Stock Awards

12 Months Ended

Dec. 31, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Awards

7. Stock Awards

Stock Awards

Our Equity Incentive Plan authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units and awards of interests in our Operating Partnership. Our Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. We have reserved 8,196,770 shares of common stock for awards under the Equity Incentive Plan and 976,073 shares remain available for future stock awards as of December 31, 2018. The Equity Incentive Plan contains a limit of 5,000,000 shares as the maximum number of shares of common stock that may be awarded to an individual in any fiscal year. Awards under the Equity Incentive Plan are subject to forfeiture due to termination of employment prior to vesting and/or from not achieving the respective performance/market conditions on performance-based awards. In the event of a change in control, outstanding and unvested options will immediately vest, unless otherwise provided in the participant’s award or employment agreement, and restricted stock, restricted stock units, deferred stock units and other stock-based awards will vest if so provided in the participant’s award agreement. The term of the awards is set by the Compensation Committee, though Incentive Stock Options may not have terms of more than ten years. Forfeited awards are returned to the Equity Incentive Plan and are then available to be re-issued as future awards. For each share of common stock issued by Medical Properties Trust, Inc. pursuant to its Equity Incentive Plan, the Operating Partnership issues a corresponding number of Operating Partnership units.

The following awards have been granted pursuant to our Equity Incentive Plan:

Restricted Equity Awards

These stock-based awards are in the form of service-based awards and performance awards based on either company-specific performance hurdles or certain market conditions.

Service-Based Awards

The service-based awards vest as the employee provides the required service (typically three years). Service based awards are valued at the average price per share of common stock on the date of grant. Dividends are generally paid on these awards prior to vesting. See table below for a summary of activity involving service-based awards.

Performance-Based Awards

In 2018, 2017, and 2016, the Compensation Committee granted performance-based awards to employees. Generally, dividends are not paid on performance awards until the award is earned. See below for details of such performance award grants:

2018 performance awards — The 2018 performance awards were granted in three parts:

1) Certain 2018 performance awards (target number) were granted based on the achievement of specific performance thresholds as set by our compensation committee. However, more or less shares than the target number of shares were allowed to be earned based on our performance. The pre-established performance thresholds for 2018 were as follows:

a) Approximately 40% of the target shares can be earned based on our return on equity (“ROE”), as defined by our compensation committee, over the period from January 1, 2018 through December 31, 2020, with the opportunity to earn one-third of the award in any one year. If our ROE was 12.5% or less for the performance period, 50% of these shares would be earned; if our ROE was at least equal to 13.0%, 100% of these shares would be earned; and, if our ROE was greater than or equal to 13.5%, 200% of these shares would be earned. The fair value of this award was based on the average price per share of common stock on the date of grant with the number of shares adjusted as needed based on the probability of such performance hurdles being met. Based on performance in 2018, one-third of the target shares was earned at 200%.

b) Approximately 40% of the target shares can be earned based on our earnings before interest expense, taxes, depreciation and amortization all in accordance with GAAP adjusted for other certain items (or “EBITDA”) as defined by our compensation committee, for the year ending December 31, 2020, with the opportunity to earn one-third of the award in any one year. If our EBITDA is at least equal to $720 million for either of the 2018 or 2019 years, or $775 million for 2020, 50% of these shares would be earned; if our EBITDA is at least equal to $740 million for either of the 2018 or 2019 years or $800 million for 2020, 100% of these shares would be earned; and, if our EBITDA is at least equal to $760 million for either of the 2018 or 2019 years or $825 million for 2020, 200% of these shares would be earned. The fair value of this award was based on the average price per share of common stock on the date of grant with the number of shares adjusted as needed based on the probability of such performance hurdles being met. Based on performance, one-third of the target shares was earned at 200%.

c) Approximately 20% of the target shares can be earned based on our completed acquisitions ("Acquisitions") as defined by our compensation committee, over the period from January 1, 2018 through December 31, 2020, with the opportunity to earn one-third of the award in any one year. If our Acquisitions were at least equal to $500 million for either of the 2018 or 2019 years or $1.5 billion for the cumulative three-year period; 50% of these shares would be earned; if our Acquisitions were at least equal to $750 million for either of the 2018 or 2019 years or $2.25 billion for the cumulative three-year period, 100% of these shares would be earned; and, if our Acquisitions were at least equal to $1.0 billion for either the 2018 or 2019 years or $3.0 billion for the cumulative three-year period, 200% of these shares would be earned. The fair value of this award was based on the average price per share of common stock on the date of grant with the number of shares adjusted as needed based on the probability of such performance hurdles being met. Based on performance, 73% of the target shares available in the first year of the measurement period was earned.

At the end of each of the performance periods, any earned shares during such period will vest on January 1 of the following calendar year.

2) Certain 2018 performance awards were subject to a modifier (which increases or decreases the actual shares earned in each performance period) based on how our total shareholder return compared to the SNL U.S. REIT Healthcare Index (“SNL Index”). If our total shareholder return is in the 75^th percentile of the SNL Index, the number of earned shares under this award is increased by 25%, if our total shareholder return is in the 55^th percentile of the SNL Index, the number of earned shares under this award had no change; and, if our total shareholder return is in the 35^th percentile of the SNL Index, the number of earned shares under this award is decreased by 25%. For 2018, our total shareholder return was in the 95^th percentile of the SNL index.

In 2018, 508,566 shares were earned but not vested, and 2,000 shares were forfeited. At December 31, 2018, we have 1,238,748 of 2018 performance awards remaining to be earned.

2017 performance awards — The 2017 performance awards were granted in three parts:

1) Certain 2017 performance awards (target number) were granted based on the achievement of specific performance thresholds as set by our compensation committee for the one-year performance period of 2017. However, more or less shares than the target number of shares were allowed to be earned based on our performance. The pre-established performance thresholds for 2017 were as follows:

a) Approximately 42% of the target shares were earned based on the achievement of a one-year total shareholder return as compared to the SNL Index over the period from January 1, 2017 through December 31, 2017. If the shareholder return was equal to the SNL Index minus 3% for the one-year period, 50% of these shares would be earned; while, if shareholder return was greater than or equal to the SNL Index plus 3%, 200% of these target shares would be earned. The fair value of this award was estimated on the grant date using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1%; expected volatility of 25%; expected dividend yield of 6.9%; and expected service period of three years.

b) Approximately 47% of the target shares were earned based on our return on equity (“ROE”), as defined by our compensation committee, over the period from January 1, 2017 through December 31, 2017. If our ROE was at least equal to 12.5% for the one-year period, 50% of these shares would be earned; and, if our ROE was greater than or equal to 13.5%, 200% of these shares would be earned. The fair value of this award was based on the average price per share of common stock on the date of grant with the number of shares adjusted as needed based on the probability of such performance hurdles being met. For this performance hurdle, 200% of the target shares was earned.

c) Approximately 11% of the target shares were earned based on general and administrative expenses (“G&A”) as a percentage of revenue, as defined by our compensation committee, over the period from January 1, 2017 through December 31, 2017. If our G&A as a percentage of revenue was no more than 10% for the one-year period, 50% of these shares would be earned; while, if our G&A as a percentage of revenue was 9% or less, 200% of these shares would be earned. The fair value of this award was based on the average price per share of common stock on the date of grant with the number of shares adjusted as needed based on the probability of such performance hurdles being met. For this performance hurdle, 200% of the target shares was earned.

At the end of the one-year performance period, all earned shares will vest in equal annual amounts on January 1, 2018, 2019, and 2020.

2) Certain other 2017 performance awards were based on the achievement of a multi-year cumulative total shareholder return as compared to pre-established returns set by our compensation committee. If the cumulative shareholder return from January 1, 2017 through December 31, 2019 is 27% or greater, then 30% of these shares will be earned (“2019 award”). If the cumulative shareholder return from January 1, 2017 through December 31, 2020 is 36% or greater, then 30% of these shares may be earned (“2020 award”). However, the maximum percentage cumulatively earned in connection with both the 2019 award and the 2020 award shall not exceed 30% of the total award. If the cumulative shareholder return from January 1, 2017 through December 31, 2021 is 45% or greater, then all remaining shares will be earned. At the end of each of the performance periods, any earned shares during such period will vest on January 1 of the following calendar year. The fair value of this award was estimated on the grant date using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1.9%; expected volatility of 25%; expected dividend yield of 6.9%; and expected service period of 5 years.

3) The final portion of our 2017 performance awards will be earned if our total shareholder return outpaces that of the SNL Index over the cumulative period from January 1, 2017 to December 31, 2019. Our total shareholder return must be within 3% of the SNL Index to earn the minimum number of shares under this award; while, it must exceed the SNL Index by 3% to earn 100% of the award. If any shares are earned from this award, the shares will vest in equal annual amounts on January 1, 2020, 2021, and 2022. The fair value of this award was estimated on the grant date using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1.5%; expected volatility of 25%; expected dividend yield of 6.9%; and expected service period of 3 years.

In 2018, 396,142 shares were earned but not vested, and 3,750 performance awards were forfeited. In 2017, 596,472 shares were earned but not vested, and 14,000 performance awards were forfeited. At December 31, 2018, we have 1,125,281 of 2017 performance awards remaining to be earned.

2016 performance awards — The 2016 performance awards were granted in two parts:

1) One-half of the 2016 performance awards were based on us achieving a cumulative total shareholder return from January 1, 2016 to December 31, 2018. The minimum total shareholder return needed to earn a portion of this award was 27.0% with 100% of the award earned if our total shareholder return reached 35.0%. Shares earned from this award vest in equal annual amounts on January 1, 2019, 2020, and 2021. The fair value of this award was estimated on the dates of grant using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1.0%; expected volatility of 24.4%; expected dividend yield of 7.0%; and expected service period of 5 years.

2) The remainder of the 2016 performance awards were to be earned if our total shareholder return outpaced that of the MSCI U.S. REIT Index (“MSCI Index”) over the cumulative period from January 1, 2016 to December 31, 2018. Our total shareholder return needed to be within 3% of the MSCI Index to earn the minimum number of shares under this award, while it had to exceed the MSCI Index by 3% to earn 100% of the award. Shares earned from this award vest in equal annual amounts on January 1, 2019, 2020, and 2021. The fair value of this award was estimated on the dates of grant using a Monte Carlo valuation model that assumed the following: risk free interest rate of 1.0%; expected volatility of 24.4%; expected dividend yield of 7.0%; and expected service period of 5 years.

In 2018, 779,004 shares were earned but not vested, while no shares were forfeited. In 2017 and 2016, no shares were earned and vested, while 16,000 and 2,400 awards were forfeited in 2017 and 2016, respectively.

The following summarizes restricted equity award activity in 2018 and 2017 (which includes awards granted in 2018, 2017, 2016, and any applicable prior years), respectively:

For the Year Ended December 31, 2018:

	Vesting Based on Service					Vesting Based on Market/Performance Conditions
	Shares			Weighted Average Value at Award Date		Shares			Weighted Average Value at Award Date
Nonvested awards at beginning of the year		276,280		$	12.68		2,676,755		$	7.86
Awarded		958,480		$	14.31		1,750,834		$	11.61
Vested		(307,275	)	$	12.92		(288,404	)	$	11.25
Forfeited		(3,637	)	$	13.05		(5,750	)	$	9.35
Nonvested awards at end of year		923,848		$	14.29		4,133,435		$	9.21

For the Year Ended December 31, 2017:

	Vesting Based on Service					Vesting Based on Market/Performance Conditions
	Shares			Weighted Average Value at Award Date		Shares			Weighted Average Value at Award Date
Nonvested awards at beginning of the year		347,128		$	13.35		1,811,675		$	6.78
Awarded		249,841		$	12.40		1,741,003		$	8.21
Vested		(304,613	)	$	12.86		(491,071	)	$	6.84
Forfeited		(16,076	)	$	12.75		(384,852	)	$	5.65
Nonvested awards at end of year		276,280		$	12.68		2,676,755		$	7.86

The value of stock-based awards is charged to compensation expense over the service periods. For the years ended December 31, 2018, 2017, and 2016, we recorded $16.5 million, $9.9 million, and $7.9 million, respectively, of non-cash compensation expense. The remaining unrecognized cost from restricted equity awards at December 31, 2018, is $34.9 million, which will be recognized over a weighted average period of 2.1 years. Restricted equity awards that vested in 2018, 2017, and 2016, had a value of $8.4 million, $10.4 million, and $12.7 million, respectively.