Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

Medical Properties Trust, Inc.

We have maintained and intend to maintain our election as a REIT under the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to U.S. federal income tax if we distribute 100% of our REIT taxable income to our stockholders and satisfy certain other requirements; instead, income tax is paid directly by our stockholders on the dividends distributed to them. If our REIT taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates. Taxable income from non-REIT activities managed through our TRS entities is subject to applicable U.S. federal, state, and local income taxes. Our international subsidiaries are also subject to income or other taxes in the jurisdictions in which they operate.

From our TRS entities and our foreign operations, income tax benefit (expense) were as follows (in thousands):

	For the Years Ended December 31,
	2023			2022			2021
Current income tax (expense) benefit:
Domestic	$	(7,756	)	$	1,111		$	(1,559	)
Foreign		(24,257	)		(27,751	)		(18,964	)
		(32,013	)		(26,640	)		(20,523	)
Deferred income tax (expense) benefit:
Domestic		8,926			(15,628	)		6,915
Foreign		153,766			(13,632	)		(60,340	)
		162,692			(29,260	)		(53,425	)
Income tax benefit (expense)	$	130,679		$	(55,900	)	$	(73,948	)

A reconciliation of income tax benefit (expense) from the statutory income tax rate to the effective tax rate based on (loss) income before income taxes for the years ended December 31, 2023, 2022, and 2021 is as follows (in thousands):

	For the Years Ended December 31,
	2023			2022			2021
(Loss) income before income tax	$	(686,771	)	$	959,719		$	730,888
Income tax benefit (expense) at the U.S. statutory federal rate (21% in 2023, 2022, and 2021)		144,222			(201,541	)		(153,486	)
Decrease (increase) in income tax resulting from:
Foreign rate differential		(4,122	)		1,826			2,742
State income taxes, net of federal benefit		1,275			(1,886	)		—
U.S. earnings not subject to federal income tax		(115,189	)		165,705			132,266
Change in valuation allowance		(45,692	)		(11,281	)		(10,040	)
Statutory tax rate change		—			(941	)		(43,924	)
Interest disallowance		(3,421	)		(1,737	)		(646	)
Tax Impact of UK REIT conversion		160,641			—			—
Other items, net		(7,035	)		(6,045	)		(860	)
Total income tax benefit (expense)	$	130,679		$	(55,900	)	$	(73,948	)

In 2023, we elected to move a majority of our U.K. assets into a U.K. REIT regime with an effective date of July 1, 2023. With this election, we adjusted the deferred tax liabilities associated with these properties, resulting in a $161 million income tax benefit. Going forward, these U.K. assets will be subject only to a withholding tax on earnings upon distribution out of the U.K. REIT.

In 2022, we incurred approximately $5 million of income tax expense from the credit loss recovery on loans made to the Watsonville Community Hospital; whereas, in 2021, we recorded an approximate $10 million income tax benefit related to the initial loan impairment.

During the 2021 second quarter, the U.K. enacted an increase in its corporate income tax rates from 19% to 25% effective April 1, 2023, which resulted in a one-time adjustment to our net deferred tax liabilities of approximately $43 million.

The foreign provision for income taxes is based on foreign profit before income taxes of $6.3 million, $159.6 million, and $164.0 million in 2023, 2022, and 2021, respectively.

The domestic provision for income taxes is based on income (loss) before income taxes of $(144.5) million in 2023, $10.8 million in 2022, and $(29.7) million in 2021 from our TRS entities.

At December 31, 2023 and 2022, components of our deferred tax assets and liabilities were as follows (in thousands):

	2023			2022
Deferred tax assets:
Operating loss and interest deduction carry forwards	$	143,683		$	175,922
Depreciation		45,146			—
Partnership investments		15,768			—
Other		18,899			15,218
Total deferred tax assets		223,496			191,140
Valuation allowance		(117,191	)		(71,499	)
Total net deferred tax assets	$	106,305		$	119,641
Deferred tax liabilities:
Property and equipment	$	(158,330	)	$	(294,181	)
Net unbilled revenue		(65,727	)		(63,324	)
Partnership investments		—			(26,268	)
Other		(10,687	)		(27,153	)
Total deferred tax liabilities		(234,744	)		(410,926	)
Net deferred tax asset (liability)	$	(128,439	)	$	(291,285	)

At December 31, 2023, we had net NOL and other tax attribute carryforwards as follows (in thousands):

	U.S.			Foreign
Gross NOL carryforwards	$	169,970		$	458,913
Tax-effected NOL carryforwards	$	28,056		$	114,359
Valuation allowance		(27,956	)		(4,702	)
Net deferred tax asset - NOL carryforwards	$	100		$	109,657
Expiration periods	2024-indefinite			indefinite

Valuation Allowance

A valuation allowance has been recorded on certain foreign and domestic net operating loss carryforwards and other net deferred tax assets that may not be realized. As of each reporting date, we consider all new evidence that could impact the future realization of our deferred tax assets. In the evaluation of the need for a valuation allowance on our deferred income tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred income tax liabilities, carryback of future period losses to prior periods, projected future taxable income, tax planning strategies, and recent financial performance.

During 2023, a valuation allowance of $45.7 million has been recorded against a portion of our deferred tax assets to recognize only the components of the deferred tax assets that is more likely than not to be realized. The valuation allowance was primarily recorded against deferred tax assets for NOLs, non-depreciable basis of real property, and other tax attributes that we believe will not be realized. Valuation allowance activity recorded generally follows the activity of the associated deferred tax asset that is not expected to be recognized. From time-to-time, we may acquire deferred tax assets as part of real estate transactions and will assess the need for a valuation allowance as part of the opening balance sheet. Additionally, valuation allowances will be remeasured for foreign currency translation fluctuations through other comprehensive income.

We have no material uncertain tax position liabilities and related interest or penalties.

REIT Status

We have met the annual REIT distribution requirements by payment of at least 90% of our REIT taxable income in 2023, 2022, and 2021. Earnings and profits, which determine the taxability of such distributions, will differ from net income reported for financial reporting purposes due primarily to differences in cost basis, differences in the estimated useful lives used to compute depreciation, and differences between the allocation of our net income and loss for financial reporting purposes and for tax reporting purposes.

A schedule of per share distributions we paid and reported to our stockholders is set forth in the following:

	For the Years Ended December 31,
Per share:	2023			2022		2021
Ordinary dividend (1)	$	1.0639		$	0.4703	$	0.7646
Long-term capital gain (2)		0.1061			0.6797		0.1654
Return of capital		—			—		0.1800
Total	$	1.1700	(3)	$	1.1500	$	1.1100

(1)For the years ended December 31, 2023, 2022, and 2021, includes Section 199A dividends of 1.0639, 0.4703, and 0.7646, respectively.

(2)For the years ended December 31, 2023, 2022, and 2021, includes Unrecaptured Section 1250 gains of 0.1061, 0.2574, and 0.0583, respectively.

(3)Includes the fourth quarter dividend declared on November 9, 2023, and paid on January 11, 2024, as it will be taxable to stockholders as part of their 2023 dividend income.

Similar to our U.S. REIT, we have met all requirements of our U.K. REIT as of December 31, 2023.

MPT Operating Partnership, L.P.

As a partnership, the allocated share of income of the Operating Partnership is included in the income tax returns of the general and limited partners. Accordingly, no accounting for income taxes is generally required for such income of the Operating Partnership. However, the Operating Partnership has formed TRS entities on behalf of Medical Properties Trust, Inc., which are subject to U.S. federal, state, and local income taxes at regular corporate rates, and its international subsidiaries are subject to income and other taxes in the jurisdictions in which they operate. See discussion above under Medical Properties Trust, Inc. for more details of income and other taxes associated with our TRS entities and international operations.