Income Taxes

12 Months Ended

Dec. 31, 2021

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 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 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 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, including any applicable alternative minimum tax. 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 taxes in the jurisdictions in which they operate.

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

	For the Years Ended December 31,
	2021			2020			2019
Current income tax (expense) benefit:
Domestic	$	(1,559	)	$	63		$	61
Foreign		(18,964	)		(10,203	)		(1,669	)
		(20,523	)		(10,140	)		(1,608	)
Deferred income tax (expense) benefit:
Domestic		6,915			(10,680	)		5,490
Foreign		(60,340	)		(10,236	)		(1,261	)
		(53,425	)		(20,916	)		4,229
Income tax (expense) benefit	$	(73,948	)	$	(31,056	)	$	2,621

A reconciliation of income tax (expense) benefit from the statutory income tax rate to the effective tax rate based on income before income taxes for the years ended December 31, 2021, 2020, and 2019 is as follows (in thousands):

	For the Years Ended December 31,
	2021			2020			2019
Income before income tax	$	730,888		$	463,328		$	373,780
Income tax at the U.S. statutory federal rate (21% in    2021, 2020, and 2019)		(153,486	)		(97,299	)		(78,494	)
Decrease (increase) in income tax resulting from:
Foreign rate differential		2,742			2,160			438
State income taxes, net of federal benefit		—			970			1,621
U.S. earnings not subject to federal income tax		132,266			82,921			85,495
Equity investments		—			380			1,091
Change in valuation allowance		(10,040	)		(8,514	)		(7,911	)
Statutory tax rate change		(43,924	)		(9,471	)		—
Interest disallowance		(646	)		—			—
Other items, net		(860	)		(2,203	)		381
Total income tax (expense) benefit	$	(73,948	)	$	(31,056	)	$	2,621

The foreign provision for income taxes is based on foreign profit before income taxes of $164.0 million, $62.1 million, and $10.7 million in 2021, 2020, and 2019, respectively.

The domestic provision for income taxes is based on income (loss) before income taxes of $(29.7) million in 2021, $6.4 million in 2020, and $(44.1) million in 2019 from our TRS entities.

At December 31, 2021 and 2020, components of our deferred tax assets and liabilities were as follows (in thousands):

	2021			2020
Deferred tax assets:
Operating loss and interest deduction carry forwards	$	197,876		$	150,001
Interest rate swap		—			9,150
Other		1,815			6,973
Total deferred tax assets		199,691			166,124
Valuation allowance		(61,747	)		(36,977	)
Total net deferred tax assets	$	137,944		$	129,147
Deferred tax liabilities:
Property and equipment	$	(320,546	)	$	(211,018	)
Net unbilled revenue		(43,366	)		(14,776	)
Partnership investments		(15,963	)		—
Other		(3,836	)		(4,010	)
Total deferred tax liabilities		(383,711	)		(229,804	)
Net deferred tax asset (liability)	$	(245,767	)	$	(100,657	)

During the 2021 second quarter, the United Kingdom 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. Similarly, in the 2020 third quarter, we incurred an approximate $9 million charge for the change in the corporate income tax rate from 17% to 19% in the United Kingdom.

At December 31, 2021, we had net NOL and other tax attribute carryforwards as follows (in thousands):

	U.S.			Foreign
Gross NOL carryforwards	$	239,520		$	699,514
Tax-effected NOL carryforwards	$	28,837		$	169,039
Valuation allowance		(6,291	)		(45,578	)
Net deferred tax asset - NOL carryforwards	$	22,546		$	123,461
Expiration periods	2030-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 2021, a valuation allowance of $24.8 million has been recorded against a portion of our international 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 taxable income in 2021, 2020, and 2019. 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,
	2021		2020		2019
Common share distribution	$	1.110000	$	1.070000	$	1.010000
Ordinary income		0.764580		0.603050		0.701910
Capital gains(1)		0.165420		—		0.275040
Unrecaptured Sec. 1250 gain		0.058270		—		0.041160
Section 199A Dividends		0.764580		0.603050		0.701910
Return of capital		0.180000		0.466950		0.033050

(1) Capital gains include unrecaptured Sec. 1250 gains.

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 taxes in the jurisdictions in which they operate. See discussion above under Medical Properties Trust, Inc. for more details of income taxes associated with our TRS entities and international operations.