or stock) and amount of our dividend requirements.

We believe these initiatives, along with liquidity of approximately $0.5 billion (including cash on-hand and availability under our revolving credit facility) at February 16, 2024 and routine cash receipts of rent and interest, 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 coming due after the next twelve months. At this time, we do not expect any material acquisitions of real estate in the foreseeable future.

As described previously, our monthly rent and interest receipts and distributions from our joint venture arrangements along with our current liquidity of approximately $0.5 billion at February 16, 2024, are typically enough to cover our short-term liquidity requirements. However, to address upcoming debt maturities (as outlined below in our commitment schedule), we may need to look to other sources, which may include one or a combination of the following:

•
reducing our dividend (or moving to a stock dividend), while still complying with REIT requirements;

•
strategic property sales or joint ventures including the expected $480 million proceeds of binding asset sales discussed previously under "Short-term Liquidity Requirements," and the binding commitment to sell three Connecticut facilities, subject to regulatory approval, that is expected to generate $355 million;

•
monetizing our investment in operators, including our investment in PHP Holdings;

•
entering into new secured loans on real estate;

•
extending the maturity of existing term loans;

•
identifying and implementing cost reduction opportunities;

•
entering into new bank term loans or issuing new USD, EUR, or GBP denominated debt securities; and

•
sale of equity securities.

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

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Contractual Commitments

The following table summarizes known material contractual commitments including debt service commitments (principal and interest payments) as of February 16, 2024 (amounts in thousands):

(1)
We used the exchange rates at February 16, 2024 in preparing this table. For any variable rate debt, we have assumed that the interest rate in effect at February 16, 2024 remains in effect through maturity.

(2)
As of February 16, 2024, we have a $1.8 billion revolving credit facility. This table assumes the balance outstanding under the revolver (which was $1.6 billion as of February 16, 2024) remains in effect through maturity.

(3)
Much 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)
Includes approximately $61 million of future expenditures related to development projects and $176 million of future expenditures on committed capital improvement projects.

Results of Operations

Our operating results may vary significantly from year-to-year due to a variety of reasons including acquisitions made during the year, incremental revenues and expenses from acquisitions made in the prior year, revenues and expenses from completed development properties, property disposals, annual escalation provisions, interest rate changes, foreign currency exchange rate changes, new or amended debt agreements, issuances of shares through an equity offering, impact from accounting changes, lease terminations/re-tenanting, etc. Thus, our operating results for the current year are not necessarily indicative of the results that may be expected in future years.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Net loss for the year ended December 31, 2023, was $(556.5) million ($(0.93) per share) compared to net income of $902.6 million ($1.50 per diluted share) for the year ended December 31, 2022. This decrease in net income is primarily driven by the $600 million gain on sale of real estate from the Macquarie Transaction in 2022, the approximate $700 million impairment charge in 2023 related to Steward, and 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 Utah Transaction in 2023 (see Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for more detail), partially offset by the approximate $161 million tax benefit recognized in 2023 related to entering the U.K. REIT regime (as more fully described in Note 5 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K). Normalized FFO, after adjusting for certain items (as more fully described in the section titled “Non-GAAP Financial Measures” in this Item 7 of this Annual Report on Form 10-K), was $951 million for 2023, or $1.59 per share, as compared to $1.1 billion, or $1.82 per diluted share, for 2022. This 13% decrease in Normalized FFO is primarily due to lower revenue from various disposals in 2022 and 2023, including the Macquarie Transaction, the Australia Transaction, and Prime disposals, along with lower revenues from Prospect from moving to the cash basis of accounting on December 31, 2022 and higher interest expense.

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A comparison of revenues for the years ended December 31, 2023 and 2022 is as follows (dollar amounts in thousands):

Our total revenues for 2023 declined by $671.1 million or 43% over the prior year. This change is made up of the following:

•
Operating lease revenue (includes rent billed and straight-line rent) — down $497.6 million over the prior year, primarily due to approximately $483 million of more rent reserves in 2023 compared to 2022 (including $378 million in the fourth quarter of 2023 related to Steward billed and straight-line rent and $95 million as a result of the write-off of straight-line rent associated with the Steward Utah Transaction in the second quarter of 2023). Operating lease revenue is also lower by approximately $85 million due to disposals and other leasing transactions in 2022 and 2023 (primarily related to the Macquarie Transaction).

These decreases are partially offset by approximately $40 million in incremental revenue from acquisitions, capital additions, and the commencement of rent on a development property in the first quarter of 2022 and two properties in 2023. In addition, rent revenues are up approximately $29 million period-over-period from increases in CPI above the contractual minimum escalations in our leases.

•
Income from financing leases — down $76.4 million due to $61.0 million of less rent on Prospect in 2023 compared to 2022 due to the move to cash basis of accounting on December 31, 2022. In 2023, we did record approximately $69 million of income from financing leases with the receipt of additional investment in PHP Holdings, in lieu of cash, as part of the Prospect Transaction as described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K. In addition, income from financing leases declined due to approximately $17.0 million of lower revenues from the disposal of Prime financing leases in 2023 and 2022.

These decreases are partially offset by the increase in CPI above the lease contractual minimum escalations by approximately $1.6 million.

•
Interest and other income — down $97.1 million from the prior year due to the following:

o
Interest from loans — down $90.1 million due to approximately $81 million of reserves recorded in the fourth quarter of 2023 related to interest receivables from Steward and our international joint venture. We also had a $20 million decrease in interest revenue from loan payoffs (including $14 million due to the repayment of the acquisition loan as part of the Lifepoint Transaction described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K), and a $9 million decrease in interest income related to Prospect from moving to the cash basis of accounting on December 31, 2022. In the second quarter of 2023, we did record approximately $13 million of interest income with the receipt of additional investment in PHP Holdings, in lieu of cash, as part of the Prospect Transaction as described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K.

These decreases were partially offset by $15 million of incremental revenue 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), approximately $3 million of higher income from annual escalations due to increases in CPI, and $0.4 million of favorable foreign currency fluctuations.

o
Other income — down $7.0 million from the prior year due to less direct reimbursements from our tenants for ground leases, property taxes, and insurance.

As discussed previously under "Significant Tenants" and in Note 3 to Item 8 to this Annual Report on Form 10-K under "Leasing Operations (Lessor)," we elected to move Steward to the cash basis of accounting for revenue effective December 31, 2023, similar to Prospect last year and four smaller tenants/borrowers in 2023.

Interest expense for 2023 and 2022 totaled $411.2 million and $359.0 million, respectively. This increase is primarily related to an increase in borrowings and higher interest rates (due to higher market rates and changes in our credit rating) on our Credit Facility and term loans compared to the prior year, partially offset by paying down our Australia term loan in the second quarter of 2023 by A$730 million from proceeds of the Australia Transaction and repayment of our 2.550% Senior Unsecured Notes in December 2023. Our weighted-average interest rate was 3.9% for 2023 compared to 3.3% in 2022.

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Real estate depreciation and amortization during 2023 increased to $603.4 million from $333.0 million in 2022. Of this increase, $286 million relates to accelerating the amortization of lease intangibles as part of the Steward Utah Transaction as described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K.

Property-related expenses for 2023 decreased to $41.6 million, compared to $45.7 million in 2022. Of the property expenses in 2023 and 2022, approximately $29 million and $36 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 consolidated statements of net income.

General and administrative expenses totaled $145.6 million in 2023 compared to $160.5 million in 2022, primarily due to a $16 million decrease in share-based compensation. The decrease in share-based compensation is primarily a result of a $13.2 million cumulative benefit catchup from adjusting the payout probability of certain performance awards, partially offset by an incremental $3.5 million of expense from the acceleration of stock awards for a retiring executive officer.

During the year ended December 31, 2022, we realized $536.8 million of gains from the sales of real estate, including the completion of 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. In 2022, we also disposed of 11 facilities to Prime, resulting in a gain on real estate of approximately $67 million, and we disposed of four other facilities and five ancillary properties, resulting in a net gain of $33 million. Due to previous charges taken earlier in the year (as described below), we did not have any significant gain/loss on property sales in 2023.

In 2023, we recorded $376.9 million of impairment charges, of which $271 million related to our Steward properties, $86 million related to the Australia Transaction, and $11 million was an impairment charge on the three Prime properties sold. In December 2022, we recorded a $283 million impairment charge related to Prospect. See Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details of the 2023 and 2022 charges. In 2022, we did recognize an impairment recovery of approximately $15 million related to our Watsonville facility.

Earnings from equity interests was $14 million for 2023, down from $40.8 million in 2022. This decrease is due to a $30 million reserve of billed and straight-line rent in 2023 on Steward leased properties that make up our Massachusetts-based partnership with MAM (see Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details).

Our debt refinancing and unutilized financing net benefit for 2023 was a result of a $1.1 million benefit related to the purchase of £50 million of our 2.550% Senior Unsecured Notes due 2023 in 2023 at a discounted price, partially offset by $0.8 million of costs associated with the partial prepayment of our A$1.2 billion Australian term loan in the second quarter of 2023. In 2022, debt refinancing and unutilized financing costs were $9.5 million, 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 consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details).

Other income for 2023 was $7.6 million, which included an approximate $45 million favorable non-cash fair value adjustment on our investment in PHP Holdings and a CHF 20 million unrealized gain on our equity investment in Swiss Medical Network, partially offset by unfavorable non-cash fair value adjustments on investments marked to fair value in 2023 and approximately $16 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 Note 8 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details on the lawsuit. Other income for 2022 was $15.3 million which included a favorable non-cash fair value adjustment of $18.0 million on our investment in Aevis Victoria SA ("Aevis") and other investments marked to fair value during 2022.

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 $130.7 million income tax benefit for 2023 was primarily based on the $161 million benefit received by entering the U.K. REIT regime effective July 1, 2023 and a $5.0 million tax benefit recognized in the first quarter of 2023 related to the sale of our Australia facilities. In comparison, we incurred a $55.9 million income tax expense for 2022, primarily based on the income generated by our investments in the U.K., Colombia, and Australia along with an additional $5 million U.S. tax expense related to our Watsonville loan recovery in 2022. For more detailed information, see Note 5 to Item 8 of this Annual Report on Form 10-K.

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

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pre-tax book loss position in certain entities, we concluded that a valuation allowance of approximately $117 million should be reflected against certain of our international and domestic net deferred tax assets at December 31, 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. For more detailed information, see Note 5 to Item 8 of this Annual Report on Form 10-K.

Non-GAAP Financial Measures

We consider non-GAAP financial measures to be useful supplemental measures of our operating performance. A non-GAAP financial measure is a measure of financial performance, financial position, or cash flows that excludes or includes amounts that are not so excluded from or included in the most directly comparable measure calculated and presented in accordance with GAAP. Described below are the non-GAAP financial measures used by management to evaluate our operating performance and that we consider most useful to investors, together with reconciliations of these measures to the most directly comparable GAAP measures.

Funds From Operations and Normalized Funds From Operations

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 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.

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The following table presents a reconciliation of net (loss) income attributable to MPT common stockholders to FFO and Normalized FFO for the years ended December 31, 2023 and 2022 (in thousands except per share data):

Distribution Policy

We have elected to be taxed as a REIT commencing with our taxable year that began on April 6, 2004 and ended on December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute (in the form of cash or stock) at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. It is our current intention to comply with these requirements and maintain such status going forward.

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The table below is a summary of our distributions declared (and paid in cash) during the three year period ended December 31, 2023:

In the third quarter of 2023, we reduced our quarterly dividend from $0.29 to $0.15 per share of common stock, which would result in annual cash savings of approximately $330 million. In the future, as part of our liquidity improvement strategy, we may consider moving to a stock dividend, while still complying with REIT requirements.

We intend to pay to our stockholders, within the time periods prescribed by the 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, although there is no assurance as to further dividends because they depend on future earnings, capital requirements, and our financial condition. In addition, our Credit Facility limits the amount of dividends we can pay — see Note 4 to our consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further information.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to “our,” “we,” and “us” in this management’s discussion and analysis of financial condition and results of operations refer to Medical Properties Trust, Inc. and its consolidated subsidiaries, including MPT Operating Partnership, L.P.

Overview

We are a self-advised healthcare REIT that was incorporated in Maryland on August 27, 2003, primarily for the purpose of investing in and owning healthcare facilities to be leased to healthcare operators under long-term net leases. We may also make mortgage loans to healthcare operators that are collateralized by the underlying real estate. We conduct our business operations in one segment. We currently have healthcare investments in the U.S., Europe, Australia, and South America. Our existing tenants are, and our prospective tenants will generally be, healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations. We offer financing to these operators through 100% lease and mortgage financing and generally seek lease and loan terms on a long-term basis (typically at least 15 years) with a series of shorter renewal terms, generally in five year increments, at the option of our tenants and borrowers. We also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases. Our existing portfolio’s minimum escalators are typically at least 2.0%. In addition, most of our leases and loans include rate increases based on the general rate of inflation (based on CPI or similar indices) if greater than the minimum contractual increases. Beyond rent or mortgage interest, our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility. Finally, from time-to-time, we may make noncontrolling investments in our tenants, typically 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.

We may make other loans to certain of our operators through our TRSs, which the operators use for working capital. Although it represents only 1% of our total assets at December 31, 2022, we consider our lending business an important element of our overall business strategy for two primary reasons: (1) it provides opportunities to make income-earning investments that yield attractive risk-adjusted returns in an industry in which our management has expertise, and (2) by making debt capital available to certain qualified operators, we believe we create a competitive advantage for our company over other buyers of, and financing sources for, healthcare facilities.

At December 31, 2022, our portfolio (including real estate assets in joint ventures) consisted of 444 properties leased or loaned to 55 operators, of which seven were under development and five were in the form of mortgage loans.

The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.

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Selected Financial Data

The following sets forth selected consolidated financial and operating data. You should read the following selected financial data in conjunction with the consolidated financial statements and notes thereto of each of Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. and their respective subsidiaries included in Item 8 to this Annual Report on Form 10-K.

(1)
See section titled “Non-GAAP Financial Measures” for an explanation of why these non-GAAP financial measures are useful along with a reconciliation to our GAAP earnings.

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2022 Highlights

In 2022, the value of our well-underwritten hospital investments was confirmed through strategic property sales that generated gains over $535 million and cash proceeds of approximately $2.2 billion. These sales were highlighted by the previously described partnership with MAM in which we sold the real estate of eight Massachusetts-based general acute care hospitals with a fair value of approximately $1.7 billion, using proceeds to pay off an interim credit facility. Despite the economic uncertainty, high interest rates, and inflationary pressures that were prevalent throughout most of 2022, we invested approximately $1 billion in hospital real estate, including expanding our footprint in Europe with our investment in four facilities in Finland. We also increased our availability and extended and improved pricing on our revolving credit and term loan facility in 2022. In addition, we initiated a stock repurchase program, through which we repurchased 1.6 million shares of common stock for $17.9 million through December 31, 2022. Lastly, we increased our dividend to $0.29 per share per quarter in 2022, which is the 8th consecutive year for such an increase.

A summary of additional 2022 activity is as follows:

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Acquired an additional six behavioral health facilities in the UK for approximately £233 million that are leased to Priory;

•
Funded £96.5 million towards a £100 million participation in a syndicated term loan originated on behalf of Priory;

•
Completed the Bakersfield development for $47 million and commenced development of five additional facilities, including three in Spain;

•
Re-tenanted our Watsonville facility, after the previous tenant filed for bankruptcy, and recovered $32 million on a working capital loan that was previously reserved;

•
Acquired six general acute care facilities, three located throughout Spain, two in the U.S., and one in Colombia, for approximately $135 million that are leased to three different operators;

•
Selected as one of Modern Healthcare's Best Places to Work in healthcare in 2022, for the second consecutive year;

•
Achieved internal growth by approximately $30 million from increases in CPI above the contractual minimum escalations in our leases and loans; and

•
Recorded a $283 million impairment charge related to our tenant, Prospect, including $171 million impairment on the Pennsylvania real estate and a $112 million reserve on non-cash rent. We expect to record rent on our Prospect leases on a cash only basis for the foreseeable future.

Subsequent to December 31, 2022, the following activity took place:

•
Announced the agreement to lease five facilities in Utah to Catholic Health Initiatives Colorado, a wholly-owned subsidiary of CommonSpirit Health, that are currently leased to Steward, subject to receipt of certain regulatory approvals and other customary closing conditions and

•
Received approximately $205 million from Lifepoint to pay off an outstanding loan, plus accrued interest, as part of their acquisition of a majority ownership interest in Springstone. We had funded this loan in October 2021 as part of our non-controlling investment in Springstone's operations that was needed for us to complete the larger acquisition of Springstone's 18 behavioral health hospitals. We will continue leasing these 18 facilities to Lifepoint.

2021 Highlights

During 2021, our business and that of our tenants continued to be impacted by the COVID-19 pandemic. Like most of the world, our employees worked remotely through much of the year. While our offices re-opened in October 2021, we had less than 100% of our employees in the office due to spikes in COVID-19 and related variants throughout the fourth quarter. Despite the continued effects of the pandemic, MPT had a record year. In 2021, we invested approximately $3.9 billion in hospital real estate, and our revenues surpassed $1.5 billion for the first time in our history. Additionally, we maintained a strong liquidity position throughout the year and kept our leverage substantially in line with 2020 by raising more than $1.0 billion in proceeds through sales of our common stock and receiving approximately $0.5 billion from payoffs on our loan portfolio and proceeds from strategic divestitures. In addition, we lowered our weighted-average interest rate during 2021 by extending and improving pricing on our revolving credit and term loan facilities, completing an £850 million senior unsecured notes offering at a weighted-average rate of 2.9%, and completing a €500 million 0.993% senior unsecured notes offering, of which all of the proceeds were used to redeem our outstanding €500 million senior unsecured notes that had a higher interest rate of 4.000%. Finally, we increased our dividend to $0.28 per share per quarter in 2021.

The COVID-19 pandemic had a severe impact on the world from a business and personal health perspective. However, as we have noted before, we believe this pandemic further validated our business model, which focuses on hospitals as the centerpiece of

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healthcare delivery across the world. In addition, the pandemic proved the ability of our employees and our hospital operators to overcome significant challenges for the good of our stakeholders and mankind.

A summary of additional 2021 activity is as follows:

•
Increased the number of our properties to 438, added eight new operators, and significantly expanded our footprint in the behavioral health space by the following:

•
Acquired 35 behavioral health facilities operated by Priory for an aggregate purchase price of approximately £800 million;

•
Invested in 18 inpatient behavioral health facilities throughout the U.S., leased to Springstone and an interest in the operations of Springstone for approximately $950 million;

•
Acquired five general acute care facilities in South Florida for approximately $900 million that are leased to Steward; and

•
Acquired four acute care facilities and two on-campus medical office buildings in California for $215 million, leased to Pipeline.

•
Grew net income and Normalized FFO (both on a per diluted share basis) by 37% and 11%, respectively; and

•
Selected as one of Modern Healthcare’s Best Places to Work in healthcare in 2021.

Critical Accounting Estimates

In order to prepare financial statements in conformity with generally accepted accounting principles (“GAAP”) in the U.S., we must make estimates about certain types of transactions and account balances. We believe that our estimates of the amount and timing of credit losses, fair value adjustments (either as part of a purchase price allocation, recurring accounting for those investments that we have selected under the fair value option method, or impairment analyses), and periodic depreciation of our real estate assets, along with our assessment as to whether investments we make in certain businesses/entities should be consolidated with our results, have significant effects on our financial statements. Each of these items involves estimates that require us to make subjective judgments. We rely on our experience, collect historical and current market data, and develop relevant assumptions to arrive at what we believe to be reasonable estimates. Under different conditions or assumptions, materially different amounts could be reported related to the critical accounting policies described below. In addition, application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties (such as uncertainties caused by the COVID-19 pandemic) and, as a result, actual results could materially differ from these estimates. See Note 2 to Item 8 of this Annual Report on Form 10-K for more information regarding our accounting policies and recent accounting developments. Our accounting estimates include the following:

Credit Losses:

Losses from Rent Receivables: For all leases, we continuously monitor the performance of our existing tenants including, but not limited to: admission levels and surgery/procedure volumes by type; current operating margins; ratio of our tenant's operating margins both to facility rent and to facility rent plus other fixed costs; trends in revenue, cash collections, patient mix; and the effect of evolving healthcare regulations, adverse economic and political conditions, such as rising inflation and interest rates, and other events ongoing on a tenant's profitability and liquidity.

Losses from Operating Lease Receivables: We utilize the information above along with the tenant's payment and default history in evaluating (on a property-by-property basis) whether or not a provision for losses on outstanding billed rent and/or straight-line rent receivables is needed. A provision for losses on rent receivables (including straight-line rent receivables) is ultimately recorded when it becomes probable that the receivable will not be collected in full. The provision is an amount which reduces the receivable to its estimated net realizable value based on a determination of the eventual amounts to be collected either from the debtor or from existing collateral, if any.

Losses on Financing Lease Receivables: We apply a forward-looking “expected credit loss” model to all of our financing receivables, including financing leases and loans. To do this, we have grouped our financial instruments into two primary pools of similar credit risk: secured and unsecured. The secured instruments include our investments in financing receivables as all are secured by the underlying real estate, among other collateral. Within the two primary pools, we further grouped our instruments into sub-pools based on several tenant/borrower characteristics, including years of experience in the healthcare industry and in a particular market or region and overall capitalization. We then determined a credit loss percentage per pool based on our history over a period of time that closely matches the remaining terms of the financial instruments being analyzed and adjusted as needed for current trends or unusual circumstances. We have applied these credit loss percentages to the book value of the related instruments to establish a credit loss reserve on our financing lease receivables and such credit loss

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reserve (including the underlying assumptions) is reviewed and adjusted quarterly. If a financing receivable is underperforming and is deemed uncollectible based on the lessee’s overall financial condition, we will adjust the credit loss reserve based on the fair value of the underlying collateral.

We exclude interest receivables from the credit loss reserve model. Instead, such receivables are impaired and an allowance recorded when it is deemed probable that we will be unable to collect all amounts due. Like operating lease receivables, the need for an allowance is based upon our assessment of the lessee’s overall financial condition, economic resources and payment record, the prospects for support from any financially responsible guarantors, and, if appropriate, the realizable value of any collateral. Financing leases are placed on non-accrual status when we determine that the collectability of contractual amounts is not reasonably assured. If on non-accrual status, we generally account for the financing lease on a cash basis, in which income is recognized only upon receipt of cash.

Loans: Loans consist of mortgage loans, working capital loans, and other loans. Mortgage loans are collateralized by interests in real property. Working capital and other loans are generally collateralized by interests in receivables and corporate and individual guarantees. We record loans at cost. Like our financing lease receivables, we establish credit loss reserves on all outstanding loans based on historical credit losses of similar instruments. Such credit loss reserves, including the underlying assumptions, are reviewed and adjusted quarterly. If a loan’s performance worsens and foreclosure is deemed probable for our collateral-based loans (after considering the borrower’s overall financial condition as described above for leases), we will adjust the allowance for expected credit losses based on the current fair value of such collateral at the time the loan is deemed uncollectible. If the loan is not collateralized, the loan will be reserved for/written-off once it is determined that such loan is no longer collectible. Interest receivables on loans are excluded from the forward-looking credit loss reserve model; however, we assess their collectability similar to how we assess collectability for interest receivables on financing leases described above.

Investments in Real Estate: We maintain our investments in real estate at cost, and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset. While our tenants are generally responsible for all operating costs at a facility, in the event we incur costs of repairs and maintenance, we expense those costs as incurred. We compute depreciation using the straight-line method over the weighted-average useful life of approximately 39.0 years for buildings and improvements.

When circumstances indicate a possible impairment of the value of our real estate investments, we review the recoverability of the facility’s carrying value. The review of the recoverability is generally based on our estimate of the future undiscounted cash flows from the facility’s use and eventual disposition. Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends, and residual value, as well as the effects of leasing demand, competition, and other factors. If impairment exists due to the inability to recover the carrying value of a facility on an undiscounted basis, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the facility. In making estimates of fair value for purposes of impairment assessments, we will look to a number of sources including independent appraisals, available broker data, or our internal data from recent transactions involving similar properties in similar markets. Given the highly specialized aspects of our properties, no assurance can be given that future impairment charges will not be taken.

Acquired Real Estate Purchase Price Allocation: For properties acquired for operating leasing purposes, we currently account for such acquisitions based on asset acquisition accounting rules. Under this accounting method, we allocate the purchase price of acquired properties to net tangible and identified intangible assets acquired based on their relative fair values. In making estimates of fair value for purposes of allocating purchase prices of acquired real estate, we may utilize a number of sources, including available real estate broker data, independent appraisals that may be obtained in connection with the acquisition or financing of the respective property, internal data from previous acquisitions or developments, and other market data, including market comparables for significant assumptions such as market rental, capitalization, and discount rates. We also consider information obtained about each property as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the tangible and intangible assets acquired.

We record above-market and below-market in-place lease values, if any, for the facilities we own which are based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any resulting capitalized above-market lease values as a reduction of rental income over the lease term. We amortize any resulting capitalized below-market lease values as an increase to rental income over the lease term. Because our strategy to a large degree involves the origination and acquisition of long-term lease arrangements at market rates with independent parties, we do not expect the above-market or below-market in-place lease values to be significant for many of our transactions.

We measure the aggregate value of other lease intangible assets to be acquired based on the difference between (i) the property valued with new or in-place leases adjusted to market rental rates and (ii) the property valued as if vacant when acquired.

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Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in our analysis include an estimate of carrying costs during hypothetical expected lease-up periods, considering current market conditions, and costs to execute similar leases. We also consider information obtained about each targeted facility as a result of our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value of the intangible assets acquired. In estimating carrying costs, management includes real estate taxes, insurance, and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which we expect to be about six months (based on experience) but can be longer depending on specific local market conditions. Management also estimates costs to execute similar leases including leasing commissions, legal costs, and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination.

Other intangible assets acquired may include customer relationship intangible values, which are based on management’s evaluation of the specific characteristics of each prospective tenant’s lease and our overall relationship with that tenant. Characteristics to be considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality, and expectations of lease renewals, including those existing under the terms of the lease agreement, among other factors. At December 31, 2022, we have not assigned any value to customer relationship intangibles.

We amortize the value of lease intangibles to expense over the term of the respective leases, which have a weighted-average useful life of 26.8 years at December 31, 2022. If a lease is terminated early, the unamortized portion of the lease intangible is charged to expense.

Fair Value Option Election: We elected to account for certain investments using the fair value option method, which means we mark these investments to fair market value on a recurring basis. At December 31, 2022, the amount of investments recorded using the fair value option were approximately $575 million made up of loans and equity investments. Our loans are recorded at fair value based on Level 2 inputs by discounting the estimated cash flows using the market rates which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities.

For our equity investments in Springstone and the international joint venture, fair value is determined based on Level 3 inputs, by using a discounted cash flow model, which required significant estimates of our investee such as projected revenue and expenses and appropriate consideration of the underlying risk profile of the forecasted assumptions associated with the investee. We classified these equity investments as Level 3, as we used certain unobservable inputs to the valuation methodology that were significant to the fair value measurement, and the valuation required management judgment due to the absence of quoted market prices. For the cash flow model, our observable inputs included use of a capitalization rate, discount rate (which was based on a weighted average cost of capital), and market interest rates, and our unobservable input included an adjustment for a marketability discount (“DLOM”) on our Springstone equity investment of 40%. In regards to the underlying projection of revenues and expenses used in the discounted cash flow model, such projections were provided by the investees. However, we modified such projections (including underlying assumptions used) as needed based on our review and analysis of their 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 the capital marketplace, etc. See Note 10 to Item 8 of this Annual Report on Form 10-K for additional details.

Principles of Consolidation: Property holding entities and other subsidiaries of which we own 100% of the equity or have a controlling financial interest evidenced by ownership of a majority voting interest are consolidated. All inter-company balances and transactions are eliminated. For entities in which we own less than 100% of the equity interest, we consolidate the property if we have the direct or indirect ability to control the entity’s activities based upon the terms of the respective entity's ownership agreements. For these entities, we record a non-controlling interest representing equity held by non-controlling interests.

We continually evaluate all of our transactions and investments to determine if they represent variable interests in a variable interest entity. If we determine that we have a variable interest in a variable interest entity, we then evaluate if we are the primary beneficiary of the variable interest entity. The evaluation is a qualitative assessment as to whether we have the ability to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. We consolidate each variable interest entity in which we, by virtue of or transactions with our investments in the entity, are considered to be the primary beneficiary. At December 31, 2022 and 2021, we determined that we were not the primary beneficiary of any variable interest entity in which we hold a variable interest because we do not control the activities (such as the day-to-day operations) that most significantly impact the economic performance of these entities.

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Liquidity and Capital Resources

Our typical sources of cash include our monthly rent and interest receipts, distributions from our real estate joint venture agreements, borrowings under our revolving credit facility, public issuances of debt and equity securities, and proceeds from bank debt, asset dispositions (either one-off or group asset sales through joint venture transactions), and principal payments on loans. Our primary uses of cash include dividend distributions, debt service (including principal and interest), new investments (including acquisitions, developments, or capital improvement projects), loan advances, property expenses, and general and administrative expenses.

Absent our requirements to make distributions to maintain our REIT qualification (as described earlier and further described in Note 5 within Item 8 of this Annual Report on Form 10-K) and our current contractual commitments discussed later in this section, we do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

See below for highlights of our sources and uses of cash for the past two years:

2022 Cash Flow Activity

We generated cash 2of $740 million from operating activities during 2022, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows to fund our dividends of $699 million.

In regards to investing and financing activities in 2022, we did the following:

a)
Invested approximately $1.3 billion in hospital real estate, representing 16 facilities across five countries;

b)
Funded $524.2 million of development, capital addition, and other projects;

c)
Completed the Macquarie Transaction in which we contributed eight Massachusetts-based general acute care hospitals to form a partnership, resulting in a gain on real estate of approximately $600 million and proceeds of approximately $1.3 billion, which were partially used to pay off our $1 billion interim credit facility;

d)
Exercised the $500 million accordion feature to our revolving credit facility and extended the term on both the revolver and term loan portions of our Credit Facility;

e)
Authorized a stock repurchase program for up to $500 million of common stock, of which we repurchased 1.6 million shares of common stock for approximately $17.9 million through December 31, 2022; and

f)
Separate from the Macquarie Transaction, we sold 15 facilities and five ancillary properties generating net proceeds of approximately $522 million.

Subsequent to December 31, 2022, we received approximately $205 million from Lifepoint to pay off an outstanding loan, plus accrued interest, as part of their acquisition of a majority ownership interest in Springstone. See Note 13 to Item 8 of this Annual Report on Form 10-K for further details on this transaction.

2021 Cash Flow Activity

We generated cash of $812 million from operating activities during 2021, primarily consisting of rent and interest from mortgage and other loans. We used these operating cash flows to fund our dividends of $643 million and certain investing activities.

In regards to investing and financing activities in 2021, we did the following:

a)
Invested approximately $4.0 billion in hospital real estate, representing over 65 facilities across five countries, headlined by the £800 million Priory acquisition of 35 properties in January 2021;

b)
Funded $415.9 million of development, capital addition, and other projects;

c)
Issued 16.3 million shares of common stock under our at-the-market equity offering program, resulting in net proceeds of approximately $340 million;

d)
Completed an underwritten public offering of 36.8 million shares, resulting in net proceeds of $711 million;

e)
Amended and extended our unsecured revolving and term loan facility;

f)
Entered into a $900 million interim credit facility on January 15, 2021, of which we borrowed £500 million. This facility was paid off and terminated on March 26, 2021, after the completion of an £850 million unsecured notes offering on March 24, 2021 that was issued in two tranches;

g)
Received $11 million from Steward as a return of capital distribution;

h)
Entered into a $1 billion interim credit facility in July 2021 (“July 2021 Interim Credit Facility”) to fund new investments;

i)
Completed a €500 million, 0.993% senior unsecured notes offering on October 6, 2021, using proceeds to pay off €500 million of senior unsecured notes with an interest rate of 4.000% on October 22, 2021;

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j)
Received approximately $0.5 billion in loan principal repayments; and

k)
Sold 16 facilities and an ancillary property generating net proceeds of $246 million.

Debt Restrictions and REIT Requirements

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 limits the amount of dividends we can pay to 95% of NAFFO, as defined in the agreements, on a rolling four quarter basis. The indentures governing our senior unsecured notes also limit the amount of dividends we can pay based on the sum of 95% of funds from operations, proceeds of equity issuances, and certain other net cash proceeds. Finally, our senior unsecured notes require us to maintain total unencumbered assets (as defined in the related indenture) of not less than 150% of our unsecured indebtedness.

In addition to these restrictions, the 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 December 31, 2022, we were in compliance with all such financial and operating covenants.

In order for us to continue to qualify as a REIT we are required to distribute annual dividends equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. See section titled “Distribution Policy” within this Item 7 of this Annual Report on Form 10-K for further information on our dividend policy along with the historical dividends paid on a per share basis.

Short-term Liquidity Requirements:

As of February 17, 2023, our liquidity approximates $1.2 billion. We believe this liquidity, along with our current monthly cash receipts from rent and loan interest and regular distributions from our joint venture arrangements, is sufficient to fund our operations, dividends in order to comply with REIT requirements, our current firm commitments (capital expenditures and expected funding requirements on development projects) and debt service obligations for the next twelve months (including contractual interest payments and our December 2023 debt maturity of approximately $450 million). If the sale of three Prospect facilities (as more fully described in Note 8 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K) are consummated in 2023, we would have additional liquidity.

Long-term Liquidity Requirements:

As of February 17, 2023, our liquidity approximates $1.2 billion. We believe that this liquidity, along with monthly cash receipts from rent and loan interest (of which 99% of such leases and mortgage loans include escalation provisions that compound annually) and regular distributions from our joint venture arrangements, is sufficient to fund our operations, interest obligations, debt principal payments coming due in 2023, our current firm commitments, and dividends in order to comply with REIT requirements.

However, in order to make additional investments, to fund other debt maturities coming due in 2024 and beyond (as outlined below in our commitment schedule), or to strategically refinance any existing debt in order to reduce interest rates, or to further improve our leverage ratios, we may need to access one or a combination of the following sources of capital:

•
strategic property sales or joint ventures (including sale of three Prospect facilities as described in Note 8 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K);

•
sale of equity securities;

•
new bank term loans;

•
new USD, EUR, or GBP denominated debt securities, including senior unsecured notes; and/or

•
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.

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Contractual Commitments

The following table summarizes known material contractual commitments including debt service commitments (principal and interest payments) as of February 17, 2023 (amounts in thousands):

(1)
We used the exchange rates at February 17, 2023 in preparing this table.

(2)
As of February 17, 2023, we have a $1.8 billion revolving credit facility. This table assumes the balance outstanding under the revolver (which was $939 million as of February 17, 2023) and interest rate in effect at February 17, 2023 remain in effect through maturity.

(3)
Much 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)
Includes approximately $239.2 million of future expenditures related to development projects and $436.6 million of future expenditures on committed capital improvement projects.

Results of Operations

Our operating results may vary significantly from year-to-year due to a variety of reasons including acquisitions made during the year, incremental revenues and expenses from acquisitions made in the prior year, revenues and expenses from completed development properties, property disposals, annual escalation provisions, foreign currency exchange rate changes, new or amended debt agreements, issuances of shares through an equity offering, impact from accounting changes, etc. Thus, our operating results for the current year are not necessarily indicative of the results that may be expected in future years.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Net income for the year ended December 31, 2022, was $902.6 million ($1.50 per diluted share) compared to net income of $656.0 million ($1.11 per diluted share) for the year ended December 31, 2021. This 38% increase in net income is primarily due to $0.5 billion of gains on sales of real estate in 2022 (including the Macquarie Transaction as described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K), incremental revenue from new investments and annual escalations, and lower tax expense due to the unfavorable adjustment in 2021 to recognize an increase in the United Kingdom corporate income tax rate, partially offset by $283 million of impairment charges related to our tenant, Prospect (see Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details), $41.9 million of straight-line rent write-offs related to our sale of non-Macquarie Transaction disposals, and higher depreciation expense and general and administrative costs. Normalized FFO, after adjusting for certain items (as more fully described in the section titled “Non-GAAP Financial Measures” in this Item 7 of this Annual Report on Form 10-K), was $1.1 billion for 2022, or $1.82 per diluted share, as compared to $1.0 billion, or $1.75 per diluted share, for 2021. This 5% increase in Normalized FFO is primarily due to incremental revenue from new investments made in 2021 and 2022 and annual escalations.

A comparison of revenues for the years ended December 31, 2022 and 2021 is as follows (dollar amounts in thousands):

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Our total revenues for 2022 are down $1.8 million or 0.1% over the prior year. This change is made up of the following:

•
Operating lease revenue (includes rent billed and straight-line rent) — was basically flat year over year. However, from a detailed perspective, 2022 saw a decrease in approximately $165.8 million from disposals in 2021 and 2022 (including a $96.9 million decrease from the properties disposed of in the Macquarie Transaction as described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K, along with lower revenues due to Prime Healthcare Services, Inc.'s ("Prime") repurchase transaction in the 2022 third quarter and $41.9 million of straight-line rent and other write-offs associated with non-Macquarie Transaction disposals in 2022) and $36.2 million from unfavorable foreign currency fluctuations. This decrease was partially offset by $172.5 million of incremental revenue from acquisitions made in late 2021 (including approximately $55.8 million from Springstone) and 2022 (primarily our Finland acquisition in the 2022 first quarter). In addition, rent revenues are up approximately $23 million year-over-year from increases in CPI above the contractual minimum escalations in our leases, $1.5 million from capital additions in 2022, and $4.8 million from the commencement of rent on a development property in the first quarter of 2022.

•
Income from financing leases — up $1.0 million as 2022 annual rent escalations exceeded lease contractual minimums due to the increase in CPI by approximately $5.3 million, partially offset by $4.3 million of lower revenues from the disposal of two financing leases related to the Prime repurchase transaction in the 2022 third quarter.

•
Interest and other income — down $2.5 million from the prior year due to the following:

o
Interest from loans — down $10.8 million over the prior year due to $41.5 million from loan payoffs, including $37.4 million of less interest revenue earned on the Priory loans from the conversion of the £800 million mortgage loan to fee simple assets in the second quarter of 2021 and the repayment of the £250 million acquisition loan in the 2021 fourth quarter as described in Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K, along with approximately $7.7 million of unfavorable foreign currency fluctuations. This decrease is partially offset by $37.2 million of incremental revenue earned on new investments, including Springstone in the 2021 fourth quarter and the Priory syndicated loan in the 2022 first quarter and higher income from annual escalations due to increases in CPI of approximately $1.2 million.

o
Other income — up $8.3 million from the prior year as we received more direct reimbursements from our tenants for ground lease, property taxes, and insurance.

Interest expense for 2022 and 2021 totaled $359.0 million and $367.4 million, respectively. This decrease is related to lowering our outstanding debt using proceeds from the Macquarie Transaction and other property sales, the reduction of the interest rate on our €500 million senior unsecured notes tranche in October 2021 from 4.000% to 0.993%, and foreign currency fluctuations. Overall, our weighted-average interest rate was 3.3%, same as 2021.

Real estate depreciation and amortization during 2022 increased to $333.0 million from $321.2 million in 2021 due to new investments made in 2021 and 2022, partially offset by foreign currency fluctuations and property sales in 2022.

Property-related expenses for 2022 increased to $45.7 million, compared to $39.1 million in 2021. Of the property expenses in 2022 and 2021, approximately $36 million and $28 million, respectively, represents costs that were reimbursed by our tenants and included in the “Interest and other income” line on our consolidated statements of net income. Excluding the reimbursable amounts, property expenses are $1.4 million less in 2022 compared to 2021 due to the re-leasing and sales of vacant properties in 2022.

As a percentage of revenue and after adjusting for non-cash rent write-offs noted above, general and administrative expenses represented 10.1% for 2022, slightly higher than 9.4% in the prior year. On a dollar basis, general and administrative expenses totaled $160.5 million for 2022, which is a $14.9 million increase from 2021. This increase reflects continued ESG efforts in additional charitable giving, further board diversification, and additional benefits to our employees, along with higher professional expenses. Compensation expense was slightly lower overall compared to 2021, as the cost of additional non-executive headcount and benefits were more than offset by a reduction in stock and cash bonus compensation expense.

During the year ended December 31, 2022, we realized $536.8 million from the sales of real estate, including the completion of 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 11 facilities previously leased to Prime, resulting in a gain on real estate of approximately $67 million. In addition, we disposed of four other properties and five ancillary properties, resulting in a net gain of $33 million. In comparison, we sold 16 properties and one ancillary property in 2021 for a net gain of $52.5 million.

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In December 2022, we recorded a $283 million impairment charge related to our tenant, Prospect - see Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details. As part of this charge, we reduced the carrying value of the Pennsylvania real estate by $171 million and reserved all non-cash rent, representing $112 million. We expect to record rent on our Prospect leases on a cash only basis for the foreseeable future.

In 2021, we recorded an approximate $40 million impairment charge related to loans made to the previous operator for services to continue at our Watsonville Community Hospital - see Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further details. In 2022 and after finding a replacement operator through a bankruptcy process with the former operator, we were repaid a significant amount of this loan, resulting in a net credit loss recovery of approximately $15 million.

Earnings from equity interests was $40.8 million for 2022, up $12.3 million from 2021. This increase is primarily due to $13.0 million of income generated on our Massachusetts-based partnership with MAM entered into during March 2022 (part of the Macquarie Transaction) and approximately $4 million of dividend income we received in 2022 from our Switzerland investments (see Note 3 to the consolidated financial statements in Item 8 to this Annual Report on Form 10-K for more detail), partially offset by the loss of equity interest income from the remaining 50% interest of the IMED Hospitales joint venture that we acquired during December 2021 and the impact from foreign currency fluctuations.

Debt refinancing and unutilized financing costs were $9.5 million in 2022 due to the termination of our $1 billion interim credit facility in March 2022 and the amendment of our Credit Facility in the second quarter of 2022 (see Note 4 to Item 8 of this Annual Report on Form 10-K for further details). In 2021, these costs were $27.7 million as a result of the early termination of our $900 million interim credit facility and 4.000% Senior Unsecured Notes due 2022 in the fourth quarter of 2021.

Other income for 2022 was $15.3 million compared to $45.7 million in 2021. Other income in 2022 includes unrealized gains on our investments in marketable securities plus dividend income on such investments in 2022. In regards to 2021, in addition to unrealized gains from our investment in marketable securities, we realized approximately $40 million in net pre-tax gains on the sale of investments in operators (two of which were in Europe).

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 $55.9 million income tax expense for 2022 is primarily based on the income generated by our investments in the United Kingdom, Colombia, and Australia along with an additional $5 million U.S. tax expense related to our Watsonville loan recovery in 2022. In comparison, we incurred a $73.9 million income tax expense in 2021 from income generated by our investments in the United Kingdom, Colombia, and Australia, including an adjustment to our net deferred tax liabilities of approximately $43 million to reflect an increase in the United Kingdom corporate tax rate from 19% to 25%, partially offset by an approximate $10 million U.S. tax benefit from the Watsonville loan impairment in 2021. For more detailed information, see Note 5 to Item 8 of this Annual Report on Form 10-K.

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 $71 million should be reflected against certain of our international and domestic net deferred tax assets at December 31, 2022. 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 incur higher income taxes in future periods as income is earned. For more detailed information, see Note 5 to Item 8 of this Annual Report on Form 10-K.

Non-GAAP Financial Measures

We consider non-GAAP financial measures to be useful supplemental measures of our operating performance. A non-GAAP financial measure is a measure of financial performance, financial position, or cash flows that excludes or includes amounts that are not so excluded from or included in the most directly comparable measure calculated and presented in accordance with GAAP. Described below are the non-GAAP financial measures used by management to evaluate our operating performance and that we consider most useful to investors, together with reconciliations of these measures to the most directly comparable GAAP measures.

Funds From Operations and Normalized Funds From Operations

Investors and analysts following the real estate industry utilize funds from operations ("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,

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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 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 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 income attributable to MPT common stockholders to FFO and Normalized FFO for the years ended December 31, 2022 and 2021 (amounts in thousands except per share data):

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Total Adjusted Gross Assets

Total adjusted gross assets is total assets before accumulated depreciation/amortization (adjusted for our investments in unconsolidated real estate joint ventures), assumes material transaction commitments are completed, and assumes cash on hand at period-end and cash generated from or to be generated from transaction commitments or financing activities subsequent to period-end are either used in these transactions or used to reduce debt. We believe total adjusted gross assets is useful to investors as it provides a more current view of our portfolio and allows for a better understanding of our concentration levels as our commitments close. The following table presents a reconciliation of total assets to total adjusted gross assets (in thousands):

(1)
Reflects an addition to total assets to present our total share of each joint venture's gross assets. See below for details of the calculation. While we do not control any of our unconsolidated real estate joint venture arrangements and do not have direct legal claim to the underlying assets of the unconsolidated real estate joint ventures, we believe this adjustment allows investors to view certain concentration information on a basis comparable to the remainder of our real estate portfolio. This presentation is also consistent with how our management team reviews our portfolio (dollar amounts in thousands):

(A) Includes amount shown on the "Investments in unconsolidated real estate joint ventures" line on our consolidated balance sheets, along with a CHF 60 million mortgage loan included in the "Mortgage loans" line on our consolidated balance sheet for 2022 and $0.4 billion for the Macquarie Transaction for 2021.

(2)
The 2022 column reflects a reclass of $0.8 billion of gross assets between Springstone and Lifepoint along with a $0.9 billion reclass of gross assets between Steward and CommonSpirit Health as part of the transactions described in Note 13 to Item 8 of this Annual Report on Form 10-K.

(3)
Represents the gross book value of assets sold or written off due to the committed transactions, partially offset by the addition of new gross assets from the committed transactions. See detail below (in thousands):

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(4)
Represents cash expected from the proceeds generated by the transactions along with cash on hand to fund the transactions or reduce debt as detailed below (in thousands):

Total Adjusted Revenues

Total adjusted revenues are total revenues adjusted for our pro rata portion of similar revenues in our unconsolidated real estate joint venture arrangements. We believe total adjusted revenues are useful to investors as it provides a more complete view of revenues across all of our investments and allows for better understanding of our revenue concentration. The following table presents a reconciliation of total revenues to total adjusted revenues (in thousands):

Distribution Policy

We have elected to be taxed as a REIT commencing with our taxable year that began on April 6, 2004 and ended on December 31, 2004. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gain, to our stockholders. It is our current intention to comply with these requirements and maintain such status going forward.

The table below is a summary of our distributions declared for the three year period ended December 31, 2022:

On February 16, 2023, we announced that our Board of Directors declared a regular quarterly cash dividend of $0.29 per share of common stock to be paid on April 13, 2023, to stockholders of record on March 16, 2023.

We intend to pay to our stockholders, within the time periods prescribed by the 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, although there is no assurance as to further dividends because they depend

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on future earnings, capital requirements, and our financial condition. In addition, our Credit Facility limits the amount of dividends we can pay — see Note 4 to our consolidated financial statements in Item 8 to this Annual Report on Form 10-K for further information.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to “our,” “we,” and “us” in this management’s discussion and analysis of financial condition and results of operations refer to Medical Properties Trust, Inc. and its consolidated subsidiaries, including MPT Operating Partnership, L.P.

Overview

We are a self-advised healthcare REIT that was incorporated in Maryland on August 27, 2003, primarily for the purpose of investing in and owning net-leased healthcare facilities. We may also make real estate mortgage loans and other loans to our tenants. We conduct our business operations in one segment. We currently have healthcare investments in the U.S., Europe, Australia, and South America. Our existing tenants are, and our prospective tenants will generally be, healthcare operating companies and other healthcare providers that use substantial real estate assets in their operations. We offer financing to these operators through 100% lease and mortgage financing and generally seek lease and loan terms on a long-term basis (typically initial fixed terms of at least 15 years) with a series of shorter renewal terms at the option of our tenants and borrowers. We also have included and intend to include in our lease and loan agreements annual contractual minimum rate increases. Our existing portfolio’s minimum escalators are typically at least 2.0%. In addition, most of our leases and loans include rate increases based on the general rate of inflation (based on CPI or similar indices) if greater than the minimum contractual increases. Beyond rent or mortgage interest, our leases and loans typically require our tenants to pay all operating costs and expenses associated with the facility. Finally, we may acquire a profits or other equity interest in our tenants that gives us a right to share in the tenant’s income or loss.

We may make loans to certain of our operators through our TRSs, which the operators use for acquisitions and working capital. We consider our lending business an important element of our overall business strategy for two primary reasons: (1) it provides opportunities to make income-earning investments that yield attractive risk-adjusted returns in an industry in which our management has expertise, and (2) by making debt capital available to certain qualified operators, we believe we create a competitive advantage for our company over other buyers of, and financing sources for, healthcare facilities.

Finally, we may also acquire a profits or other equity interest in certain of our tenants that gives us a right to share in such tenant’s profits and losses.

At December 31, 2021, our portfolio (including real estate assets in joint ventures) consisted of 438 properties leased or loaned to 53 operators, of which three were under development and five were in the form of mortgage loans.

The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020. For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

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Selected Financial Data

The following sets forth selected consolidated financial and operating data. You should read the following selected financial data in conjunction with the consolidated financial statements and notes thereto of each of Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. and their respective subsidiaries included in Item 8 to this Annual Report on Form 10-K.