FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-32559
Medical Properties Trust,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Maryland
(State or Other Jurisdiction
of Incorporation or Organization)
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20-0191742
(IRS Employer Identification
No.)
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1000 Urban Center Drive, Suite 501
Birmingham, AL
(Address of Principal
Executive Offices)
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35242
(Zip
Code)
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(205) 969-3755
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment of this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of
6/30/2008,
the aggregate market value of the 64,166,383 shares of
common stock, par value $0.001 per share (Common
Stock), held by non-affiliates of the Registrant was
$649,363,796 based upon the last reported sale price of $10.12
on the New York Stock Exchange. For purposes of the foregoing
calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.
As of March 1, 2009, 80,119,558 shares of the
Registrants Common Stock were outstanding.
Portions of the Registrants definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 21,
2009 are incorporated by reference into Part III,
Items 10 through 14 of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
A WARNING
ABOUT FORWARD LOOKING STATEMENTS
We make forward-looking statements in this Annual Report on
Form 10-K
that are subject to risks and uncertainties. These
forward-looking statements include information about possible or
assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives.
Statements regarding the following subjects, among others, are
forward-looking by their nature:
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our business strategy;
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our projected operating results;
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our ability to acquire or develop net-leased facilities;
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availability of suitable facilities to acquire or develop;
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our ability to enter into, and the terms of, our prospective
leases and loans;
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our ability to raise additional funds through offerings of our
debt and equity securities;
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our ability to obtain future financing arrangements;
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estimates relating to, and our ability to pay, future
distributions;
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our ability to compete in the marketplace;
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lease rates and interest rates;
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market trends;
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projected capital expenditures; and
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the impact of technology on our facilities, operations and
business.
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The forward-looking statements are based on our beliefs,
assumptions and expectations of our future performance, taking
into account information currently available to us. These
beliefs, assumptions and expectations can change as a result of
many possible events or factors, not all of which are known to
us. If a change occurs, our business, financial condition,
liquidity and results of operations may vary materially from
those expressed in our forward-looking statements. You should
carefully consider these risks before you make an investment
decision with respect to our common stock and other securities,
along with, among others, the following factors that could cause
actual results to vary from our forward-looking statements:
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the factors referenced in this Annual Report on
Form 10-K,
including those set forth under the sections captioned
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations;
and Our Business.
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general volatility of the capital markets and the market price
of our common stock;
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changes in our business strategy;
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changes in healthcare laws and regulations;
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availability and terms of capital;
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availability of qualified personnel;
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changes in our industry, interest rates or the general economy;
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the degree and nature of our competition;
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national and local economic, business, real estate and other
market condition;
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the competitive environment in which we operate;
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the execution of our business plan;
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financing risks;
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(i)
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acquisition and development risks;
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potential environmental contingencies, and other liabilities;
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other factors affecting the real estate industry generally or
the healthcare real estate industry in particular;
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our ability to attain and maintain our status as a REIT for
federal and state income tax purposes; and
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the impact of the current credit crisis and global economic
slowdown, which is having and may continue to have a negative
effect on the following, among other things:
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the financial condition of our tenants, our lenders,
counterparties to our capped call transactions and institutions
that hold our cash balances, which may expose us to increased
risks of default by these parties;
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our ability to obtain debt financing on attractive terms or at
all, which may adversely impact our ability to pursue
acquisition and development opportunities and refinance existing
debt and our future interest expense; and
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the value of our real estate assets, which may limit our ability
dispose of assets at attractive prices or obtain or maintain
debt financing secured by our properties or on an unsecured
basis.
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When we use the words believe, expect,
may, potential, anticipate,
estimate, plan, will,
could, intend or similar expressions, we
are identifying forward-looking statements. You should not place
undue reliance on these forward-looking statements. We are not
obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Except as required by law, we disclaim any obligation to update
such statements or to publicly announce the result of any
revisions to any of the forward-looking statements contained in
this Annual Report on
Form 10-K
to reflect future events or developments.
(ii)
PART I
Overview
We are a self-advised real estate investment trust
(REIT) that acquires, develops, leases and makes
other investments in healthcare facilities providing
state-of-the-art
healthcare services. We lease our facilities to healthcare
operators pursuant to long-term net leases, which require the
tenant to bear most of the costs associated with the property.
In addition, we make long-term, interest-only mortgage loans to
healthcare operators, and from time to time, we also make
working capital and acquisition loans to our tenants.
We were formed as a Maryland corporation on August 27, 2003
to succeed to the business of Medical Properties Trust, LLC, a
Delaware limited liability company, which was formed by one of
our founders in December 2002. We have operated as a REIT since
April 6, 2004, and accordingly, elected REIT status upon
the filing in September 2005 for our calendar year 2004 Federal
income tax return. To qualify as a REIT, we make 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 are not subject to corporate
federal income tax with respect to income distributed to our
stockholders. See Note 5 of Item 8 in Part II of
this Annual Report on
Form 10-K
for information on income taxes.
We conduct substantially all of our business through our
subsidiaries, MPT Operating Partnership, L.P., and MPT
Development Services, Inc. (our taxable REIT subsidiary)
References in this Annual Report on
Form 10-K
to Medical Properties Trust, Medical
Properties, we, us,
our, and the Company include Medical
Properties Trust, Inc. and our subsidiaries.
Since April 2004, we have issued at various times approximately
63.4 million shares of common stock for net proceeds of
approximately $668.1 million. At March 1, 2009, we
have approximately $1.3 billion invested in healthcare real
estate and related assets.
Our investment in healthcare real estate, including mortgage
loans and other loans to certain of our tenants, is considered a
single reportable segment as further discussed in our
Consolidated Financial Statements, Note 2
Summary of Significant Accounting Policies, in
Part II, Item 8 of this Annual Report on
Form 10-K.
All of our investments are located in the United States, and we
have no present plans to invest in
non-U.S. markets
in the foreseeable future. The following is our revenue by
operating type for the year ended December 31 (dollars in
thousands):
Revenue
by property type:
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2008
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2007
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2006
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General Acute Care Hospitals
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$
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82,439
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70.1
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%
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$
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60,158
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73.6
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%
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$
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20,175
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55.4
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Long-term Acute Care Hospitals
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25,200
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21.4
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17,939
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21.9
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13,524
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37.2
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Rehabilitation Hospitals
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7,418
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6.3
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3,689
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4.5
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2,704
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7.4
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Wellness Centers
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1,612
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1.4
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0
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0
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%
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Medical Office Buildings
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894
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0.8
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0
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%
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0
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%
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Total revenue
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$
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117,563
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100.0
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%
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$
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81,786
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100.0
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%
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36,403
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100
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%
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During 2008, we:
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invested approximately $431 million in new healthcare real
estate assets;
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increased total portfolio assets 41% to approximately
$1.3 billion at December 31, 2008;
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sold three facilities operated by Vibra Healthcare for proceeds
of $105 million;
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increased total revenues by 44% for 2008; and
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completed offerings of 12,650,000 shares of common stock
and $82.0 million in exchangeable notes
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1
Portfolio
of Properties
As of March 1, 2009, our portfolio consisted of 51
properties: 48 facilities which we own are leased to 13 tenants
and the three investments in facilities are in the form of
mortgage loans to two operators. Our owned facilities consisted
of 21 general acute care hospitals, 13 long-term acute care
hospitals, 6 inpatient rehabilitation hospitals, 2 medical
office buildings, and 6 wellness centers. The non-owned
facilities on which we have made mortgage loans consist of
general acute care facilities. We intend to continue to focus on
investments in licensed hospitals as our primary line of
business.
Outlook
and Strategy
Our strategy is to lease the facilities that we acquire or
develop to experienced healthcare operators pursuant to
long-term net leases. Alternatively, we have structured certain
of our investments as long-term, interest-only mortgage loans to
healthcare operators, and we may make similar investments in the
future. The market for healthcare real estate is extensive and
includes real estate owned by a variety of healthcare operators.
We focus on acquiring and developing those net-leased facilities
that are specifically designed to reflect the latest trends in
healthcare delivery methods. These facilities include but are
not limited to: physical rehabilitation hospitals, long-term
acute care hospitals, and general acute care hospitals.
Healthcare is the single largest industry in the United States
(U.S.) based on Gross Domestic Product
(GDP). According to the National Health Expenditures
report released in January 2008 by the Centers for Medicare and
Medicaid Services (CMS), the healthcare industry
represented 16.0% of U.S. GDP in 2008 and was projected to
represent 20% by 2018.
The delivery of healthcare services requires real estate and, as
a consequence, healthcare providers depend on real estate to
maintain and grow their businesses. We believe that the
healthcare real estate market provides investment opportunities
due to the:
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compelling demographics driving the demand for healthcare
services;
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specialized nature of healthcare real estate investing; and
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ongoing consolidation of the fragmented healthcare real estate
sector.
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Our revenues are derived from rents we earn pursuant to the
lease agreements with our tenants and from interest income from
loans to our tenants and other facility owners. Our tenants and
borrowers operate in the healthcare industry, generally
providing medical, surgical and rehabilitative care to patients.
The capacity of our tenants to pay our rents and interest is
dependent upon their ability to conduct their operations at
profitable levels. We believe that the business environment of
the industry segments in which our tenants operate is generally
positive for efficient operators. However, our tenants
operations are subject to economic, regulatory and market
conditions that may affect their profitability. Accordingly, we
monitor certain key factors, changes to which we believe may
provide early indications of conditions that may affect the
level of risk in our lease and loan portfolio.
Key factors that we consider in underwriting prospective tenants
and borrowers and in monitoring the performance of existing
tenants and borrowers include the following:
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admission levels and surgery/procedural volumes by type;
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the historical and prospective operating margins (measured by a
tenants earnings before interest, taxes, depreciation,
amortization and facility rent) of each tenant or borrower and
at each facility;
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the ratio of our tenants and borrowers operating
earnings both to facility rent and to facility rent plus other
fixed costs, including debt costs;
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trends in the source of our tenants or borrowers
revenue, including the relative mix of Medicare,
Medicaid/MediCal, managed care, commercial insurance, and
private pay patients; and
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the effect of evolving healthcare regulations on our
tenants and borrowers profitability; and
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the competition and demographics of the local and surrounding
areas in which the tenants and borrowers operate.
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Our
Leases and Loans
The leases for our facilities are net leases with
terms requiring the tenant to pay all ongoing operating and
maintenance expenses of the facility, including property,
casualty, general liability and other insurance coverages,
utilities and other charges incurred in the operation of the
facilities, as well as real estate taxes, ground lease rent (if
any) and the costs of capital expenditures, repairs and
maintenance. Similarly, borrowers under our mortgage loan
arrangements retain the responsibilities of ownership, including
physical maintenance and improvements and all costs and
expenses. Our leases and loans also provide that our tenants
will indemnify us for environmental liabilities. Our current
leases and loans have remaining terms of 3 to 15 years and
generally provide for annual rent or interest escalation and, in
some cases, percentage rent, if any. In addition, in November
2008 we entered into a new lease agreement for Shasta Regional
Medical Center in Redding, California. The new operator, an
affiliate of Prime Healthcare Services, Inc.
(Prime), agreed to pay up to $20.0 million in
additional rent and profit participation based on the expected
future profitability, if any, of the new lessees
operations.
Significant
Tenants
At March 1, 2009, we had leases with 13 hospital operating
companies covering 47 facilities and we had mortgage loans with
two hospital operating companies. Affiliates of Prime leased 11
of our facilities and we had mortgage loans on two facilities
owned by affiliates of Prime. Total revenue from Prime
affiliates in 2008 was approximately $39.1 million, or
33.3% of total revenue, up from approximately 30.4% in the prior
year. At March 1, 2009, Vibra Healthcare, LLC
(Vibra) leased six of our facilities. Total revenue
from Vibra in 2008 was approximately $18.6 million, or
15.8% of total revenue, down from approximately 19.1% in the
prior year. No other tenant accounted for more than 7% of our
total revenues in 2008.
Environmental
Matters
Under various federal, state and local environmental laws and
regulations, a current or previous owner, operator or tenant of
real estate may be required to investigate and remediate
hazardous or toxic substances or petroleum product releases or
threats of releases. Such laws also impose certain obligations
and liabilities on property owners with respect to asbestos
containing materials. These laws may impose remediation
responsibility and liability without regard to fault, or whether
or not the owner, operator or tenant knew of or caused the
presence of the contamination. Investigation, remediation and
monitoring costs may be substantial and can exceed the value of
the property. The presence of contamination or the failure to
properly remediate contamination on a property may adversely
affect our ability to sell or rent that property or to borrow
funds using such property as collateral and may adversely impact
our investment in that property.
Generally, prior to completing any acquisition or closing any
mortgage loan, we obtain Phase I environmental assessments in
order to attempt to identify potential environmental concerns at
the facilities. These assessments are carried out in accordance
with an appropriate level of due diligence and generally include
a physical site inspection, a review of relevant federal, state
and local environmental and health agency database records, one
or more interviews with appropriate site-related personnel,
review of the propertys chain of title and review of
historic aerial photographs and other information on past uses
of the property. We may also conduct limited subsurface
investigations and test for substances of concern where the
results of the Phase I environmental assessments or other
information indicates possible contamination or where our
consultants recommend such procedures.
Competition
We compete in acquiring and developing facilities with financial
institutions, other lenders, real estate developers, other
REITs, other public and private real estate companies and
private real estate investors. Among the factors adversely
affecting our ability to compete are the following:
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we may have less knowledge than our competitors of certain
markets in which we seek to invest in or develop facilities;
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many of our competitors have greater financial and operational
resources than we have;
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our competitors or other entities may pursue a strategy similar
to ours; and
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some of our competitors may have existing relationships with our
potential customers.
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To the extent that we experience vacancies in our facilities, we
will also face competition in leasing those facilities to
prospective tenants. The actual competition for tenants varies
depending on the characteristics of each local market. Virtually
all of our facilities operate in a competitive environment, and
patients and referral sources, including physicians, may change
their preferences for healthcare facilities from time to time.
Insurance
We have purchased general liability insurance (lessors
risk) that provides coverage for bodily injury and property
damage to third parties resulting from our ownership of the
healthcare facilities that are leased to and occupied by our
tenants. Our leases with tenants also require the tenants to
carry property, general liability, professional liability, loss
of earnings and other insurance coverages and to name us as an
additional insured under these policies. We believe that the
policy specifications and insured limits are appropriate given
the relative risk of loss, the cost of the coverage and industry
practice.
Employees
We have 25 employees as of March 1, 2009. We believe
that any adjustments to the number of our employees will have
only immaterial effects on our operations and general and
administrative expenses. We believe that our relations with our
employees are good. None of our employees are members of any
union.
Available
Information
Our website address is www.medicalpropertiestrust.com and
provides access in the Investor Relations section,
free of charge, to our Annual Report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
including exhibits, and all amendments to these reports as soon
as reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange
Commission. Also available on our website, free of charge, are
our Corporate Governance Guidelines, the charters of our Ethics,
Nominating and Corporate Governance, Audit and Compensation
Committees and our Code of Ethics and Business Conduct. If you
are not able to access our website, the information is available
in print free of charge to any stockholder who should request
the information directly from us at
(205) 969-3755.
The risks and uncertainties described herein are not the only
ones facing us and there may be additional risks that we do not
presently know of or that we currently consider not likely to
have a significant impact on us. All of these risks could
adversely affect our business, results of operations and
financial condition.
RISKS
RELATED TO OUR BUSINESS AND GROWTH STRATEGY
Adverse
economic and geopolitical conditions and dislocations in the
credit markets could have a material adverse effect on our
results of operations, financial condition and ability to pay
distributions to stockholders.
The global economy is currently experiencing unprecedented
levels of volatility in the capital markets, dislocation in the
credit markets levels and intense recessionary pressures. These
conditions, or similar conditions that may exist in the future,
are likely to adversely affect our results of operations,
financial condition, share price and ability to pay
distributions to our stockholders. Among other potential
consequences, the current crisis may materially adversely affect:
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our ability to borrow on terms and conditions that we find
acceptable, or at all, which could reduce our ability to pursue
acquisition and development opportunities and refinance existing
debt, reduce our returns from our acquisition and development
activities and increase our future interest expense;
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the financial condition of our tenants and operators, which may
result in tenant defaults under leases due to bankruptcy, lack
of liquidity, operational failures or for other reasons;
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the values of our properties and our ability to dispose of
assets at attractive prices or to obtain debt financing
collateralized by our properties; and
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the value and liquidity of our short-term investments and cash
deposits, including as a result of a deterioration of the
financial condition of the institutions that hold our cash
deposits or the institutions or assets in which we have made
short-term investments, the dislocation of the markets for our
short-term investments, increased volatility in market rates for
such investment or other factors.
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Limited
access to capital may restrict our growth.
Our business plan contemplates growth through acquisitions and
development of facilities. As a REIT, we are required to make
cash distributions, which reduce our ability to fund
acquisitions and developments with retained earnings. We are
dependent on acquisition financings and access to the capital
markets for cash to make investments in new facilities. Due to
market or other conditions, such as the current dislocation in
the credit markets, we have had and may continue to have limited
access to capital from the equity and debt markets. If these
conditions persist or worsen, virtually all of our available
capital may be required to meet existing commitments and to
reduce existing debt as we have significant maturities coming
due in 2011 of approximately $360 million (assuming we
extend our revolving credit facility due in 2010 for one
additional year). We may not be able to obtain additional equity
or debt capital or dispose of assets on favorable terms, if at
all, at the time we need additional capital to acquire
healthcare properties on a competitive basis or to meet our
obligations. Our ability to grow through acquisitions and
developments will be further limited if we are unable to obtain
debt or equity financing, which could have a material adverse
effect on our results of operations and our ability to make
distributions to our stockholders.
Our
indebtedness could adversely affect our financial condition and
may otherwise adversely impact our business operations and our
ability to make distributions to stockholders.
As of December 31, 2008, we had $638.4 million of debt
outstanding. During 2008, we incurred debt, including
$82.0 million in aggregate principal amount of our
Operating Partnerships exchangeable senior notes due 2013,
and borrowed under our credit facilities in order to fund the
acquisition of 26 healthcare properties. As of March 1,
2009, we had total outstanding indebtedness of approximately
$580 million and approximately $74 million available
to us for borrowing under our existing revolving credit
facilities, and $6.3 million in unfunded commitments.
Our indebtedness could have significant effects on our business.
For example, it could:
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require us to use a substantial portion of our cash flow from
operations to service our indebtedness, which would reduce the
available cash flow to fund working capital, capital
expenditures, development projects and other general corporate
purposes and reduce cash for distributions;
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require payments of principal and interest that may be greater
than our cash flow from operations;
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force us to dispose of one or more of our properties, possibly
on disadvantageous terms, to make payments on our debt;
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increase our vulnerability to general adverse economic and
industry conditions; limit our flexibility in planning for, or
reacting to, changes in our business and the industry in which
we operate;
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restrict us from making strategic acquisitions or exploiting
other business opportunities;
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make it more difficult for us to satisfy our obligations;
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place us at a competitive disadvantage compared to our
competitors that have less debt; and
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limit our ability to borrow additional funds or dispose of
assets.
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Our future borrowings under our loan facilities may bear
interest at variable rates in addition to the approximately
$288.0 million in variable interest rate debt that we had
outstanding as of December 31, 2008.
5
If interest rates were to increase significantly, our ability to
borrow additional funds may be reduced and the risk related to
our indebtedness would intensify.
We may not be able to refinance or extend our existing debt as
our access to capital is affected by prevailing conditions in
the financial and capital markets and other factors, many of
which are beyond our control. If we cannot repay, refinance or
extend our debt at maturity, in addition to our failure to repay
our debt, we may be unable to make distributions to our
stockholders at expected levels or at all.
In addition, if we are unable to restructure or refinance our
obligations, we may default under our obligations. This could
trigger cross-default and cross-acceleration rights under
then-existing agreements. If we default on our debt obligations,
the lenders may foreclose on our properties that collateralize
those loans and any other loan that has cross-default provisions.
Even if we are able to refinance or extend our existing debt,
the terms of any refinancing or extension may not be as
favorable as the terms of our existing debt. If the refinancing
involves a higher interest rate, it could adversely affect our
cash flow and ability to make distributions to stockholders.
Our
use of debt financing will subject us to significant risks,
including refinancing risk and the risk of insufficient cash
available for distribution to our stockholders.
Most of our current debt is, and we anticipate that much of our
future debt will be,
non-amortizing
and payable in balloon payments. Therefore, we will likely need
to refinance at least a portion of that debt as it matures.
There is a risk that we may not be able to refinance
then-existing debt or that the terms of any refinancing will not
be as favorable as the terms of the then-existing debt. If
principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new
equity capital or sales of facilities, our cash flow may not be
sufficient to repay all maturing debt in years when significant
balloon payments come due. Additionally, we may incur
significant penalties if we choose to prepay the debt.
Failure
to hedge effectively against interest rate changes may adversely
affect our results of operations and our ability to make
distributions to our stockholders.
As of December 31, 2008, we had approximately
$288.0 million in variable interest rate debt
($230 million at March 1, 2009), which constitutes 45%
of our overall indebtedness and subjects us to interest rate
volatility. We may seek to manage our exposure to interest rate
volatility by using interest rate hedging arrangements that
involve risk, including the risk that counterparties may fail to
honor their obligations under these arrangements, that these
arrangements may not be effective in reducing our exposure to
interest rate changes and that these arrangements may result in
higher interest rates than we would otherwise have. Moreover, no
hedging activity can completely insulate us from the risks
associated with changes in interest rates. Failure to hedge
effectively against interest rate changes may materially
adversely affect our results of operations and our ability to
make distributions to our stockholders.
Dependence
on our tenants for payments of rent and interest may adversely
impact our ability to make distributions to our
stockholders.
We expect to continue to qualify as a REIT and, accordingly, as
a REIT operating in the healthcare industry, we are not
permitted by current tax law to operate or manage the businesses
conducted in our facilities.
Accordingly, we rely almost exclusively on rent payments from
our tenants under leases or interest payments from operators
under mortgage loans for cash with which to make distributions
to our stockholders. We have no control over the success or
failure of these tenants businesses. Significant adverse
changes in the operations of our facilities, or the financial
condition of our tenants, operators or guarantors, could have a
material adverse effect on our ability to collect rent and
interest payments and, accordingly, on our ability to make
distributions to our stockholders. Facility management by our
tenants and their compliance with state and federal healthcare
laws could have a material impact on our tenants operating
and financial condition and, in turn, their ability to pay rent
and interest to us.
6
At March 1, 2009, two of our facilities, River Oaks
(located in Houston, Texas) and Bucks (located in Bensalem,
Pennsylvania) are vacant due to tenant defaults and thus are not
generating any revenues for us. We are currently working to
re-lease or sale these facilities, but given the current economy
no assurances can be made that we will be able to re-lease them
in the near future. Our inability to re-lease or sale these
facilities will have an adverse effect on our results of
operations, financial condition, and our ability to make
distributions to our stockholders.
It may
be costly to replace defaulting tenants and we may not be able
to replace defaulting tenants with suitable replacements on
suitable terms.
Failure on the part of a tenant to comply materially with the
terms of a lease could give us the right to terminate our lease
with that tenant, repossess the applicable facility, cross
default certain other leases and loans with that tenant and
enforce the payment obligations under the lease. The process of
terminating a lease with a defaulting tenant and repossessing
the applicable facility may be costly and require a
disproportionate amount of managements attention. In
addition, defaulting tenants or their affiliates may initiate
litigation in connection with a lease termination or
repossession against us or our subsidiaries. For example, in
connection with our termination of leases relating to the
Houston Town and Country Hospital and Medical Office Building in
late 2006, we were subsequently named as one of a number of
defendants in ongoing lawsuits filed by various affiliates of
the defaulting tenant. Resolution of these types of lawsuits in
a manner materially adverse to us may adversely affect our
financial condition and results of operations. If a
tenant-operator defaults and we choose to terminate our lease,
we then would be required to find another tenant-operator. The
transfer of most types of healthcare facilities is highly
regulated, which may result in delays and increased costs in
locating a suitable replacement tenant. The sale or lease of
these properties to entities other than healthcare operators may
be difficult due to the added cost and time of refitting the
properties. If we are unable to re-let the properties to
healthcare operators, we may be forced to sell the properties at
a loss due to the repositioning expenses likely to be incurred
by non-healthcare purchasers. Alternatively, we may be required
to spend substantial amounts to adapt the facility to other
uses. There can be no assurance that we would be able to find
another tenant in a timely fashion, or at all, or that, if
another tenant were found, we would be able to enter into a new
lease on favorable terms. Defaults by our tenants (such as with
the former tenants of our River Oaks and Bucks facilities) under
our leases may adversely affect our results of operations,
financial condition, and our ability to make distributions to
our stockholders.
Our
revenues are dependent upon our relationship with, and success
of, Prime and Vibra.
As of December 31, 2008, our real estate portfolio included
51 healthcare properties in 21 states leased to 14 hospital
operating companies; three of the investments are in the form of
mortgage loans to two separate operating companies. Affiliates
of Prime leased or mortgaged 13 facilities, representing 37.8%
of the original total cost of our operating facilities and
mortgage loans as of December 31, 2008, and Vibra, leased
six of our facilities, representing 10.7% of the original total
cost of our operating facilities and mortgage loans as of
December 31, 2008. Total revenue from Prime and Vibra,
including rent, percentage rent and interest, was approximately
$39.1 million and $18.6 million, respectively, or
33.3% and 15.8%, respectively, of total revenue from continuing
operations in the year ended December 31, 2008.
In 2008, we completed transactions with Prime for approximately
$134.5 million. We may pursue additional transactions with
Prime or Vibra in the future. Our relationship with Prime and
Vibra, and their respective financial performance and resulting
ability to satisfy their lease and loan obligations to us are
material to our financial results and our ability to service our
debt and make distributions to our stockholders. We are
dependent upon the ability of Prime and Vibra to make rent and
loan payments to us, and their failure or delay to meet these
obligations would have a material adverse effect on our
financial condition and results of operations.
Accounting
rules may require consolidation of entities to which we have
made loans and other adjustments to our financial
statements.
The Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research
Bulletin No. 51 (ARB No. 51),
in January 2003, and a further interpretation in December 2003
(FIN 46-R,
and collectively FIN 46). FIN 46 clarifies
the application of ARB No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not
7
have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support
from other parties, referred to as variable interest entities.
FIN 46 generally requires consolidation by the party that
has a majority of the risk
and/or
rewards, referred to as the primary beneficiary. Under certain
circumstances, generally accepted accounting principles may
require us to consolidate certain companies that are thinly
capitalized for which we have provided loans. The resulting
accounting treatment of certain income and expense items may
adversely affect our results of operations, and consolidation of
balance sheet amounts may adversely affect any loan covenants.
The
bankruptcy or insolvency of our tenants under our leases could
seriously harm our operating results and financial
condition.
Some of our tenants are, and some of our prospective tenants may
be, newly organized, have limited or no operating history and
may be dependent on loans from us to acquire the facilitys
operations and for initial working capital. Any bankruptcy
filings by or relating to one of our tenants could bar us from
collecting pre-bankruptcy debts from that tenant or their
property, unless we receive an order permitting us to do so from
the bankruptcy court. For example, Hospital Partners of America
Inc., affiliates of whom leased our Shasta and River Oaks
facilities, filed for bankruptcy protection in September 2008. A
tenant bankruptcy can be expected to delay our efforts to
collect past due balances under our leases and loans, and could
ultimately preclude collection of these sums. If a lease is
assumed by a tenant in bankruptcy, we expect that all
pre-bankruptcy balances due under the lease would be paid to us
in full. However, if a lease is rejected by a tenant in
bankruptcy, we would have only a general unsecured claim for
damages. Any secured claims we have against our tenants may only
be paid to the extent of the value of the collateral, which may
not cover any or all of our losses. Any unsecured claim we hold
against a bankrupt entity may be paid only to the extent that
funds are available and only in the same percentage as is paid
to all other holders of unsecured claims. We may recover none or
substantially less than the full value of any unsecured claims,
which would harm our financial condition.
Our
business is highly competitive and we may be unable to compete
successfully.
We compete for development opportunities and opportunities to
purchase healthcare facilities with, among others:
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private investors;
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healthcare providers, including physicians;
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other REITs;
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real estate partnerships;
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financial institutions; and
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local developers.
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Many of these competitors have substantially greater financial
and other resources than we have and may have better
relationships with lenders and sellers. Competition for
healthcare facilities from competitors may adversely affect our
ability to acquire or develop healthcare facilities and the
prices we pay for those facilities. If we are unable to acquire
or develop facilities or if we pay too much for facilities, our
revenue and earnings growth and financial return could be
materially adversely affected. Certain of our facilities and
additional facilities we may acquire or develop will face
competition from other nearby facilities that provide services
comparable to those offered at our facilities and additional
facilities we may acquire or develop. Some of those facilities
are owned by governmental agencies and supported by tax
revenues, and others are owned by tax-exempt corporations and
may be supported to a large extent by endowments and charitable
contributions. Those types of support are not available to our
facilities and additional facilities we may acquire or develop.
In addition, competing healthcare facilities located in the
areas served by our facilities and additional facilities we may
acquire or develop may provide healthcare services that are not
available at our facilities and additional facilities we may
acquire or develop. From time to time, referral sources,
including physicians and managed care organizations, may change
the healthcare facilities to which they refer patients, which
could adversely affect our rental revenues.
8
Most
of our current tenants have, and prospective tenants may have,
an option to purchase the facilities we lease to them which
could disrupt our operations.
Most of our current tenants have, and some prospective tenants
will have, the option to purchase the facilities we lease to
them. We cannot assure you that the formulas we have developed
for setting the purchase price will yield a fair market value
purchase price. Any purchase not at fair market value may
present risks of challenge from healthcare regulatory
authorities.
In the event our tenants and prospective tenants determine to
purchase the facilities they lease either during the lease term
or after their expiration, the timing of those purchases will be
outside of our control and we may not be able to re-invest the
capital on as favorable terms, or at all. Our inability to
effectively manage the turn-over of our facilities could
materially adversely affect our ability to execute our business
plan and our results of operations.
We may
not be able to adapt our management and operational systems to
manage the net-leased facilities we have acquired and are
developing or those that we may acquire or develop in the future
without unanticipated disruption or expense.
We cannot assure you that we will be able to adapt our
management, administrative, accounting and operational systems,
or hire and retain sufficient operational staff, to manage the
facilities we have acquired and those that we may acquire or
develop. Our failure to successfully manage our current
portfolio of facilities or any future acquisitions or
developments could have a material adverse effect on our results
of operations and financial condition and our ability to make
distributions to our stockholders.
RISKS
RELATING TO REAL ESTATE INVESTMENTS
Our
real estate and mortgage investments are and will continue to be
concentrated in a single industry segment, making us more
vulnerable economically than if our investments were more
diversified.
We have acquired and have developed and have made mortgage
investments in and expect to continue acquiring and developing
and making mortgage investments in healthcare facilities. We are
subject to risks inherent in concentrating investments in real
estate. The risks resulting from a lack of diversification
become even greater as a result of our business strategy to
invest solely in healthcare facilities. A downturn in the real
estate industry could materially adversely affect the value of
our facilities. A downturn in the healthcare industry could
negatively affect our tenants ability to make lease or
loan payments to us and, consequently, our ability to meet debt
service obligations or make distributions to our stockholders.
These adverse effects could be more pronounced than if we
diversified our investments outside of real estate or outside of
healthcare facilities.
Our
facilities may not have efficient alternative uses, which could
impede our ability to find replacement tenants in the event of
termination or default under our leases.
All of the facilities in our current portfolio are and all of
the facilities we expect to acquire or develop in the future
will be net-leased healthcare facilities. If we or our tenants
terminate the leases for these facilities or if these tenants
lose their regulatory authority to operate these facilities, we
may not be able to locate suitable replacement tenants to lease
the facilities for their specialized uses. Alternatively, we may
be required to spend substantial amounts to adapt the facilities
to other uses. Any loss of revenues or additional capital
expenditures occurring as a result could have a material adverse
effect on our financial condition and results of operations and
could hinder our ability to meet debt service obligations or
make distributions to our stockholders.
Illiquidity
of real estate investments could significantly impede our
ability to respond to adverse changes in the performance of our
facilities and harm our financial condition.
Real estate investments are relatively illiquid. Additionally,
the real estate market is affected by many factors beyond our
control, including adverse changes in national and local
economic and market conditions and the availability, costs and
terms of financing. Our ability to quickly sell or exchange any
of our facilities in response to changes in economic and other
conditions will be limited. No assurances can be given that we
will recognize full
9
value for any facility that we are required to sell for
liquidity reasons. Our inability to respond rapidly to changes
in the performance of our investments could adversely affect our
financial condition and results of operations.
Development
and construction risks could adversely affect our ability to
make distributions to our stockholders.
We have completed development and construction of three
facilities which are now in operation. We will develop
additional facilities in the future as opportunities present
themselves. Our development and related construction activities
may subject us to the following risks:
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we may have to compete for suitable development sites;
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our ability to complete construction is dependent on there being
no title, environmental or other legal proceedings arising
during construction;
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we may be subject to delays due to weather conditions, strikes
and other contingencies beyond our control;
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we may be unable to obtain, or suffer delays in obtaining,
necessary zoning, land-use, building, occupancy healthcare
regulatory and other required governmental permits and
authorizations, which could result in increased costs, delays in
construction, or our abandonment of these projects;
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we may incur construction costs for a facility which exceed our
original estimates due to increased costs for materials or labor
or other costs that we did not anticipate; and
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we may not be able to obtain financing on favorable terms, which
may render us unable to proceed with our development activities.
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We expect to fund our development projects over time. The time
frame required for development and construction of these
facilities means that we may have to wait years for a
significant cash return. In addition, our tenants may not be
able to obtain managed care provider contracts in a timely
manner or at all. Because we are required to make cash
distributions to our stockholders, if the cash flow from
operations or refinancings is not sufficient, we may be forced
to borrow additional money to fund distributions. We cannot
assure you that future development projects will occur without
delays and cost overruns. Risks associated with our development
projects may reduce anticipated rental revenue which could
affect the timing of, and our ability to make, distributions to
our stockholders.
We may
be subject to risks arising from future acquisitions of
healthcare properties.
We may be subject to risks in connection with our acquisition of
healthcare properties, including without limitation the
following:
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we may have no previous business experience with the tenants at
the facilities acquired, and we may face difficulties in
managing them;
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underperformance of the acquired facilities due to various
factors, including unfavorable terms and conditions of the
existing lease agreements relating to the facilities,
disruptions caused by the management of our tenants or changes
in economic conditions;
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diversion of our managements attention away from other
business concerns;
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exposure to any undisclosed or unknown potential liabilities
relating to the acquired facilities; and
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potential underinsured losses on the acquired facilities.
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We cannot assure you that we will be able to manage the new
properties without encountering difficulties or that any such
difficulties will not have a material adverse effect on us.
In addition, some of our properties may be acquired through our
acquisition of all of the ownership interests of the entity that
owns such property. Such an acquisition at the entity level
rather than the asset level may expose us to additional risks
and liabilities associated with the acquired entity.
10
Our
facilities may not achieve expected results or we may be limited
in our ability to finance future acquisitions, which may harm
our financial condition and operating results and our ability to
make the distributions to our stockholders required to maintain
our REIT status.
Acquisitions and developments entail risks that investments will
fail to perform in accordance with expectations and that
estimates of the costs of improvements necessary to acquire and
develop facilities will prove inaccurate, as well as general
investment risks associated with any new real estate investment.
We anticipate that future acquisitions and developments will
largely be financed through externally generated funds such as
borrowings under credit facilities and other secured and
unsecured debt financing and from issuances of equity
securities. Because we must distribute at least 90% of our REIT
taxable income, excluding net capital gain, each year to
maintain our qualification as a REIT, our ability to rely upon
income from operations or cash flow from operations to finance
our growth and acquisition activities will be limited. For
distributions with respect to taxable years ending on or before
December 31, 2009, recent Internal Revenue Service guidance
allows us to satisfy up to 90% of these requirements through the
distribution of shares of our common stock, provided certain
conditions are met. Accordingly, if we are unable to obtain
funds from borrowings or the capital markets to finance our
acquisition and development activities, our ability to grow
would likely be curtailed, amounts available for distribution to
stockholders could be adversely affected and we could be
required to reduce distributions, thereby jeopardizing our
ability to maintain our status as a REIT.
Newly-developed or newly-renovated facilities may not have
operating histories that are helpful in making objective pricing
decisions. The purchase prices of these facilities will be based
in part upon projections by management as to the expected
operating results of the facilities, subjecting us to risks that
these facilities may not achieve anticipated operating results
or may not achieve these results within anticipated time frames.
If we
suffer losses that are not covered by insurance or that are in
excess of our insurance coverage limits, we could lose
investment capital and anticipated profits.
Our leases generally require our tenants to carry property,
general liability, professional liability, loss of earnings, all
risk and extended coverage insurance in amounts sufficient to
permit the replacement of the facility in the event of a total
loss, subject to applicable deductibles. However, there are
certain types of losses, generally of a catastrophic nature,
such as earthquakes, floods, hurricanes and acts of terrorism,
which may be uninsurable or not insurable at a price we or our
tenants can afford. Inflation, changes in building codes and
ordinances, environmental considerations and other factors also
might make it impracticable to use insurance proceeds to replace
a facility after it has been damaged or destroyed. Under such
circumstances, the insurance proceeds we receive might not be
adequate to restore our economic position with respect to the
affected facility. If any of these or similar events occur, it
may reduce our return from the facility and the value of our
investment.
Our
capital expenditures for facility renovation may be greater than
anticipated and may adversely impact rent payments by our
tenants and our ability to make distributions to
stockholders.
Facilities, particularly those that consist of older structures,
have an ongoing need for renovations and other capital
improvements, including periodic replacement of furniture,
fixtures and equipment. Although our leases require our tenants
to be primarily responsible for the cost of such expenditures,
renovation of facilities involves certain risks, including the
possibility of environmental problems, construction cost
overruns and delays, uncertainties as to market demand or
deterioration in market demand after commencement of renovation
and the emergence of unanticipated competition from other
facilities. All of these factors could adversely impact rent and
loan payments by our tenants, which in turn could have a
material adverse effect on our financial condition and results
of operations along with our ability to make distributions to
our stockholders.
All of
our healthcare facilities are subject to property taxes that may
increase in the future and adversely affect our
business.
Our facilities are subject to real and personal property taxes
that may increase as property tax rates change and as the
facilities are assessed or reassessed by taxing authorities. Our
leases generally provide that the property taxes are charged to
our tenants as an expense related to the facilities that they
occupy. As the owner of the facilities,
11
however, we are ultimately responsible for payment of the taxes
to the government. If property taxes increase, our tenants may
be unable to make the required tax payments, ultimately
requiring us to pay the taxes. If we incur these tax
liabilities, our ability to make expected distributions to our
stockholders could be adversely affected.
As the
owner and lessor of real estate, we are subject to risks under
environmental laws, the cost of compliance with which and any
violation of which could materially adversely affect
us.
Our operating expenses could be higher than anticipated due to
the cost of complying with existing and future environmental and
occupational health and safety laws and regulations. Various
environmental laws may impose liability on a current or prior
owner or operator of real property for removal or remediation of
hazardous or toxic substances. Current or prior owners or
operators may also be liable for government fines and damages
for injuries to persons, natural resources and adjacent
property. These environmental laws often impose liability
whether or not the owner or operator knew of, or was responsible
for, the presence or disposal of the hazardous or toxic
substances. The cost of complying with environmental laws could
materially adversely affect amounts available for distribution
to our stockholders and could exceed the value of all of our
facilities. In addition, the presence of hazardous or toxic
substances, or the failure of our tenants to properly manage,
dispose of or remediate such substances, including medical waste
generated by physicians and our other healthcare tenants, may
adversely affect our tenants or our ability to use, sell or rent
such property or to borrow using such property as collateral
which, in turn, could reduce our revenue and our financing
ability. We have obtained Phase I environmental assessments on
all facilities we have acquired or developed or on which we have
made mortgage loans, and intend to obtain on all future
facilities we acquire. However, even if the Phase I
environmental assessment reports do not reveal any material
environmental contamination, it is possible that material
environmental contamination and liabilities may exist of which
we are unaware.
Although the leases for our facilities and our mortgage loans
generally require our operators to comply with laws and
regulations governing their operations, including the disposal
of medical waste, and to indemnify us for certain environmental
liabilities, the scope of their obligations may be limited. We
cannot assure you that our tenants would be able to fulfill
their indemnification obligations and, therefore, any material
violation of environmental laws could have a material adverse
affect on us. In addition, environmental and occupational health
and safety laws are constantly evolving, and changes in laws,
regulations or policies, or changes in interpretations of the
foregoing, could create liabilities where none exists today.
Our
interests in facilities through ground leases expose us to the
loss of the facility upon breach or termination of the ground
lease and may limit our use of the facility.
We have acquired interests in four of our facilities, at least
in part, by acquiring leasehold interests in the land on which
the facility is located rather than an ownership interest in the
property, and we may acquire additional facilities in the future
through ground leases. As lessee under ground leases, we are
exposed to the possibility of losing the property upon
termination, or an earlier breach by us, of the ground lease.
Ground leases may also restrict our use of facilities. Our
current ground lease for the facility in San Antonio limits
use of the property to operation of a comprehensive
rehabilitation hospital, medical research and education and
other medical uses and uses reasonably incidental thereto. These
restrictions and any similar future restrictions in ground
leases will limit our flexibility in renting the facility and
may impede our ability to sell the property.
Healthcare
Regulatory Matters
The following discussion describes certain material federal
healthcare laws and regulations that may affect our operations
and those of our tenants. However, the discussion does not
address state healthcare laws and regulations, except as
otherwise indicated. These state laws and regulations, like the
federal healthcare laws and regulations, could affect our
operations or the operations of our tenants. Moreover, the
discussion relating to reimbursement for healthcare services
addresses matters that are subject to frequent review and
revision by Congress and the agencies responsible for
administering federal payment programs. Consequently, predicting
future reimbursement trends or changes is inherently difficult.
Ownership and operation of hospitals and other healthcare
facilities are subject, directly and indirectly, to substantial
federal, state and local government healthcare laws and
regulations. Our tenants failure to comply with
12
these laws and regulations could adversely affect their ability
to meet their lease obligations. Physician investment in us or
in our facilities also will be subject to such laws and
regulations. Although we are not a healthcare provider or in a
position to influence the referral of patients or ordering of
services reimbursable by the federal government, to the extent
that a healthcare provider leases space from us and, in turn,
subleases space to physicians or other referral sources at less
than a fair market value rental rate, the Anti-Kickback Statute
and the Stark Law (both discussed below) could be implicated.
Our leases require the lessees to agree to comply with all
applicable laws. We intend for all of our business activities
and operations to conform in all material respects with all
applicable laws and regulations.
Applicable
Laws
Anti-Kickback Statute. The federal
Anti-Kickback Statute (codified at 42 U.S.C.
§ 1320a-7b(b))
prohibits, among other things, the offer, payment, solicitation
or acceptance of remuneration directly or indirectly in return
for referring an individual to a provider of services for which
payment may be made in whole or in part under a federal
healthcare program, including the Medicare or Medicaid programs.
Violation of the Anti-Kickback Statute is a crime, punishable by
fines of up to $25,000 per violation, five years imprisonment,
or both. Violations may also result in civil sanctions,
including civil penalties of up to $50,000 per violation,
exclusion from participation in federal healthcare programs,
including Medicare and Medicaid, and additional monetary
penalties in amounts treble to the underlying remuneration.
The Office of Inspector General of the Department of Health and
Human Services, or OIG, has issued Safe Harbor
Regulations that describe practices that will not be
considered violations of the Anti-Kickback Statute.
Nevertheless, the fact that a particular arrangement does not
meet safe harbor requirements does not mean that the arrangement
violates the Anti-Kickback Statute. Rather, the safe harbor
regulations simply provide a guaranty that qualifying
arrangements will not be prosecuted under the Anti-Kickback
Statute. We intend to use commercially reasonable efforts to
structure lease arrangements involving facilities in which local
physicians are investors and tenants so as to satisfy, or meet
as closely as possible, safe harbor conditions. We cannot assure
you, however, that we will meet all the conditions for the safe
harbor.
Federal Physician Self-Referral Statute (Stark
Law). Any physicians investing in our
company or its subsidiary entities could also be subject to the
Ethics in Patient Referrals Act of 1989, or the Stark Law
(codified at 42 U.S.C. § 1395nn). Unless subject
to an exception, the Stark Law prohibits a physician from making
a referral to an entity furnishing designated
health services, including inpatient and outpatient
hospital services, clinical laboratory services and radiology
services, paid by Medicare or Medicaid if the physician or a
member of his immediate family has a financial
relationship with that entity. A reciprocal prohibition
bars the entity from billing Medicare or Medicaid for any
services furnished pursuant to a prohibited referral. Sanctions
for violating the Stark Law include denial of payment, refunding
amounts received for services provided pursuant to prohibited
referrals, civil monetary penalties of up to $15,000 per
prohibited service provided, and exclusion from the Medicare and
Medicaid programs. The statute also provides for a penalty of up
to $100,000 for a circumvention scheme.
There are exceptions to the self-referral prohibition for many
of the customary financial arrangements between physicians and
providers, including employment contracts, leases and
recruitment agreements. There is also an exception for a
physicians ownership interest in an entire hospital, as
opposed to an ownership interest in a hospital department.
Unlike safe harbors under the Anti-Kickback Statute, an
arrangement must comply with every requirement of a Stark Law
exception or the arrangement is in violation of the Stark Law.
CMS has issued multiple phases of final regulations implementing
the Stark Law. CMS continues to make changes to these
regulations. While these regulations help clarify the exceptions
to the Stark Law, it is unclear how the government will
interpret many of these exceptions for enforcement purposes.
Although our lease agreements require lessees to comply with the
Stark Law, we cannot offer assurance that the arrangements
entered into by us and our facilities will be found to be in
compliance with the Stark Law, as it ultimately may be
implemented or interpreted.
The False Claims Act. The federal False Claims
Act prohibits the making or presenting of any false claim for
payment to the federal government; it is the civil equivalent to
federal criminal provisions prohibiting the submission of false
claims to federally funded programs. Additionally, qui
tam, or whistleblower, provisions of
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the federal False Claims Act allow private individuals to bring
actions on behalf of the government alleging that the defendant
has defrauded the federal government. Whistleblowers may collect
a portion of the governments recovery an
incentive which increases the frequency of such actions. A
successful False Claims Act case may result in a penalty of
three times actual damages, plus additional civil penalties
payable to the government, plus reimbursement of the fees of
counsel for the whistleblower. Many states have enacted similar
statutes preventing the presentation of a false claim to a state
government, and we expect more to do so because the Social
Security Act provides a financial incentive for states to enact
statutes establishing state level liability.
The Civil Monetary Penalties Law. The Civil
Monetary Penalties law prohibits the knowing presentation of a
claim for certain healthcare services that is false or
fraudulent. The penalties include a monetary civil penalty of up
to $10,000 for each item or service, $15,000 for each individual
with respect to whom false or misleading information was given,
as well as treble damages for the total amount of remuneration
claimed.
HIPAA Administrative Simplification and Privacy
Requirements. The Health Insurance Portability
and Accountability Act of 1996 (HIPAA) requires the
use of uniform electronic data transmission standards for
certain healthcare claims and payment transactions submitted or
received electronically. Compliance with these regulations is
mandatory for the tenant-operators of our facilities. HIPAA
standards are intended to protect the privacy and security of
individually identifiable health information. In addition, HIPAA
requires that each provider receive, and by May 23, 2008
exclusively use, a National Provider Identifier. We believe that
the cost of compliance with these regulations has not had and is
not expected to have a material, adverse effect on our business,
financial position or results of operations.
Licensure. Certain healthcare facilities in
our portfolio are subject to extensive federal, state and local
licensure, certification and inspection laws and regulations.
Further, various licenses and permits are required to dispense
narcotics, operate pharmacies, handle radioactive materials and
operate equipment. Failure to comply with any of these laws
could result in loss of licensure, certification or
accreditation, denial of reimbursement, imposition of fines,
suspension or decertification from federal and state healthcare
programs.
EMTALA. All of our hospitals that provide
emergency care are subject to the Emergency Medical Treatment
and Active Labor Act (EMTALA). This federal law
requires such facilities to conduct an appropriate medical
screening examination of every individual who presents to the
hospitals emergency room for treatment and, if the
individual is suffering from an emergency medical condition, to
either stabilize the condition or make an appropriate transfer
of the individual to a facility able to handle the condition.
The obligation to screen and stabilize emergency medical
conditions exists regardless of an individuals ability to
pay for treatment. There are severe penalties under EMTALA if a
hospital fails to screen or appropriately stabilize or transfer
an individual or if the hospital delays appropriate treatment in
order to first inquire about the individuals ability to
pay. Penalties for violations of EMTALA include civil monetary
penalties and exclusion from participation in the Medicare
program. In addition, an injured individual, the
individuals family or a medical facility that suffers a
financial loss as a direct result of a hospitals violation
of the law can bring a civil suit against the hospital. Our
lease agreements require lessees to comply with EMTALA, and we
believe our tenant-operators conduct business in substantial
compliance with EMTALA.
Antitrust Laws. The federal government and
most states have enacted antitrust laws that prohibit certain
types of conduct deemed to be anti-competitive. These laws
prohibit price fixing, concerted refusal to deal, market
monopolization, price discrimination, tying arrangements,
acquisitions of competitors and other practices that have, or
may have, an adverse effect on competition. Violations of
federal or state antitrust laws can result in various sanctions,
including criminal and civil penalties. Antitrust enforcement in
the healthcare industry is currently a priority of the Federal
Trade Commission. We believe we are in compliance with such
federal and state laws, but future review of our practices by
courts or regulatory authorities could result in a determination
that could adversely affect our operations, or the operations of
our tenants.
Healthcare Industry
Investigations. Significant media and public
attention has focused in recent years on the hospital industry.
While we are currently not aware of any material investigations
of our facilities under federal or state healthcare laws or
regulations, it is possible that governmental entities could
initiate investigations or litigation in the future and that
such matters could result in significant penalties, as well as
adverse publicity. It is also possible
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that our executives and managers could be included in
governmental investigations or litigation or named as defendants
in private litigation.
Regulatory and Legislative
Developments. Healthcare continues to attract
intense legislative and public interest particularly with the
election of our new U.S. President and shift of power in
Congress to the democratic party. Recently, various legislative
proposals have been introduced or proposed both in Congress and
in state legislatures that would have a significant impact on
the healthcare system. Many states have enacted, or are
considering enacting, measures designed to reduce their Medicaid
expenditures and change private healthcare insurance. Hospital
operating margins may continue to be under significant pressure
due to the deterioration in pricing flexibility and payer mix,
as well as increases in operating expenses that exceed increases
in payments under the Medicare program. In addition, federal and
state regulating bodies may adopt yet further prohibitions on
the types of contractual arrangements between physicians and the
healthcare providers to which they refer. More importantly,
restrictions on admissions to inpatient rehabilitation
facilities and long-term acute care hospitals may continue.
Finally, other initiatives include
pay-for-performance
and other quality-based payment systems; efforts to establish
universal healthcare coverage, patient and drug safety, and
pharmaceutical drug pricing; and compliance activities under
Medicare Part D. We cannot predict whether any such
proposals or initiatives will be adopted, or if adopted, whether
our business or that of our tenants will be adversely impacted.
RISKS
RELATING TO THE HEALTHCARE INDUSTRY
Reductions
in reimbursement from third-party payors, including Medicare and
Medicaid, could adversely affect the profitability of our
tenants and hinder their ability to make rent payments to
us.
Sources of revenue for our tenants and operators may include the
Medicare and Medicaid programs, private insurance carriers and
health maintenance organizations, among others. Efforts by such
payors to reduce healthcare costs will likely continue, which
may result in reductions or slower growth in reimbursement for
certain services provided by some of our tenants. In addition,
the failure of any of our tenants to comply with various laws
and regulations could jeopardize their ability to continue
participating in Medicare, Medicaid and other
government-sponsored payment programs.
The healthcare industry continues to face various challenges,
including increased government and private payor pressure on
healthcare providers to control or reduce costs. We believe that
our tenants will continue to experience a shift in payor mix
away from
fee-for-service
payors, resulting in an increase in the percentage of revenues
attributable to managed care payors, government payors and
general industry trends that include pressures to control
healthcare costs. Pressures to control healthcare costs and a
shift away from traditional health insurance reimbursement have
resulted in an increase in the number of patients whose
healthcare coverage is provided under managed care plans, such
as health maintenance organizations and preferred provider
organizations. In addition, due to the aging of the population
and the expansion of governmental payor programs, we anticipate
that there will be a marked increase in the number of patients
relying on healthcare coverage provided by governmental payors.
These changes could have a material adverse effect on the
financial condition of some or all of our tenants, which could
have a material adverse effect on our financial condition and
results of operations and could negatively affect our ability to
make distributions to our stockholders.
Over the past several years, CMS has increased its attention on
reimbursement for long term acute care hospitals, or LTACHs, and
inpatient rehabilitation facilities, or IRFs. CMS has imposed
regulatory restrictions on LTACH and IRF reimbursement. A
significant number of our tenants operate LTACHs and IRFs. We
expect that CMS will continue to explore implementing other
restrictions on LTACH and IRF reimbursement, and possibly
develop more restrictive facility and patient level criteria for
these types of facilities. These changes could have a material
adverse effect on the financial condition of some of our
tenants, which could have a material adverse effect on our
financial condition and results of operations and could
negatively affect our ability to make distributions to our
stockholders.
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The
healthcare industry is heavily regulated and existing and new
laws or regulations, changes to existing laws or regulations,
loss of licensure or certification or failure to obtain
licensure or certification could result in the inability of our
tenants to make lease payments to us.
The healthcare industry is highly regulated by federal, state
and local laws, and is directly affected by federal conditions
of participation, state licensing requirements, facility
inspections, state and federal reimbursement policies,
regulations concerning capital and other expenditures,
certification requirements and other such laws, regulations and
rules. In addition, establishment of healthcare facilities and
transfers of operations of healthcare facilities are subject to
regulatory approvals not required for establishment, or
transfers, of other types of commercial operations and real
estate. Sanctions for failure to comply with these regulations
and laws include, but are not limited to, loss of or inability
to obtain licensure, fines and loss of or inability to obtain
certification to participate in the Medicare and Medicaid
programs, as well as potential criminal penalties. The failure
of any tenant to comply with such laws, requirements and
regulations could affect its ability to establish or continue
its operation of the facility or facilities and could adversely
affect the tenants ability to make lease payments to us
which could have a material adverse effect on our financial
condition and results of operations and could negatively affect
our ability to make distributions to our stockholders. In
addition, restrictions and delays in transferring the operations
of healthcare facilities, in obtaining new third-party payor
contracts, including Medicare and Medicaid provider agreements,
and in receiving licensure and certification approval from
appropriate state and federal agencies by new tenants, may
affect our ability to terminate lease agreements, remove tenants
that violate lease terms, and replace existing tenants with new
tenants. Furthermore, these matters may affect a new
tenants ability to obtain reimbursement for services
rendered, which could adversely affect their ability to pay rent
to us and to pay principal and interest on their loans from us.
Our
tenants are subject to fraud and abuse laws, the violation of
which by a tenant may jeopardize the tenants ability to
make lease and loan payments to us.
As noted earlier, the federal government and numerous state
governments have passed laws and regulations that attempt to
eliminate healthcare fraud and abuse by prohibiting business
arrangements that induce patient referrals or the ordering of
specific ancillary services. Violations of these laws may result
in the imposition of criminal and civil penalties, including
possible exclusion from federal and state healthcare programs.
Imposition of any of these penalties upon any of our tenants
could jeopardize any tenants ability to operate a facility
or to make lease and loan payments, thereby potentially
adversely affecting us.
In the past several years, federal and state governments have
significantly increased investigation and enforcement activity
to detect and eliminate fraud and abuse in the Medicare and
Medicaid programs. It is anticipated that the trend toward
increased investigation and enforcement activity in the areas of
fraud and abuse and patient self-referrals, will continue in
future years and could adversely affect our tenants and their
operations, and in turn their ability to make lease and loan
payments to us.
Some of our tenant-operators have accepted, and prospective
tenants may accept, an assignment of the previous
operators Medicare provider agreement. Such operators and
other new-operator tenants that take assignment of Medicare
provider agreements might be subject to federal or state
regulatory, civil and criminal investigations of the previous
owners operations and claims submissions. While we conduct
due diligence in connection with the acquisition of such
facilities, these types of issues may not be discovered prior to
purchase. Adverse decisions, fines or recoupments might
negatively impact our tenants financial condition, and in
turn their ability to make lease and loan payments to us.
Certain
of our lease arrangements may be subject to fraud and abuse or
physician self-referral laws.
Local physician investment in our operating partnership or our
subsidiaries that own our facilities could subject our lease
arrangements to scrutiny under fraud and abuse and physician
self-referral laws. Under the Stark Law, and its implementing
regulations, if our lease arrangements do not satisfy the
requirements of an applicable exception, the ability of our
tenants to bill for services provided to Medicare beneficiaries
pursuant to referrals from physician investors could be
adversely impacted and subject us and our tenants to fines,
which could impact our tenants ability to make lease and
loan payments to us.
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We intend to use our good faith efforts to structure our lease
arrangements to comply with these laws; however, if we are
unable to do so, this failure may restrict our ability to permit
physician investment or, where such physicians do participate,
may restrict the types of lease arrangements into which we may
enter, including our ability to enter into percentage rent
arrangements.
State
certificate of need laws may adversely affect our development of
facilities and the operations of our tenants.
Certain healthcare facilities in which we invest may also be
subject to state laws which require regulatory approval in the
form of a certificate of need prior to initiation of certain
projects, including, but not limited to, the establishment of
new or replacement facilities, the addition of beds, the
addition or expansion of services and certain capital
expenditures. State certificate of need laws are not uniform
throughout the United States and are subject to change. We
cannot predict the impact of state certificate of need laws on
our development of facilities or the operations of our tenants.
In addition, certificate of need laws often materially impact
the ability of competitors to enter into the marketplace of our
facilities. Finally, in limited circumstances, loss of state
licensure or certification or closure of a facility could
ultimately result in loss of authority to operate the facility
and require re-licensure or new certificate of need
authorization to re-institute operations. As a result, a portion
of the value of the facility may be related to the limitation on
new competitors. In the event of a change in the certificate of
need laws, this value may markedly decrease.
RISKS
RELATING TO OUR ORGANIZATION AND STRUCTURE
Maryland
law and Medical Properties charter and bylaws contain
provisions which may prevent or deter changes in management and
third-party acquisition proposals that you may believe to be in
your best interest, depress the price of Medical Properties
common stock or cause dilution.
Medical Properties charter contains ownership limitations
that may restrict business combination opportunities, inhibit
change of control transactions and reduce the value of Medical
Properties common stock. To qualify as a REIT under the
Internal Revenue Code of 1986, as amended, or the Code, no more
than 50% in value of Medical Properties outstanding stock,
after taking into account options to acquire stock, may be
owned, directly or indirectly, by five or fewer persons during
the last half of each taxable year. Medical Properties
charter generally prohibits direct or indirect ownership by any
person of more than 9.8% in value or in number, whichever is
more restrictive, of outstanding shares of any class or series
of our securities, including Medical Properties common
stock. Generally, Medical Properties common stock owned by
affiliated owners will be aggregated for purposes of the
ownership limitation. The ownership limitation could have the
effect of delaying, deterring or preventing a change in control
or other transaction in which holders of common stock might
receive a premium for their common stock over the then-current
market price or which such holders otherwise might believe to be
in their best interests. The ownership limitation provisions
also may make Medical Properties common stock an
unsuitable investment vehicle for any person seeking to obtain,
either alone or with others as a group, ownership of more than
9.8% of either the value or number of the outstanding shares of
Medical Properties common stock.
Medical Properties charter and bylaws contain provisions
that may impede third-party acquisition proposals that may be in
the best interests of our stockholders. Medical Properties
charter and bylaws also provide that our directors may only be
removed by the affirmative vote of the holders of two-thirds of
Medical Properties common stock, that stockholders are required
to give us advance notice of director nominations and new
business to be conducted at our annual meetings of stockholders
and that special meetings of stockholders can only be called by
our president, our board of directors or the holders of at least
25% of stock entitled to vote at the meetings. These and other
charter and bylaw provisions may delay or prevent a change of
control or other transaction in which holders of Medical
Properties common stock might receive a premium for their
common stock over the then-current market price or which such
holders otherwise might believe to be in their best interests.
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We
depend on key personnel, the loss of any one of whom may
threaten our ability to operate our business
successfully.
We depend on the services of Edward K. Aldag, Jr., R.
Steven Hamner, Emmett E. McLean, and Michael G. Stewart to carry
out our business and investment strategy. If we were to lose any
of these executive officers, it may be more difficult for us to
locate attractive acquisition targets, complete our acquisitions
and manage the facilities that we have acquired or developed.
Additionally, as we expand, we will continue to need to attract
and retain additional qualified officers and employees. The loss
of the services of any of our executive officers, or our
inability to recruit and retain qualified personnel in the
future, could have a material adverse effect on our business and
financial results.
Our
UPREIT structure may result in conflicts of interest between
Medical Properties stockholders and the holders of our
operating partnership units.
We are organized as an UPREIT, which means that we hold our
assets and conduct substantially all of our operations through
an operating limited partnership, and may issue operating
partnership units to third parties. Persons holding operating
partnership units would have the right to vote on certain
amendments to the partnership agreement of our operating
partnership, as well as on certain other matters. Persons
holding these voting rights may exercise them in a manner that
conflicts with the interests of our stockholders. Circumstances
may arise in the future, such as the sale or refinancing of one
of our facilities, when the interests of limited partners in our
operating partnership conflict with the interests of our
stockholders. As the sole member of the general partner of the
operating partnership, Medical Properties has fiduciary duties
to the limited partners of the operating partnership that may
conflict with fiduciary duties Medical Properties officers
and directors owe to its stockholders. These conflicts may
result in decisions that are not in the best interest of our
stockholders.
TAX RISKS
ASSOCIATED WITH OUR STATUS AS A REIT
Loss
of our tax status as a REIT would have significant adverse
consequences to us and the value of Medical Properties
common stock.
We believe that we qualify as a REIT for federal income tax
purposes and have elected to be taxed as a REIT under the
federal income tax laws commencing with our taxable year that
began on April 6, 2004 and ended on December 31, 2004.
The REIT qualification requirements are extremely complex, and
interpretations of the federal income tax laws governing
qualification as a REIT are limited. Accordingly, there is no
assurance that we will be successful in operating so as to
qualify as a REIT. At any time, new laws, regulations,
interpretations or court decisions may change the federal tax
laws relating to, or the federal income tax consequences of,
qualification as a REIT. It is possible that future economic,
market, legal, tax or other considerations may cause our board
of directors to revoke the REIT election, which it may do
without stockholder approval.
If we lose or revoke our REIT status, we will face serious tax
consequences that will substantially reduce the funds available
for distribution because:
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we would not be allowed a deduction for distributions to
stockholders in computing our taxable income; therefore we would
be subject to federal income tax at regular corporate rates and
we might need to borrow money or sell assets in order to pay any
such tax;
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we also could be subject to the federal alternative minimum tax
and possibly increased state and local taxes; and
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unless we are entitled to relief under statutory provisions, we
also would be disqualified from taxation as a REIT for the four
taxable years following the year during which we ceased to
qualify.
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As a result of all these factors, a failure to achieve or a loss
or revocation of our REIT status could have a material adverse
effect on our financial condition and results of operations and
would adversely affect the value of our common stock.
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Failure
to make required distributions would subject us to
tax.
In order to qualify as a REIT, each year we must distribute to
our stockholders at least 90% of our REIT taxable income,
excluding net capital gain. To the extent that we satisfy the
distribution requirement, but distribute less than 100% of our
taxable income, we will be subject to federal corporate income
tax on our undistributed income. In addition, we will incur a 4%
nondeductible excise tax on the amount, if any, by which our
distributions in any year are less than the sum of (1) 85%
of our ordinary income for that year; (2) 95% of our
capital gain net income for that year; and (3) 100% of our
undistributed taxable income from prior years.
We may be required to make distributions to stockholders at
disadvantageous times or when we do not have funds readily
available for distribution. Differences in timing between the
recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us
to borrow money or sell assets to pay out enough of our taxable
income to satisfy the distribution requirement and to avoid
corporate income tax and the 4% excise tax in a particular year.
In the future, we may borrow to pay distributions to our
stockholders and the limited partners of our operating
partnership. Any funds that we borrow would subject us to
interest rate and other market risks.
Complying
with REIT requirements may cause us to forego otherwise
attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning, among other things, the
sources of our income, the nature and diversification of our
assets, the amounts we distribute to our stockholders and the
ownership of our stock. In order to meet these tests, we may be
required to forego attractive business or investment
opportunities. Overall, no more than 20% of the value of our
assets may consist of securities of one or more taxable REIT
subsidiaries, and no more than 25% of the value of our assets
may consist of securities that are not qualifying assets under
the test requiring that 75% of a REITs assets consist of
real estate and other related assets. Further, a taxable REIT
subsidiary may not directly or indirectly operate or manage a
healthcare facility. For purposes of this definition a
healthcare facility means a hospital, nursing
facility, assisted living facility, congregate care facility,
qualified continuing care facility, or other licensed facility
which extends medical or nursing or ancillary services to
patients and which is operated by a service provider that is
eligible for participation in the Medicare program under
Title XVIII of the Social Security Act with respect to the
facility. Thus, compliance with the REIT requirements may limit
our flexibility in executing our business plan.
Loans
to our tenants could be recharacterized as equity, in which case
our interest income from that tenant might not be qualifying
income under the REIT rules and we could lose our REIT
status.
In connection with the acquisition in 2004 of certain Vibra
facilities, our taxable REIT subsidiary made a loan to Vibra in
an aggregate amount of approximately $41.4 million to
acquire the operations at those Vibra Facilities. As of
March 1, 2009, that loan had been reduced to approximately
$21.0 million. Our taxable REIT subsidiary also made a loan
of approximately $6.2 million to Vibra and its subsidiaries
for working capital purposes, which has been paid in full. The
acquisition loan bears interest at an annual rate of 10.25%. Our
operating partnership loaned the funds to our taxable REIT
subsidiary to make these loans. The loan from our operating
partnership to our taxable REIT subsidiary bears interest at an
annual rate of 9.25%.
Our taxable REIT subsidiary has made and will make loans to
tenants to acquire operations or for other purposes. The
Internal Revenue Service, or IRS, may take the position that
certain loans to tenants should be treated as equity interests
rather than debt, and that our interest income from such tenant
should not be treated as qualifying income for purposes of the
REIT gross income tests. If the IRS were to successfully treat a
loan to a particular tenant as equity interests, the tenant
would be a related party tenant with respect to our
company and the interest that we receive from the tenant would
not be qualifying income for purposes of the REIT gross income
tests. As a result, we could lose our REIT status. In addition,
if the IRS were to successfully treat a particular loan as
interests held by our operating partnership rather than by our
taxable REIT subsidiary, we could fail the 5% asset test, and if
the IRS further successfully treated the loan as other than
straight debt, we could fail the 10% asset test with respect to
such interest. As a result of the failure of either test, could
lose our REIT status, which would subject us to corporate level
income tax and adversely affect our ability to make
distributions to our stockholders.
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RISKS
RELATED TO AN INVESTMENT IN OUR COMMON STOCK
The
market price and trading volume of our common stock may be
volatile.
The market price of our common stock may be highly volatile and
be subject to wide fluctuations. In addition, the trading volume
in our common stock may fluctuate and cause significant price
variations to occur. If the market price of our common stock
declines significantly, you may be unable to resell your shares
at or above your purchase price.
We cannot assure you that the market price of our common stock
will not fluctuate or decline significantly in the future. Some
of the factors that could negatively affect our share price or
result in fluctuations in the price or trading volume of our
common stock include:
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actual or anticipated variations in our quarterly operating
results or distributions;
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changes in our funds from operations or earnings estimates or
publication of research reports about us or the real estate
industry;
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increases in market interest rates that lead purchasers of our
shares of common stock to demand a higher yield;
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changes in market valuations of similar companies;
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adverse market reaction to any increased indebtedness we incur
in the future;
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additions or departures of key management personnel;
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actions by institutional stockholders;
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local conditions such as an oversupply of, or a reduction in
demand for, rehabilitation hospitals, long-term acute care
hospitals, ambulatory surgery centers, medical office buildings,
specialty hospitals, skilled nursing facilities, regional and
community hospitals, womens and childrens hospitals
and other single-discipline facilities;
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speculation in the press or investment community; and
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general market and economic conditions.
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Future
sales of common stock may have adverse effects on our stock
price.
We cannot predict the effect, if any, of future sales of common
stock, or the availability of shares for future sales, on the
market price of our common stock. Sales of substantial amounts
of common stock, or the perception that these sales could occur,
may adversely affect prevailing market prices for our common
stock. We may issue from time to time additional common stock or
units of our operating partnership in connection with the
acquisition of facilities and we may grant additional demand or
piggyback registration rights in connection with these
issuances. Sales of substantial amounts of common stock or the
perception that these sales could occur may adversely affect the
prevailing market price for our common stock. In addition, the
sale of these shares could impair our ability to raise capital
through a sale of additional equity securities.
An
increase in market interest rates may have an adverse effect on
the market price of our securities.
One of the factors that investors may consider in deciding
whether to buy or sell our securities is our distribution rate
as a percentage of our price per share of common stock, relative
to market interest rates. If market interest rates increase,
prospective investors may desire a higher distribution or
interest rate on our securities or seek securities paying higher
distributions or interest. The market price of our common stock
likely will be based primarily on the earnings that we derive
from rental income with respect to our facilities and our
related distributions to stockholders, and not from the
underlying appraised value of the facilities themselves. As a
result, interest rate fluctuations and capital market conditions
can affect the market price of our common stock. In addition,
rising interest rates would result in increased interest expense
on our variable-rate debt, thereby adversely affecting cash flow
and our ability to service our indebtedness and make
distributions.
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ITEM 1B.
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Unresolved
Staff Comments
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None.
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At December 31, 2008, our portfolio consisted of 51
properties: 48 facilities which we own are leased to fourteen
operators with the remainder in the form of mortgage loans to
two operators, totaling an aggregate of approximately
5.3 million square feet and 5,115 licensed beds (dollars in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2008
|
|
|
Percentage of
|
|
|
Total
|
|
State
|
|
Revenue
|
|
|
Total Revenue
|
|
|
Investment
|
|
|
Arizona
|
|
$
|
492
|
|
|
|
0.42
|
%
|
|
$
|
7,057
|
|
Arkansas
|
|
|
803
|
|
|
|
0.68
|
%
|
|
|
19,523
|
|
California
|
|
|
51,030
|
|
|
|
43.40
|
%
|
|
|
560,947
|
|
Colorado
|
|
|
1,498
|
|
|
|
1.27
|
%
|
|
|
9,503
|
|
Connecticut
|
|
|
828
|
|
|
|
0.70
|
%
|
|
|
7,837
|
|
Florida
|
|
|
1,556
|
|
|
|
1.32
|
%
|
|
|
25,809
|
|
Idaho
|
|
|
3,689
|
|
|
|
3.14
|
%
|
|
|
41,803
|
|
Indiana
|
|
|
6,863
|
|
|
|
5.84
|
%
|
|
|
60,695
|
|
Kansas
|
|
|
1,337
|
|
|
|
1.14
|
%
|
|
|
19,719
|
|
Louisiana
|
|
|
3,610
|
|
|
|
3.07
|
%
|
|
|
36,971
|
|
Massachusetts
|
|
|
6,686
|
|
|
|
5.69
|
%
|
|
|
47,355
|
|
Michigan
|
|
|
971
|
|
|
|
0.83
|
%
|
|
|
13,608
|
|
Missouri
|
|
|
2,628
|
|
|
|
2.24
|
%
|
|
|
41,442
|
|
Oregon
|
|
|
3,450
|
|
|
|
2.93
|
%
|
|
|
27,677
|
|
Pennsylvania
|
|
|
3,011
|
|
|
|
2.56
|
%
|
|
|
44,521
|
(A)
|
Rhode Island
|
|
|
363
|
|
|
|
0.31
|
%
|
|
|
3,737
|
|
South Carolina
|
|
|
2,953
|
|
|
|
2.51
|
%
|
|
|
37,955
|
|
Texas
|
|
|
19,653
|
|
|
|
16.72
|
%
|
|
|
184,776
|
(B)
|
Utah
|
|
|
4,565
|
|
|
|
3.88
|
%
|
|
|
66,354
|
|
Virginia
|
|
|
536
|
|
|
|
0.46
|
%
|
|
|
10,915
|
|
West Virginia
|
|
|
1,041
|
|
|
|
0.89
|
%
|
|
|
21,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,563
|
|
|
|
100.0
|
%
|
|
$
|
1,289,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Represents our Bucks County hospital and medical office
building. On January 30, 2009, we terminated the lease with
the existing tenant and the hospital is no longer operating. We
are currently evaluating options to sell or lease the facilities
to a new operator. |
|
(B) |
|
Includes our River Oaks facilities that are currently not being
operated. Our total investment in the River Oaks facilities is
$34.7 million. We are currently repairing the facilities
due to the damage caused by Hurricane Ike, while also looking
for a new tenant(s) to lease the facilities or for a buyer(s) to
potentially purchase the facilities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
Type of Property
|
|
Properties
|
|
|
Square Feet
|
|
|
Licensed Beds
|
|
|
General Acute Care Hospitals
|
|
|
24
|
|
|
|
3,526,956
|
|
|
|
3,661
|
|
Long-Term Acute Care Hospitals
|
|
|
13
|
|
|
|
937,278
|
|
|
|
1,018
|
|
Medical Office Buildings
|
|
|
2
|
|
|
|
80,710
|
|
|
|
NA
|
|
Rehabilitation Hospitals
|
|
|
6
|
|
|
|
473,543
|
|
|
|
436
|
|
Wellness Centers
|
|
|
6
|
|
|
|
251,213
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
5,269,700
|
|
|
|
5,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
ITEM 3.
|
Legal
Proceedings
|
In October 2006, two of our subsidiaries terminated their
respective leases with Stealth, L.P. (Stealth), the
operator of a hospital and medical office building complex that
we owned in Houston, Texas. Pursuant to our subsidiaries
rights under these leases, we took possession of the real estate
and contracted with a third party to operate the facilities for
an interim period. In January 2007, we completed the sale of
these properties to Memorial Hermann Healthcare System
(Memorial Hermann). Several limited partners of
Stealth filed suit against the general partner of Stealth, our
subsidiaries, the interim operator and several other parties in
December 2006, in Harris County, Texas District Court, generally
alleging that the defendants breached duties, interfered with
the plaintiffs partnership rights and misappropriated
assets of Stealth. Further amended petitions filed by the
plaintiffs added Memorial Hermann as a defendant and, while
dropping some of the original claims, alleged new claims that
our defendants conduct violated the antitrust laws and
constituted tortuous interference with Stealths business
contracts and relationships.
In May 2007, Stealth itself filed a cross claim against our
subsidiaries and the interim operator, later amended to include
us, our operating partnership and Memorial Hermann, broadly
alleging, among other things, fraud, negligent
misrepresentation, breaches of contract and warranty, and that
we operated all our subsidiaries as a single enterprise
and/or
conspired with our subsidiaries to commit the other tort claims
asserted. Stealths most recent amended filing consolidated
all of its claims against us in a consolidated petition that
added claims of breach of fiduciary duty and seeking actual and
punitive money damages. Memorial Hermann has agreed to defend
and indemnify us against one of Stealths breach of
contract claims.
The plaintiffs and Stealth jointly seek more than
$120 million in actual damages and more than
$350 million in punitive damages. At this time, this case
is set for trial in May, 2009. We believe that all of the claims
asserted by Stealth and its limited partners are without merit
and we intend to continue defending them vigorously.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our stockholders during
the fourth quarter ended December 31, 2008.
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
|
Medical Properties common stock is traded on the New York
Stock Exchange under the symbol MPW. The following
table sets forth the high and low sales prices for the common
stock for the periods indicated, as reported by the New York
Stock Exchange Composite Tape, and the dividends declared by us
with respect to each such period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
13.00
|
|
|
$
|
9.56
|
|
|
$
|
0.27
|
|
Second Quarter
|
|
|
12.89
|
|
|
|
10.10
|
|
|
|
0.27
|
|
Third Quarter
|
|
|
11.96
|
|
|
|
9.40
|
|
|
|
0.27
|
|
Fourth Quarter
|
|
|
11.34
|
|
|
|
3.67
|
|
|
|
0.20
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
16.70
|
|
|
$
|
14.44
|
|
|
$
|
0.27
|
|
Second Quarter
|
|
|
15.25
|
|
|
|
12.16
|
|
|
|
0.27
|
|
Third Quarter
|
|
|
13.88
|
|
|
|
10.86
|
|
|
|
0.27
|
|
Fourth Quarter
|
|
|
13.99
|
|
|
|
9.80
|
|
|
|
0.27
|
|
22
On March 11, 2009, the closing price for our common stock,
as reported on the New York Stock Exchange, was $3.69. As of
March 11, 2009, there were 83 holders of record of our
common stock. This figure does not reflect the beneficial
ownership of shares held in nominee name.
If dividends are declared in a quarter, those dividends will be
paid during the subsequent quarter. We expect to continue the
policy of distributing our taxable income through regular cash
dividends on a quarterly basis, although there is no assurance
as to future dividends because they depend on future earnings,
capital requirements, and financial condition. In addition, our
Credit Agreement, signed in November 2007, limits the amounts of
dividends we can pay to 100% of funds from operations, as
defined in the Credit Agreement, on a rolling four quarter basis.
The following graph provides comparison of cumulative total
stockholder return for the period from December 31, 2005
through December 31, 2008, among Medial Properties Trust,
Inc., the Russell 2000 Index, NAREIT Equity REIT Index, and SNL
US REIT Healthcare Index. The stock performance graph assumes an
investment of $100 in each of Medical Properties Trust, Inc. and
the three indices, and the reinvestment of dividends. The
historical information below is not necessarily indicative of
future performance.
Medical
Properties Trust, Inc.
Total Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
07/07/05
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
Medical Properties Trust, Inc.
|
|
|
|
100.00
|
|
|
|
|
96.50
|
|
|
|
|
163.45
|
|
|
|
|
118.15
|
|
|
|
|
80.81
|
|
Russell 2000
|
|
|
|
100.00
|
|
|
|
|
104.29
|
|
|
|
|
123.44
|
|
|
|
|
121.51
|
|
|
|
|
80.45
|
|
NAREIT All Equity REIT Index
|
|
|
|
100.00
|
|
|
|
|
98.41
|
|
|
|
|
132.92
|
|
|
|
|
112.06
|
|
|
|
|
69.78
|
|
SNL US REIT Healthcare
|
|
|
|
100.00
|
|
|
|
|
95.19
|
|
|
|
|
137.89
|
|
|
|
|
139.87
|
|
|
|
|
124.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
ITEM 6.
|
Selected
Financial Data
|
The following table sets forth our selected financial data and
should be read in conjunction with our Financial Statements and
notes thereto included in Item 8, Financial
Statements and Supplementary Data, and Item 7,
Managements Discussion and Analysis of Financial
condition and Results of Operations in this
Form 10-K.
During the periods presented below, we classified properties as
held for sale and, in compliance with SFAS No. 144,
have reported revenue and expenses from these properties as
discontinued operations for each period presented in our Annual
Report on
Form 10-K.
This reclassification had no effect on our reported net income
or funds from operations.
The following table sets forth selected financial and operating
information on a historical basis for each of the five years
ended December 31, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
117,563
|
|
|
$
|
81,786
|
|
|
$
|
36,403
|
|
|
$
|
16,512
|
|
|
$
|
4,444
|
|
Depreciation and amortization
|
|
|
25,561
|
|
|
|
10,342
|
|
|
|
4,437
|
|
|
|
1,915
|
|
|
|
345
|
|
General and administrative expenses
|
|
|
24,198
|
|
|
|
15,683
|
|
|
|
10,080
|
|
|
|
7,915
|
|
|
|
5,636
|
|
Interest expense
|
|
|
(40,652
|
)
|
|
|
(28,236
|
)
|
|
|
(4,418
|
)
|
|
|
(1,521
|
)
|
|
|
(33
|
)
|
Income (loss) from continuing operations
|
|
|
27,205
|
|
|
|
27,889
|
|
|
|
17,983
|
|
|
|
7,252
|
|
|
|
(640
|
)
|
Income from discontinued operations
|
|
|
7,282
|
|
|
|
13,351
|
|
|
|
12,177
|
|
|
|
12,388
|
|
|
|
5,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
34,487
|
|
|
$
|
41,240
|
|
|
$
|
30,160
|
|
|
$
|
19,640
|
|
|
$
|
4,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per diluted common share
|
|
$
|
0.44
|
|
|
$
|
0.58
|
|
|
$
|
0.45
|
|
|
$
|
0.23
|
|
|
$
|
(0.03
|
)
|
Income from discontinued operations per diluted common share
|
|
|
0.11
|
|
|
|
0.28
|
|
|
|
0.31
|
|
|
|
0.38
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted common share
|
|
$
|
0.55
|
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
$
|
0.61
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares diluted
|
|
|
62,144,011
|
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
19,312,634
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
1.01
|
|
|
$
|
1.08
|
|
|
$
|
0.99
|
|
|
$
|
0.62
|
|
|
$
|
0.21
|
|
Reconciliation of Net Income to Funds from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
34,487
|
|
|
$
|
41,240
|
|
|
$
|
30,160
|
|
|
$
|
19,640
|
|
|
$
|
4,576
|
|
Depreciation and amortization(2)
|
|
|
26,319
|
|
|
|
12,671
|
|
|
|
6,705
|
|
|
|
4,183
|
|
|
|
1,479
|
|
(Gain) on sale of real estate sold
|
|
|
(9,305
|
)
|
|
|
(4,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations(3)
|
|
$
|
51,501
|
|
|
$
|
49,849
|
|
|
$
|
36,865
|
|
|
$
|
23,823
|
|
|
$
|
6,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations per diluted common share
|
|
$
|
0.83
|
|
|
$
|
1.04
|
|
|
$
|
0.93
|
|
|
$
|
0.74
|
|
|
$
|
0.31
|
|
|
|
|
(1) |
|
We invested $469.5 million, $342.0 million,
$303.4 million, $222.4 million, and
$194.8 million in real estate in 2008, 2007, 2006, 2005,
and 2004, respectively. The results of operations resulting from
these investments are reflected in our consolidated financial
statements from the dates invested. See Note 3 in
Item 8 of this Annual Report on
form 10-K
for further information on acquisitions of real estate and new
loans. We funded these investments generally from issuing common
stock, utilizing additional amounts of our revolving facility,
incurring additional debt, or from the sale of facilities. See
Notes 4, 9, and 11, in Item 8 on this Annual report on |
24
|
|
|
|
|
Form 10-K
for further information regarding our debt, common stock and
discontinued operations, respectively. |
|
(2) |
|
Also includes depreciation and amortization reflected in
discontinued operations related to properties sold or held for
sale. |
|
(3) |
|
Funds From Operations, or FFO, is a widely recognized measure of
REIT performance. We compute FFO in accordance with standards
established by the National Association of Real Estate
Investment Trusts, or NAREIT, which may not be comparable to FFO
reported by other REITs that do not compute FFO in accordance
with the NAREIT definition, or that interpret the NAREIT
definition differently than we do. The revised White Paper on
FFO approved by the Board of Governors of NAREIT in April 2002
defines FFO as net income (loss) (computed in accordance with
generally accepted accounting principles, or GAAP), excluding
gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated
partnerships and joint ventures. We present FFO because we
consider it an important supplemental measure of our operating
performance and believe that it is frequently used by securities
analysts, investors and other interested parties in the
evaluation of REITS. We also use FFO as one of several criteria
to determine performance-based bonuses for members of our senior
management. FFO is intended to exclude GAAP historical cost
depreciation and amortization of real estate and related assets,
which assumes that the value of real estate assets diminishes
ratably over time. Historically, however, real estate values
have risen or fallen with market conditions. Because FFO
excludes depreciation and amortization unique to real estate,
gains and losses from property dispositions and extraordinary
items, it provides a performance measure that, when compared
year over year, reflects the impact to operations from trends in
rental rates, operating costs, interest costs, providing
perspective not immediately apparent from net income. FFO should
not be considered as an alternative to net income (determined in
accordance with GAAP), as an indication of our financial
performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of our
liquidity, nor is it indicative of funds available to fund our
cash needs, including our ability to make cash distributions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets at cost
|
|
$
|
996,965
|
|
|
$
|
649,963
|
|
|
$
|
558,124
|
|
|
$
|
337,102
|
|
|
$
|
151,690
|
|
Other loans and investments
|
|
|
293,523
|
|
|
|
265,758
|
|
|
|
150,173
|
|
|
|
85,813
|
|
|
|
50,224
|
|
Cash and equivalents
|
|
|
11,748
|
|
|
|
94,215
|
|
|
|
4,103
|
|
|
|
59,116
|
|
|
|
97,544
|
|
Total assets
|
|
|
1,311,440
|
|
|
|
1,051,660
|
|
|
|
744,757
|
|
|
|
495,453
|
|
|
|
306,506
|
|
Debt
|
|
|
638,366
|
|
|
|
480,525
|
|
|
|
304,962
|
|
|
|
65,010
|
|
|
|
56,000
|
|
Other liabilities
|
|
|
54,473
|
|
|
|
57,937
|
|
|
|
95,022
|
|
|
|
71,992
|
|
|
|
17,778
|
|
Minority interests
|
|
|
243
|
|
|
|
77
|
|
|
|
1,052
|
|
|
|
2,174
|
|
|
|
1,000
|
|
Total stockholders equity
|
|
|
618,358
|
|
|
|
513,121
|
|
|
|
343,721
|
|
|
|
356,277
|
|
|
|
231,728
|
|
Total liabilities and stockholders equity
|
|
|
1,311,440
|
|
|
|
1,051,660
|
|
|
|
744,757
|
|
|
|
495,453
|
|
|
|
306,506
|
|
25
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We were incorporated in Maryland on August 27, 2003
primarily for the purpose of investing in and owning net-leased
healthcare facilities across the United States. We also make
real estate mortgage loans and other loans to our tenants. We
have operated as a REIT since April 6, 2004, and
accordingly, elected REIT status upon the filing in September
2005 of our calendar year 2004 Federal income tax return. 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 for these operators real
estate through 100% lease and mortgage financing and generally
seek lease and loan terms on a long-term basis ranging from 10
to 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
minimum escalators range from 2% to 2.5%, although some of our
properties do not have an escalator. Most of our leases and
loans also include rate increases based on the general rate of
inflation if greater than the minimum contractual increases. In
addition to the base rent, our leases require our tenants to pay
all operating costs and expenses associated with the facility.
Some leases also require our tenants to pay percentage rents,
which are based on the level of those tenants revenues
from their operations.
The following discussion related to our consolidated financial
statements should be read in conjunction with the financial
statements appearing in Item 8 of this Annual Report on
Form 10-K.
We selectively make loans to certain of our operators through
our taxable REIT subsidiary, which they 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 for our company a
competitive advantage over other buyers of, and financing
sources for, healthcare facilities. For purpose of Statement of
Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, we conduct business operations in one segment.
At December 31, 2008, our portfolio consisted of 51
properties: 48 healthcare facilities which we own are leased to
14 tenants with the remainder in the form of mortgage loans
collateralized by interests in health care real estate. We have
one acquisition loan outstanding, the proceeds of which our
tenant used for the acquisition of six hospital operating
companies. The facilities we owned and the facilities that
collateralized our mortgage loans were in twenty-one states, had
a carrying cost of approximately $1.2 billion (including
the balances of our mortgage loans) and comprised approximately
90.1% of our total assets. Our acquisition and other loans of
approximately $108.5 million represented approximately 8.3%
of our total assets. We do not expect the aggregate of such
non-mortgage loans and certain other non-real estate investments
at any time to exceed 25% of our total assets. We also had cash
and temporary investments of approximately $11.7 million
that represented approximately 0.9% of our total assets.
During the second and third quarters of 2008, we completed the
acquisition from a single seller of 20 properties leased to 7
unrelated operators. These 20 facilities represent an investment
of approximately $357.2 million. Four of the seven
operators (HealthSouth Corporation, Community Health Systems,
Inc., Iasis Healthcare LLC and Health Management Associates,
Inc.) are publicly reporting companies and 69.4% of the
aggregate rent of the acquired portfolio is guaranteed by such
publicly reporting companies.
In May 2008, we acquired a long-term acute care hospital in
Detroit, Michigan at a cost of $10.8 million from an
unrelated party and entered into an operating lease with Vibra
Healthcare (Vibra).
Also in May 2008, we completed the sale of three rehabilitation
facilities to Vibra Healthcare and realized proceeds from sale
and related lease termination fees and loan partial pre-payment
totaling $105.0 million, including $7.0 million in
early lease termination fees and $8.0 million of a loan
partial prepayment. We realized a total gain on the sale of
these facilities of approximately $9.3 million and wrote
off approximately $9.5 million in related straight-line
rent receivable upon completion of the sales. Income from these
properties is reflected as
26
income from discontinued operations in our consolidated
financial statements for the years ended December 31, 2008,
2007, and 2006.
In June 2008, we entered into a $60 million financing
arrangement with affiliates of Prime related to three southern
California hospital campuses operated by Prime. In July 2008, we
acquired one of the facilities from a Prime affiliate for
approximately $15.0 million and in November 2008 acquired
the remaining two facilities for an aggregate cost of
approximately $45 million and entered into
10-year
leases with Prime affiliate.
We financed our 2009 acquisitions using proceeds from our March
2008 issuance of debt and equity (see Note 4
Debt and Note 9 Common Stock in Item 8 of
this 10-K),
from our existing revolving credit facilities and from the sale
of three rehabilitation facilities to Vibra in May 2008. (see
Note 11 Discontinued Operations in Item 8
of this
10-K).
In August 2007, we acquired two general acute care hospitals in
Houston, Texas (River Oaks) and Redding
(Shasta), California at a cost of
$100.0 million and entered into operating leases with the
operators, affiliates of Hospital Partners of America, Inc.
(HPA), a multi-hospital operating company. In June
2008, we received notification from the Houston operator that
due in part to irregularities recently discovered by independent
members of the HPA board of directors, the Houston hospital
would close and enter bankruptcy proceedings. The operator has
not paid rent since June 2008. In August 2008, the Redding
operator notified us that it would not pay rent commencing in
September. On September 24, 2008, HPA and most of its
affiliates (other than the Redding operator and management
company) entered into bankruptcy proceedings.
In September 2008, our Houston facilities were damaged by
Hurricane Ike. We recorded a $1.3 million charge in the
fourth quarter of 2008 related to our insurance deductible. Our
Houston facilities are comprised of two separate campuses that
will likely be resolved independent of each other. In addition
to the value of the facilities that would result from sale or
re-leasing, we also have an interest in certain accounts
receivable of the Redding facility. Accordingly, we believe that
proceeds from the sale, lease and security for the facilities
will be sufficient to recover our investments in the Houston
real estate. Upon the original purchase transaction in August
2007, a portion of the Houston purchase price was allocated to
intangible lease costs and was being amortized over the term of
the lease. We recorded $1.8 million of accelerated
amortization related to this lease intangible and a
$0.6 million charge for the write-off of straight-line rent
associated with the Houston facilities in the third quarter of
2008.
In November 2008, we entered into a new lease agreement for the
Redding hospital. The new operator, an affiliate of Prime,
agreed to increase the lease base from $60.0 million in the
previous lease to $63.0 million and to pay up to
$20.0 million in additional rent and profit participation
subject to the future profitability of the new lessees
operations. Upon the original purchase transaction in August
2007, a portion of the Redding purchase price was allocated to
intangible lease costs and was being amortized over the term of
the lease. We recorded $2.7 million of accelerated
amortization related to this lease intangible and a
$0.9 million charge for the write-off of straight-line rent
associated with the Redding hospital in the third quarter of
2008.
We expensed approximately $1.2 million of costs associated
with the bankruptcy of Hospital Partners of America Inc., the
parent of the former tenants at both River Oaks and Shasta. We
believe some these costs may be substantially recovered through
collection of pre-bankruptcy accounts receivable on which we
have a first lien plus other assets. However, we do not expect
to recognize any recovery until the issues surrounding the
bankruptcy proceedings are clarified.
In late January 2009, the current operator of our Bucks County
facility gave notice of their intentions to close the facility.
The lease was terminated on January 30, 2009 and operations
at the Bucks County facility have ceased. We are in the process
of negotiating with potential new operators or buyers. We have
stopped accrual of revenue from the Bucks County Hospital and
have recorded charges for the write-off of straight-line rent
($3.0 million) and other receivables ($1.7 million) as of
December 31, 2008.
In January 2009, we issued 13.3 million shares of common
stock resulting in net proceeds of approximately
$68.4 million. We used these proceeds to pay down our
existing revolver. At March 1, 2009 we had approximately
$580 million of debt of which approximately
$350 million had interest rates that were fixed and carried
a weighted average rate of approximately 7.4% and approximately
$230 million had variable rates with a weighted average of
approximately 2.5%.
27
At March 1, 2009, we had approximately $74 million of
cash and immediate availability under our revolving credit
agreements.
Critical
Accounting Policies
In order to prepare financial statements in conformity with
accounting principles generally accepted in the United States,
we must make estimates about certain types of transactions and
account balances. We believe that our estimates of the amount
and timing of lease revenues, credit losses, fair values and
periodic depreciation of our real estate assets, stock
compensation expense, and the effects of any derivative and
hedging activities 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 accounting
policies described below. In addition, application of these
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. Our
accounting estimates include the following:
Revenue Recognition. Our revenues, which are
comprised largely of rental income, include rents that each
tenant pays in accordance with the terms of its respective lease
reported on a straight-line basis over the initial term of the
lease. Since some of our leases provide for rental increases at
specified intervals, straight-line basis accounting requires us
to record as an asset, and include in revenues, straight-line
rent that we will only receive if the tenant makes all rent
payments required through the expiration of the term of the
lease.
Accordingly, our management determines, in our judgment, to what
extent the straight-line rent receivable applicable to each
specific tenant is collectible. We review each tenants
straight-line rent receivable on a quarterly basis and take into
consideration the tenants payment history, the financial
condition of the tenant, business conditions in the industry in
which the tenant operates, and economic conditions in the area
in which the facility is located. If it becomes probable that we
will not collect some or all of the straight-line rent that we
have accrued, we record an increase in our allowance for
uncollectible accounts or record a direct write-off of the
specific rent receivable.
We make loans to our tenants and from time to time may make
construction or mortgage loans to facility owners or other
parties. We recognize interest income on loans as earned based
upon the principal amount outstanding. These loans are generally
collateralized by interests in real estate, receivables, the
equity interests of a tenant, or corporate and individual
guarantees and are usually cross-defaulted with their leases
and/or other
loans. We periodically evaluate loans to determine what amounts,
if any, may not be collectible. Accordingly, a provision for
losses on loans receivable is recorded when it becomes probable
that the loan will not be collected in full. The provision is an
amount which reduces the net present value of expected future
cash flows discounted at the loans effective interest rate
or the fair value of the loans collateral, if any. At that
time, we discontinue recording interest income.
Investments in Real Estate. We record
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, to
the extent that we incur costs of repairs and maintenance, we
expense those costs as incurred. We compute depreciation using
the straight-line method over the estimated useful life of
generally 40 years for buildings and improvements, three to
seven years for equipment and fixtures, and the shorter of the
useful life or the remaining lease term for tenant-owned
improvements and leasehold interests.
When circumstances indicate a possible impairment of the value
of our real estate investments, we review the recoverability of
the facilitys carrying value. The review of the
recoverability is generally based on our estimate of the future
undiscounted cash flows, excluding interest charges, from the
facilitys 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
inability to recover the carrying value of a facility, an
impairment loss is recorded to the extent that the carrying
value exceeds the estimated fair value of the facility. We do
not believe that the value of any of our facilities was impaired
at December 31, 2008 and 2007.
28
Purchase Price Allocation. 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
(using an interest rate which reflects the risks associated with
the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases
and (ii) managements 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 remaining
non-cancelable terms of the respective leases. We amortize any
resulting capitalized below-market lease values as an increase
to rental income over the initial term and any fixed-rate
renewal periods in the respective leases. Because our strategy
to a large degree involves the origination and acquisition of
long term lease arrangements at market rates relative to our
acquisition costs, we do not expect the above-market and
below-market in-place lease values to be significant for many of
our anticipated transactions.
We measure the aggregate value of other intangible assets to be
acquired based on the difference between (i) the property
valued with existing leases adjusted to market rental rates and
(ii) the property valued as if vacant when acquired.
Managements 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 tangible and intangible assets acquired.
In estimating carrying costs, management also 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 range primarily from three to
18 months, 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 as part of the
transaction.
The total amount of other intangible assets acquired, if any, is
further allocated to in-place lease values and customer
relationship intangible values based on managements
evaluation of the specific characteristics of each prospective
tenants 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
tenants credit quality, and expectations of lease
renewals, including those existing under the terms of the lease
agreement, among other factors.
We amortize the value of in-place leases to expense over the
initial term of the respective leases, which range primarily
from one to 19 years at December 31, 2008. The value
of customer relationship intangibles, if any, is amortized to
expense over the initial term and any renewal periods in the
respective leases, but in no event will the amortization period
for intangible assets exceed the remaining depreciable life of
the building. If a lease is terminated, the unamortized portion
of the in-place lease value and customer relationship
intangibles would be charged to expense. At December 31,
2008, we have assigned no value to customer relationship
intangibles.
Loans: Loans consist of mortgage loans,
working capital loans and other long-term loans. Interest income
from loans is recognized as earned based upon the principal
amount outstanding. Mortgage loans are collateralized by
interests in real property. Working capital and other long-term
loans are generally collateralized by interests in receivables
and corporate and individual guarantees. We record loans at
cost. We evaluate the collectability of both interest and
principal for each of our loans to determine whether they are
impaired. A loan is considered impaired when, based on current
information and events, it is probable that we will be unable to
collect all amounts due according to the existing contractual
terms. When a loan is considered to be impaired, the amount of
the allowance is calculated by comparing the recorded investment
to either the value determined by discounting the expected
future cash flows or the loans effective interest rate or to the
fair value of the collateral if the loan is collateral dependent.
Losses from Rent Receivables: A provision for
losses on rent receivables is 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 the
collateral, if any.
29
Accounting for Derivative Financial Investments and Hedging
Activities. We account for our derivative and
hedging activities, if any, using SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137 and
SFAS No. 149, which requires all derivative
instruments to be carried at fair value on the balance sheet.
In 2006, we entered into derivative contracts as part of our
offering of Exchangeable Senior Notes (the 2006
exchangeable notes). The contracts are generally termed
capped call or call spread contracts.
These contracts are financial instruments that are separate from
the exchangeable notes themselves, but affect the overall
potential number of shares which will be issued by us to satisfy
the conversion feature in the exchangeable notes. The 2006
exchangeable notes can be exchanged into shares of our common
stock when our stock price exceeds $16.46 per share, which is
the equivalent of 60.7502 shares per $1,000 note. The
number of shares actually issued upon conversion is equivalent
to the amount by which our stock price exceeds $16.46 times the
60.7502 conversion rate. The capped call transaction
allows us to effectively increase that exchange price from
$16.46 to $18.94. Therefore, our shareholders will not
experience dilution of their shares from any settlement or
conversion of the 2006 exchangeable notes until the price of our
stock exceeds $18.94 per share rather than $16.46 per share.
When evaluating this transaction, we followed the guidance in
Emerging Issues Task Force (EITF)
No. 00-19
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock. EITF
No. 00-19
requires that contracts such as this capped call
which meet certain conditions must be accounted for as permanent
adjustments to equity rather than periodically adjusted to their
fair value as assets or liabilities. We have evaluated the terms
of these contracts and recorded this capped call as
a permanent adjustment to stockholders equity in 2006.
In March 2008, our Operating Partnership issued and sold, in a
private offering, $75.0 million of Exchangeable Senior
Notes (the 2008 exchangeable notes) and received
proceeds of $72.8 million. In April 2008, the Operating
Partnership sold an additional $7.0 million of 2008
exchangeable notes (under the initial purchasers
overallotment option) and received proceeds of
$6.8 million. The 2008 exchangeable notes will pay interest
semi-annually at a rate of 9.25% per annum and mature on
April 1, 2013. The 2008 exchangeable notes have an initial
exchange rate of 80.8898 shares of our common stock per
$1,000 principal amount of the notes, representing an exchange
price of approximately $12.36 per common share. The 2008
exchangeable notes are senior unsecured obligations of the
Operating Partnership, guaranteed by us.
The 2006 and 2008 exchangeable notes contain conversion features
as described above. SFAS No. 133 states that
embedded derivative contracts, such as the conversion features
in the notes, should not be treated as a financial instrument
separate from the notes if they meet certain conditions in EITF
No. 00-19.
We have evaluated the conversion feature in the 2006 and 2008
exchangeable notes and have determined that they should not be
reported separately from the debt. However, in May 2008, the
FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that may be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), (the FSP). The FSP requires that
the initial debt proceeds from the sale of our 2006 and 2008
exchangeable notes be allocated between a liability component
and an equity component. The resulting debt discount (equaled to
the value assigned to the equity component) would be amortized
over the period the debt is expected to be outstanding as
additional non-cash interest expense. The FSP is effective for
our fiscal year beginning on January 1, 2009 and requires
retroactive application to the 2006 and 2008 exchangeable notes,
which we currently estimate will result in us recognizing an
additional non-cash interest expense of approximately
$2.1 million in 2009.
Variable Interest Entities. In January 2003,
the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In December 2003,
the FASB issued a revision to FIN 46, which is termed
FIN 46(R). FIN 46(R) clarifies the application of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements, and provides guidance on the
identification of entities for which control is achieved through
means other than voting rights, guidance on how to determine
which business enterprise should consolidate such an entity, and
guidance on when it should do so. This model for consolidation
applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest
or (2) the equity investment at risk is insufficient to
finance that entitys activities without receiving
additional subordinated financial support from other parties. An
entity meeting either of these two criteria is a variable
interest entity, or VIE. A VIE must be consolidated by any
entity which is the primary beneficiary of the VIE. If an entity
is not the primary beneficiary of the VIE, the VIE is not
consolidated. We periodically evaluate the terms of our
relationships with our tenants and borrowers to determine
whether we are the primary beneficiary and if we should
consolidate such tenant or borrower. At December 31, 2008,
2007, and
30
2006, we have determined that we are not the primary beneficiary
of any such VIE nor were there any reconsideration events, as
defined, during 2008, 2007, or 2006.
Stock-Based Compensation. Prior to 2006, we
used the intrinsic value method to account for the issuance of
stock options under our equity incentive plan in accordance with
APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) became effective for
our annual and interim periods beginning January 1, 2006,
but had no material effect on the results of our operations.
During the years ended December 31, 2008, 2007, and 2006 we
recorded approximately $6.4 million, $4.5 million, and
$2.9 million, respectively, of expense for share-based
compensation related to grants of restricted common stock,
deferred stock units and other stock-based awards. In 2006, we
also granted performance-based restricted share awards. Because
these awards will vest based on our performance, we must
evaluate and estimate the probability of achieving those
performance targets. Any changes in these estimates and
probabilities must be recorded in the period when they are
changed. In 2007, the Compensation Committee made awards which
are earned only if we achieve certain stock price levels, total
shareholder return or other market conditions. The 2007 awards
were made pursuant to our 2007 Multi-Year Incentive Plan (MIP)
adopted by the Compensation Committee and consisted of three
components: service-based awards, core performance awards
(CPRE), and superior performance awards (SPRE). The
service-based awards vest annually and ratably over a seven-year
period. We recognize expense over the vesting period on the
straight-line method for service based awards. The CPRE and SPRE
awards vest based on what SFAS No. 123(R) terms
market conditions. Market conditions are vesting
conditions which are based on our stock price levels or our
total shareholder return (stock price and dividends) compared to
an index of other REIT stocks. The SPRE awards require
additional service after being earned, if they are in fact
earned. For the CPRE awards, the period over which the awards
are earned is not fixed because the awards provide for
cumulative measures over multiple years.
SFAS No. 123(R) requires that we estimate the period
over which the awards will likely be earned, regardless of the
period over which the award allows as the maximum period over
which it can be earned. Also, because some awards have multiple
periods over which they can be earned, we must segregate
individual awards into tranches, based on their
vesting or estimated earning periods. These complexities
required us to use an independent consultant to assist us in
modeling both the value of the award and the various periods
over which each tranche of an award will be earned. We used what
is termed a Monte Carlo simulation model which determines a
value and earnings periods based on multiple outcomes and their
probabilities. Beginning in 2007, we began recording expense
over the expected or derived vesting periods using the
calculated value of the awards. We recorded expense over these
vesting periods even though the awards have not yet been earned
and, in fact, may never be earned. In some cases, if the award
is not earned, we will be required to reverse expenses
recognized in earlier periods. As a result, future stock-based
compensation expense may fluctuate based on the potential
reversal of previously recorded expense.
Disclosure
of Contractual Obligations
The following table summarizes known material contractual
obligations as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Senior notes
|
|
$
|
9,630,775
|
|
|
$
|
17,348,352
|
|
|
$
|
6,840,625
|
|
|
$
|
134,231,658
|
|
|
$
|
168,051,410
|
|
Exchangeable notes
|
|
|
16,037,500
|
|
|
|
168,986,596
|
|
|
|
91,330,589
|
|
|
|
|
|
|
|
276,354,685
|
|
Revolving credit facilities(1)
|
|
|
6,875,572
|
|
|
|
163,948,566
|
|
|
|
39,979,118
|
|
|
|
|
|
|
|
210,803,256
|
|
Term notes(2)
|
|
|
5,548,288
|
|
|
|
109,377,555
|
|
|
|
|
|
|
|
|
|
|
|
114,925,843
|
|
Operating lease commitments(3)
|
|
|
841,405
|
|
|
|
1,679,180
|
|
|
|
1,593,979
|
|
|
|
29,720,870
|
|
|
|
33,835,434
|
|
Purchase obligations
|
|
|
6,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
45,233,540
|
|
|
$
|
461,340,249
|
|
|
$
|
139,744,311
|
|
|
$
|
163,952,528
|
|
|
$
|
810,270,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the balance and interest rates are those in effect at
December 31, 2008 and no principal payments are made until
the expiration of the facilities. |
|
(2) |
|
Assumes interest rates are those in effect at December 31,
2008. |
|
(3) |
|
Some of our contractual obligations to make operating lease
payments are related to ground leases for which we are
reimbursed by our tenants. |
31
Liquidity
and Capital Resources
We generated cash of approximately $69.9 million from
operating activities during 2008. In addition to these
resources, which we used primarily for distributions to our
stockholders and partial payments of acquisition prices and debt
service, we received proceeds from the sale of approximately
12.6 million shares of our common stock
($128.3 million) and 9.25% exchangeable notes
($79.6 million). We also received total cash proceeds of
approximately $30.0 million from a term loan facility and
$105.0 million from the sale of three facilities to Vibra.
These resources were used primarily for the acquisition of new
healthcare facilities during 2008.
We expect a lower volume of acquisitions and other investments
in 2009 than in any other recent year, and accordingly do not
anticipate a current requirement for incremental financing.
However, because we believe it possible that global economic
conditions and capital markets will remain volatile through 2009
and beyond, we intend to continually evaluate our need for
incremental liquidity and depending on availability, cost and
other terms, we may elect to further improve our liquidity
through additional debt and equity transactions.
At December 31, 2008, we had availability under our
existing revolving credit facilities of $3 million and cash
and equivalents of approximately $11.7 million. To improve
our liquidity position, on January 7, 2009 we completed a
public offering of 12.0 million shares of our common stock.
Including the underwriters purchase of an additional
1.3 million shares to cover over allotments, net proceeds
from this offering, after underwriting discount and commissions
and offering expenses, were approximately $68.4 million,
which were substantially used to repay borrowings outstanding
under our revolving credit facilities. Accordingly, at
March 1, 2009, we had approximately $13.0 million in
cash and $61.0 million available under our revolving credit
facilities.
Our revolving credit agreement and term loans impose certain
restrictions on us including restrictions on our ability to:
incur debts; grant 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; and change our business. In addition, these
agreements limit the amount of dividends we can pay to 100% of
funds from operations, as defined in the agreements, on a
rolling four quarter basis. These agreements also contain
provisions for the mandatory prepayment of outstanding
borrowings under these facilities from the proceeds received
from the sale of properties that serve as collateral.
In addition to these restrictions, our revolving credit
agreement and term loans contain customary financial and
operating covenants, including covenants relating to total
leverage ratio, fixed charge coverage ratio, mortgage secured
leverage ratio, recourse mortgage secured leverage ratio,
consolidated adjusted net worth, floating rate debt, facility
leverage ratio, and borrowing base interest coverage ratio.
These agreements also contain customary events of default,
including among others, nonpayment of principal or interest,
material inaccuracy of representations and failure to comply
with our covenants. Subject to our compliance with these
requirements, we may elect to extend the maturity of our
$154.0 million revolving credit facility from its November
2010 scheduled maturity to November 2011. We were in compliance
with all such requirements at December 31, 2008 and as of
the date of this Annual Report on
Form 10-K.
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. In December 2008 and
February 2009, our Board of Directors declared quarterly
dividend distributions of $0.20 per share to our common
stockholders of record on December 23, 2008 and
March 19, 2009, respectively. The dividend declared in
December was paid on January 22, 2009. 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: We have
only nominal principal payments due and no maturities until
November 2010. We believe that the liquidity available to us as
described above, along with our current monthly cash receipts
from rent and loan interest, is sufficient to provide the
resources necessary for operations, debt and interest
obligations, and distributions in compliance with REIT
requirements during 2009.
Long-term Liquidity Requirements: Our first
significant maturity of debt comes due in November 2010 when our
$30.0 million term loan and our $154.0 million
revolving credit facility mature. However, of this approximately
$182.0 million of debt coming due in 2010,
$154.0 million ($93.0 million outstanding on
March 1, 2009) relates to
32
our revolving credit facility, which can be extended to 2011 so
long as no default has occurred and we provide necessary notice
of our intentions to extend the facility.
There is no assurance that conditions now existing in the credit
markets will improve by November 2011, when $209 million of
our debt comes due. Accordingly, while we plan to continually
consider options to replace or refinance our existing debt
arrangements if market conditions become more favorable, we will
also evaluate other sources of liquidity including:
|
|
|
|
|
Property sales we believe we have several assets
that, even in the current credit environment, may attract
purchasers willing and able to pay acceptable prices. However,
we believe any possible sale transactions will be conditional on
the purchasers ability to obtain acceptable financing, and
there is no assurance that such financing will be available.
|
|
|
|
Incremental borrowings we have recently successfully
demonstrated our ability to access property level debt with
attractive terms, providing liquidity for reduction of earlier
maturing loans and debt. Moreover, our $30.0 million term
loan that matures in 2010 is prepayable without penalty and is
collateralized by properties with an estimated aggregate value
of more than $340.0 million. Payment of this loan would
make such collateral available for significant incremental
borrowing. Because availability of credit is presently highly
uncertain there is no assurance that we could obtain such
incremental borrowings.
|
|
|
|
Extension of existing maturities we expect that as
market conditions improve, our existing lenders may be willing
to offer additional extension options as our facilities mature.
There is no assurance, however, that conditions will improve or
that our lenders will offer extensions; moreover, pricing and
other terms that may be associated with any such extensions may
not be attractive to us.
|
In addition, we believe other alternatives which at present we
are not considering may be available to us to meet our liquidity
requirements in the event more traditional forms of capital are
unavailable. These include the additional use of cash provided
by operations, and the sale of equity and other securities. As
an example, in January 2009, we sold 13.3 million shares of
common stock generating $68.4 in net proceeds.
Results
of Operations
We began operations during the second quarter of 2004. Since
then, we have substantially increased our income earning
investments each year, and we expect to continue to add to our
investment portfolio, subject to the capital markets and other
conditions described in this Annual Report on
Form 10-K.
Accordingly, we expect that future results of operations will
vary from our historical results. The results of operations
discussed for the year ended December 31, 2007 and 2006,
have been adjusted to reflect the operations of five facilities
which are recorded as discontinued operations in those years
based on asset dispositions in 2008 and 2007.
Year
Ended December 31, 2008 Compared to the Year Ended
December 31, 2007
Net income for the year ended December 31, 2008 was
$34,486,994 compared to net income of $41,239,639 for the year
ended December 31, 2007.
A comparison of revenues for the years ended December 31,
2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
Change
|
|
|
|
(Dollar amounts in thousands)
|
|
|
Base rents
|
|
$
|
82,319
|
|
|
|
70.0
|
%
|
|
$
|
42,620
|
|
|
|
52.1
|
%
|
|
$
|
39,699
|
|
Straight-line rents
|
|
|
3,971
|
|
|
|
3.4
|
%
|
|
|
8,513
|
|
|
|
10.4
|
%
|
|
|
(4,542
|
)
|
Percentage rents
|
|
|
1,453
|
|
|
|
1.2
|
%
|
|
|
301
|
|
|
|
0.4
|
%
|
|
|
1,152
|
|
Interest from loans
|
|
|
28,536
|
|
|
|
24.3
|
%
|
|
|
26,000
|
|
|
|
31.8
|
%
|
|
|
2,536
|
|
Fee income
|
|
|
1,284
|
|
|
|
1.1
|
%
|
|
|
4,352
|
|
|
|
5.3
|
%
|
|
|
(3,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
117,563
|
|
|
|
100.0
|
%
|
|
$
|
81,786
|
|
|
|
100.0
|
%
|
|
$
|
35,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2008, was comprised
of rents (74.6%) and interest and fee income from loans (25.4%).
Our base rents increased $23.6 million in 2008 due to the
acquisition of 26 rent-producing facilities in 2008. Our
fee income decreased in 2008 due to approximately
$3.8 million in mortgage loan pre-
33
payment fees in 2007. Straight-line rents decreased as compared
to 2007 due to the write-off of $4.5 million in
straight-line rent receivables associated with the lease
termination of River Oaks, Bucks County and our hospital in
Redding, California.
Prime accounted for approximately for 33.3% and 30.4% of our
gross revenues in 2008 and 2007, respectively. At
December 31, 2008, assets leased and loaned to Prime
comprised 37.2% of total assets and 37.8% of our total
investment. Vibra accounted for 15.8% and 19.1% of our gross
revenues in 2008 and 2007, respectively. This includes
percentage rents of approximately $0.1 million and
$0.2 million in 2008 and 2007, respectively. At
December 31, 2008, assets leased and loaned to Vibra
comprised 10.6% of our total assets and 10.7% of our total
investment.
Depreciation and amortization during the year ended
December 31, 2008 was $25,560,996, compared to $10,341,601
during the year ended December 31, 2007. All of this
increase is related to an increase in the number of rent
producing properties from 22 (cost
$568.1 million) at December 31, 2007 to 48
(cost $996.5 million) at December 31, 2008
and the accelerated amortization of intangibles related to the
termination of our leases with the River Oaks and Redding
hospitals in September 2008 resulting in charges of
$1.8 million and $2.7 million, respectively.
General and administrative expenses during the years ended
December 31, 2008 and 2007, totaled $24,198,129 and
$15,683,255, respectively, which represents an increase of
54.3%. The increase is partially due to an increase of
approximately $1.9 million of non-cash share-based
compensation expense from stock-based awards made during 2007
and 2008. We have also experienced an increase of approximately
$0.5 million in salary and wage expense due to an increase
in the number of employees in 2008 and higher travel and office
expenses of approximately $890,000 as a result of the expansion
of our portfolio. Additionally, we recorded a $1.7 million
charge for the write-off of uncollectible base rent and other
receivables related to the Bucks County hospital and a
$1.3 million insurance deductible repair expense related to
the impact of Hurricane Ike on our River Oaks Medical Center in
Houston, Texas. In addition, we expensed $1.2 million of
costs associated with the bankruptcy of Hospital Partners of
America, the former tenant at both River Oaks and Shasta.
Interest expense for the years ended December 31, 2008 and
2007 totaled $40,652,716 and $28,236,502, respectively. Interest
expense in 2007 excludes interest of approximately
$1.3 million that was capitalized as part of the cost of
development projects under construction during 2007. Capitalized
interest decreased due to our final two developments under
construction being placed into service in April 2007. Interest
expense increased during 2008 due to higher debt balances in
2008 compared to 2007 primarily as a result of financing
$431 million in real estate acquisitions of real estate
property in 2008.
In addition to the items noted above, net income for the year
ended 2008 versus 2007 was impacted by discontinued operations
that included gains on sales of real estate of approximately
$9.3 million compared to $4.1 million in 2007;
write-off of straight-line rent receivables of $9.5 million
as a result of the sale of the three Vibra properties compared
to $1.2 million in 2007; and early lease and loan
termination fee income of $7.0 million compared to
$2.3 million in 2007. We also recorded a $2.1 million
charge (net of approximately $1.2 million in tax benefits)
for the write off of uncollectible receivables associated with
operations that were discontinued in 2006; no such charge was
taken in the 2007 period. Finally, note that the three Vibra
properties were in operation throughout 2007 but were sold in
the first quarter of 2008 and we have moved the related
operating income (which was higher in 2007) to discontinued
operations in both years in accordance with discontinued
operations accounting.
Year
Ended December 31, 2007 Compared to the Year Ended
December 31, 2006
Net income for the year ended December 31, 2007 was
$41,239,639 compared to net income of $30,159,698 for the year
ended December 31, 2006.
34
A comparison of revenues for the years ended December 31,
2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
Change
|
|
|
Base rents
|
|
$
|
42,620
|
|
|
|
52.1
|
%
|
|
$
|
18,514
|
|
|
|
50.9
|
%
|
|
$
|
24,106
|
|
Straight-line rents
|
|
|
8,513
|
|
|
|
10.4
|
%
|
|
|
4,345
|
|
|
|
11.9
|
%
|
|
|
4,168
|
|
Percentage rents
|
|
|
301
|
|
|
|
0.4
|
%
|
|
|
1,231
|
|
|
|
3.4
|
%
|
|
|
(930
|
)
|
Interest from loans
|
|
|
26,000
|
|
|
|
31.8
|
%
|
|
|
11,893
|
|
|
|
32.7
|
%
|
|
|
14,107
|
|
Fee income
|
|
|
4,352
|
|
|
|
5.3
|
%
|
|
|
420
|
|
|
|
1.1
|
%
|
|
|
3,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
81,786
|
|
|
|
100.0
|
%
|
|
$
|
36,403
|
|
|
|
100.0
|
%
|
|
$
|
45,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2007, was comprised
of rents (62.9%) and interest and fee income from loans (37.1%).
Our base and straight-line rents increased in 2007 due to the
acquisition of four facilities and the opening of two
developments in 2007. Interest income from loans in the year
ended December 31, 2007, increased primarily due to
origination of two additional mortgage loans totaling
$120 million in the first quarter of 2007 offset by the
repayment of a $40 million mortgage loan in the second
quarter of 2007 and a $25 million mortgage loan in the
fourth quarter of 2007. Our fee income increased in 2007 due to
the receipt of $3.8 million in mortgage loan pre-payment
fees.
Affiliates of Prime accounted for 30.4% and 26.9% of our gross
revenues in 2007 and 2006, respectively. Vibra accounted for
19.1% and 37.6% of our gross revenues in 2007 and 2006,
respectively. At December 31, 2007, assets leased and
loaned to affiliates of Prime comprised 33.6% of our total
assets and 38.2% of our total investment. At December 31,
2007, assets leased and loaned to Vibra comprised 20.9% of our
total assets and 23.7% of our total investment.
Depreciation and amortization during the year ended
December 31, 2007 was $10,341,601, compared to $4,437,086
during the year ended December 31, 2006. All of this
increase is related to an increase in the number of rent
producing properties from 21 (cost
$437.4 million) at December 31, 2006 to 25
(cost $657.5 million) at December 31, 2007.
General and administrative expenses during the years ended
December 31, 2007 and 2006, totaled $15,683,255 and
$10,079,945, respectively, which represents an increase of
55.6%. The increase is partially due to an increase of
approximately $1.4 million of non-cash share-based
compensation expense from stock-based awards made during 2007.
We also experienced a $3.1 million increase in salary and
wage expense due to an increase in the number of employees from
20 on January 1, 2006 to 27 on December 31, 2007.
Interest expense for the years ended December 31, 2007 and
2006 totaled $28,236,502 and $4,417,955, respectively. Interest
expense in 2007 and 2006 excludes interest of approximately
$1.3 million and $6.2 million, respectively, which was
capitalized as part of the cost of development projects under
construction during 2007 and 2006. Capitalized interest
decreased due to our final two developments under construction
being placed into service in April 2007, which represented
construction in process totaling $59.8 million at
December 31, 2006. Interest expense increased during 2007
due to the issuance of $263.0 million in fixed rate notes
in the second half of 2006 in order to fund the acquisition of
six facilities and to reduce balances under our revolving credit
facilities, and the cessation of capitalization of interest on
approximately $155.3 million in development projects that
were placed in service in 2006 and 2007.
In addition to the items noted above, net income for the year
ended 2007 included gains on sale of real estate of
approximately $4.1 million compared to $0 million in
2006. Additionally, in November 2007, we recorded a
$2.8 million write-off of loan costs as a result of the
$35 million pay off of one of our revolving credit
facilities.
Discontinued
Operations
In the second quarter of 2008, we sold the real estate assets of
three inpatient rehabilitation facilities to Vibra for proceeds
of approximately $105.0 million, including
$7.0 million in early lease termination fees and
$8.0 million of a loan pre-payment. The sale was completed
on May 7, 2008, realizing a gain on the sale of
approximately $9.3 million. We also wrote off approximately
$9.5 million in related straight-line rent receivable upon
completion
35
of the sales. The three Vibra properties were classified as held
for sale and were reflected in our accompanying Consolidated
Balance Sheets at $81.4 million at December 31, 2007.
As previously disclosed, in 2006, we terminated leases for
Houston Town and Country Hospital and Medical Office Building
(MOB) complex and repossessed the real estate. In
January 2007, we sold the hospital and MOB complex and recorded
a gain on the sale of real estate of approximately
$4.1 million. During the period between termination of the
lease and sale of the real estate, we substantially funded
through loans the working capital requirements of the
hospitals operator pending the operators collection
of patient receivables from Medicare and other sources. In 2007,
we wrote off approximately $3.5 million of uncollectible
receivables from the operator. In July 2008, the operator
received from Medicare the substantial remainder of amounts that
it expects to collect (which were used to fund our outstanding
receivables) and based thereon wrote off off in the second
quarter of 2008 approximately $2.1 million (net of
approximately $1.2 million in tax benefits) of remaining
uncollectible receivables from the operator.
We incurred approximately $1.4 million (net of insurance
recovery) and $0.6 million in legal expense in 2008 and
2007, respectively, related to the Houston Town and Country
litigation. We continue to believe that the allegations have no
merit and that we will prevail at trial. Moreover, we believe
that some of these expenses will be recovered through insurance,
but due to the uncertainty of future defense costs and the
ultimate outcome of the trial, we cannot be assured that our
total future cost will not exceed the limits of our insurance
policies.
Reconciliation
of Non-GAAP Financial Measures
Investors and analysts following the real estate industry
utilize funds from operations, or FFO, as a supplemental
performance measure. While we believe net income available to
common stockholders, as defined by generally accepted accounting
principles (GAAP), is the most appropriate measure,
our management considers FFO an appropriate supplemental measure
given its wide use by and relevance to investors and analysts.
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 assume that the value of real estate diminishes
predictably over time.
As defined by the National Association of Real Estate Investment
Trusts, or NAREIT, FFO represents net income (loss) (computed in
accordance with GAAP), excluding gains (losses) on sales of real
estate, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint
ventures. We compute FFO in accordance with the NAREIT
definition. FFO should not be viewed as a substitute measure of
our operating performance since it does not reflect either
depreciation and amortization costs or the level of capital
expenditures and leasing costs necessary to maintain the
operating performance of our properties, which are significant
economic costs that could materially impact our results of
operations.
The following table presents a reconciliation of FFO to net
income for the years ended December 31, 2008, 2007 and 2006
($ amounts in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
34,487
|
|
|
$
|
41,240
|
|
|
$
|
30,160
|
|
Depreciation and amortization
|
|
|
26,319
|
|
|
|
12,671
|
|
|
|
6,705
|
|
(Gain) on sale of real estate sold
|
|
|
(9,305
|
)
|
|
|
(4,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO
|
|
$
|
51,501
|
|
|
$
|
49,849
|
|
|
$
|
36,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Per diluted share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
0.55
|
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
Depreciation and amortization
|
|
|
0.42
|
|
|
|
0.27
|
|
|
|
0.17
|
|
(Gain) on sale of real estate sold
|
|
|
(0.14
|
)
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO
|
|
$
|
0.83
|
|
|
$
|
1.04
|
|
|
$
|
.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008:
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Date of Distribution
|
|
Distribution per Share
|
|
|
December 4, 2008
|
|
December 23, 2008
|
|
January 22, 2009
|
|
$
|
0.20
|
|
August 21, 2008
|
|
September 18, 2008
|
|
October 16, 2008
|
|
$
|
0.27
|
|
May 22, 2008
|
|
June 13, 2008
|
|
July 11, 2008
|
|
$
|
0.27
|
|
February 28, 2008
|
|
March 13, 2008
|
|
April 11, 2008
|
|
$
|
0.27
|
|
November 16, 2007
|
|
December 13, 2007
|
|
January 11, 2008
|
|
$
|
0.27
|
|
August 16, 2007
|
|
September 14, 2007
|
|
October 19, 2007
|
|
$
|
0.27
|
|
May 17, 2007
|
|
June 14, 2007
|
|
July 12, 2007
|
|
$
|
0.27
|
|
February 15, 2007
|
|
March 29, 2007
|
|
April 12, 2007
|
|
$
|
0.27
|
|
November 16, 2006
|
|
December 14, 2006
|
|
January 11, 2007
|
|
$
|
0.27
|
|
August 18, 2006
|
|
September 14, 2006
|
|
October 12, 2006
|
|
$
|
0.26
|
|
May 18, 2006
|
|
June 15, 2006
|
|
July 13, 2006
|
|
$
|
0.25
|
|
February 16, 2006
|
|
March 15, 2006
|
|
April 12, 2006
|
|
$
|
0.21
|
|
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. In addition, our Credit Agreement, signed in November
2007, limits the amounts of dividends we can pay to 100% of
funds from operations, as defined in the Credit Agreement, on a
rolling four quarter basis.
37
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk includes risks that arise from changes in interest
rates, foreign currency exchange rates, commodity prices, equity
prices and other market changes that affect market sensitive
instruments. In addition, the value of our facilities will be
subject to fluctuations based on changes in local and regional
economic conditions and changes in the ability of our tenants to
generate profits, all of which may affect our ability to
refinance our debt if necessary. The changes in the value of our
facilities would be reflected also by changes in cap
rates, which is measured by the current base rent divided by the
current market value of a facility.
Our primary exposure to market risks relates to fluctuations in
interest rates and equity prices. The following analyses present
the sensitivity of the market value, earnings and cash flows of
our significant financial instruments to hypothetical changes in
interest rates and equity prices as if these changes had
occurred. The hypothetical changes chosen for these analyses
reflect our view of changes that are reasonably possible over a
one-year period. These forward looking disclosures are selective
in nature and only address the potential impact from financial
instruments. They do not include other potential effects which
could impact our business as a result of changes in market
conditions.
Interest
Rate Sensitivity Analysis
For fixed rate debt, interest rate changes affect the fair
market value but do not impact net income to common stockholders
or cash flows. Conversely, for floating rate debt, interest rate
changes generally do not affect the fair market value but do
impact net income to common stockholders and cash flows,
assuming other factors are held constant. At December 31,
2008, our outstanding debt totaled $638.4 million, which
consisted of fixed-rate debt of $350.3 million and variable
rate debt of $288.1 million.
If market interest rates increase by one-percentage point, the
fair value of our fixed rate debt would decrease by
approximately $7.2 million. Changes in the fair value of
our fixed rate debt will not have any impact on us unless we
decided to repurchase the portion of our fixed rate debt related
to our exchangeable notes in the open markets.
If market rates of interest on our variable rate debt increase
by 1%, the increase in annual interest expense on our variable
rate debt would decrease future earnings and cash flows by
approximately $2.9 million per year. If market rates of
interest on our variable rate debt decrease by 1%, the decrease
in interest expense on our variable rate debt would increase
future earnings and cash flows by approximately
$2.9 million per year. This assumes that the average amount
outstanding under our variable rate debt for a year approximates
$288.1 million, the balance at December 31, 2008.
Share
Price Sensitivity
Our 2006 exchangeable notes were initially exchangeable into
60.3346 shares of our stock for each $1,000 note. This
equates to a conversion price of $16.57 per share. This
conversion price adjusts based on a formula which considers
increases to our dividend subsequent to the issuance of the
notes in November 2006. Our dividends declared since we sold the
2006 exchangeable notes have adjusted our conversion price to
$16.51 per share which equates to 60.5566 shares per $1,000
note. Future changes to the conversion price will depend on our
level of dividends which cannot be predicted at this time. Any
adjustments for dividend increases until the notes are settled
in 2011 will affect the price of the notes and the number of
shares for which they will eventually be settled.
At the time we issued the 2006 exchangeable notes, we also
entered into a capped call or call spread transaction. The
effect of this transaction was to increase the conversion price
from $16.57 to $18.94. As a result, our shareholders will not
experience any dilution until our share price exceeds $18.94. If
our share price exceeds that price, the result would be that we
would issue additional shares of common stock. Assuming a price
of $20 per share, we would be required to issue an additional
434,000 shares. At $25 per share, we would be required to
issue an additional two million shares.
Our 2008 exchangeable notes have a similar conversion adjustment
feature which could affect its stated exchange ratio of 80.8898
common shares per $1,000 principal amount of notes, equating to
an exchange price of approximately $12.36 per common share. Our
dividends declared since we sold the 2008 exchangeable notes
have not adjusted our conversion price as of December 31,
2008. Future changes to the conversion price will depend on our
level of dividends which cannot be predicted at this time. Any
adjustments for dividend increases until the 2008 exchangeable
notes are settled in 2013 will affect the price of the notes and
the number of shares for which they will eventually be settled.
Assuming a price of $20 per share, we would be required to issue
an additional 2,532,964 shares. At $25 per share, we would be
required to issue an additional 3,352,964 shares.
38
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Medical Properties Trust, Inc:
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of income, of
stockholders equity, and of cash flows for the year ended
December 31, 2008 present fairly, in all material respects,
the financial position of Medical Properties Trust, Inc. and its
subsidiaries at December 31, 2008, and the results of their
operations and their cash flows for the year ended
December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedules listed in the
index appearing under Item 15(a)(2) present fairly, in all
material respects, the information set forth therein as of and
for the year ended December 31, 2008 when read in
conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement
schedules, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A of this
Form 10-K.
Our responsibility is to express opinions on these financial
statements, on the financial statement schedules, and on the
Companys internal control over financial reporting based
on our integrated audit. We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audit of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Birmingham, Alabama
March 13, 2009
39
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medical Properties Trust, Inc.:
We have audited the accompanying consolidated balance sheet of
Medical Properties Trust, Inc. and subsidiaries as of
December 31, 2007, and the related consolidated statements
of income, stockholders equity, and cash flows for each of
the years in the two-year period ended December 31, 2007.
In connection with our audits of the consolidated financial
statements, we also have audited financial statement
schedules III and IV. These consolidated financial
statements and financial statement schedules are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Medical Properties Trust, Inc. and subsidiaries as
of December 31, 2007, and the results of their operations
and their cash flows for each of the years in the two-year
period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
Birmingham, Alabama
March 13, 2008, except for Note 11,
as to which the date is March 13, 2009
40
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except for per share data)
|
|
|
ASSETS
|
Real estate assets
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
109,908
|
|
|
$
|
64,628
|
|
Buildings and improvements
|
|
|
833,792
|
|
|
|
463,812
|
|
Construction in progress
|
|
|
493
|
|
|
|
435
|
|
Intangible lease assets
|
|
|
52,772
|
|
|
|
39,677
|
|
Mortgage loans
|
|
|
185,000
|
|
|
|
185,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
81,411
|
|
|
|
|
|
|
|
|
|
|
Gross investment in real estate assets
|
|
|
1,181,965
|
|
|
|
834,963
|
|
Accumulated depreciation
|
|
|
(30,581
|
)
|
|
|
(13,138
|
)
|
Accumulated amortization
|
|
|
(9,753
|
)
|
|
|
(1,634
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in real estate assets
|
|
|
1,141,631
|
|
|
|
820,191
|
|
Cash and cash equivalents
|
|
|
11,748
|
|
|
|
94,215
|
|
Interest and rent receivables
|
|
|
13,837
|
|
|
|
10,234
|
|
Straight-line rent receivables
|
|
|
19,003
|
|
|
|
14,856
|
|
Other loans
|
|
|
108,523
|
|
|
|
80,758
|
|
Assets of discontinued operations
|
|
|
2,385
|
|
|
|
13,228
|
|
Other assets
|
|
|
14,313
|
|
|
|
18,178
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,311,440
|
|
|
$
|
1,051,660
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
638,366
|
|
|
$
|
480,525
|
|
Accounts payable and accrued expenses
|
|
|
24,718
|
|
|
|
21,091
|
|
Deferred revenue
|
|
|
16,110
|
|
|
|
20,839
|
|
Lease deposits and other obligations to tenants
|
|
|
13,645
|
|
|
|
16,007
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
692,839
|
|
|
|
538,462
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
243
|
|
|
|
77
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized
10,000 shares; no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value. Authorized
100,000 shares; issued and outstanding
65,056 shares at December 31, 2008 and
52,133 shares at December 31, 2007
|
|
|
65
|
|
|
|
52
|
|
Additional paid-in capital
|
|
|
675,253
|
|
|
|
540,501
|
|
Distributions in excess of net income
|
|
|
(56,698
|
)
|
|
|
(27,170
|
)
|
Treasury shares, at cost
|
|
|
(262
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
618,358
|
|
|
|
513,121
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
1,311,440
|
|
|
$
|
1,051,660
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands, except for per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed
|
|
$
|
83,773
|
|
|
$
|
42,921
|
|
|
$
|
19,745
|
|
Straight-line rent
|
|
|
3,971
|
|
|
|
8,513
|
|
|
|
4,345
|
|
Interest and fee income
|
|
|
29,819
|
|
|
|
30,352
|
|
|
|
12,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
117,563
|
|
|
|
81,786
|
|
|
|
36,403
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization
|
|
|
25,561
|
|
|
|
10,342
|
|
|
|
4,437
|
|
General and administrative
|
|
|
24,198
|
|
|
|
15,683
|
|
|
|
10,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
49,759
|
|
|
|
26,025
|
|
|
|
14,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67,804
|
|
|
|
55,761
|
|
|
|
21,886
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
53
|
|
|
|
364
|
|
|
|
515
|
|
Interest expense
|
|
|
(40,652
|
)
|
|
|
(28,236
|
)
|
|
|
(4,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other (expense) income
|
|
|
(40,599
|
)
|
|
|
(27,872
|
)
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,205
|
|
|
|
27,889
|
|
|
|
17,983
|
|
Income from discontinued operations
|
|
|
7,282
|
|
|
|
13,351
|
|
|
|
12,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,487
|
|
|
$
|
41,240
|
|
|
$
|
30,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.44
|
|
|
$
|
0.58
|
|
|
$
|
0.45
|
|
Income from discontinued operations
|
|
|
0.12
|
|
|
|
0.28
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.56
|
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
62,038
|
|
|
|
47,717
|
|
|
|
39,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.44
|
|
|
$
|
0.58
|
|
|
$
|
0.45
|
|
Income from discontinued operations
|
|
|
0.11
|
|
|
|
0.28
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.55
|
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
62,144
|
|
|
|
47,903
|
|
|
|
39,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
42
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders Equity
For the Years Ended December 31, 2008, 2007 and
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Additional
|
|
|
Distributions
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
in Excess
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
of Net Income
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
$
|
|
|
|
|
39,345
|
|
|
$
|
39
|
|
|
$
|
359,588
|
|
|
$
|
(3,351
|
)
|
|
$
|
|
|
|
$
|
356,276
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
268
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
3,068
|
|
|
|
|
|
|
|
|
|
|
|
3,068
|
|
Cost of call spread transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,290
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,290
|
)
|
Dividends declared ($.90 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,761
|
)
|
|
|
|
|
|
|
(39,761
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,160
|
|
|
|
|
|
|
|
30,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
39,585
|
|
|
|
39
|
|
|
|
356,678
|
|
|
|
(12,996
|
)
|
|
|
|
|
|
|
343,721
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
54
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
1
|
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
|
|
4,484
|
|
Options exercised for cash
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Proceeds from offering (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
9,218
|
|
|
|
9
|
|
|
|
135,800
|
|
|
|
|
|
|
|
|
|
|
|
135,809
|
|
Proceeds from exercising forward sale agreement
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
3
|
|
|
|
43,286
|
|
|
|
|
|
|
|
|
|
|
|
43,289
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
|
|
(262
|
)
|
Dividends declared ($1.08 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,360
|
)
|
|
|
|
|
|
|
(55,360
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,240
|
|
|
|
|
|
|
|
41,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
52,133
|
|
|
|
52
|
|
|
|
540,501
|
|
|
|
(27,170
|
)
|
|
|
(262
|
)
|
|
|
513,121
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
Amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
273
|
|
|
|
|
|
|
|
6,386
|
|
|
|
|
|
|
|
|
|
|
|
6.386
|
|
Proceeds from offering (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
12,650
|
|
|
|
13
|
|
|
|
128,318
|
|
|
|
|
|
|
|
|
|
|
|
128,331
|
|
Dividends declared ($1.01 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(63,967
|
)
|
|
|
|
|
|
|
(63,967
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,487
|
|
|
|
|
|
|
|
34,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
65,056
|
|
|
$
|
65
|
|
|
$
|
675,253
|
|
|
$
|
(56,698
|
)
|
|
$
|
(262
|
)
|
|
$
|
618,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,487
|
|
|
$
|
41,240
|
|
|
$
|
30,160
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
26,535
|
|
|
|
13,172
|
|
|
|
8,318
|
|
Amortization of deferred financing costs
|
|
|
6,174
|
|
|
|
4,839
|
|
|
|
1,069
|
|
Straight-line rent revenue
|
|
|
(9,402
|
)
|
|
|
(12,278
|
)
|
|
|
(6,876
|
)
|
Share-based compensation expense
|
|
|
6,385
|
|
|
|
4,484
|
|
|
|
3,116
|
|
(Gain) loss from sale of real estate
|
|
|
(9,305
|
)
|
|
|
(4,062
|
)
|
|
|
|
|
Deferred revenue and fee income
|
|
|
(7,583
|
)
|
|
|
(1,157
|
)
|
|
|
(1,192
|
)
|
Provision for uncollectible receivables and loans
|
|
|
5,700
|
|
|
|
1,667
|
|
|
|
3,313
|
|
Interest cost recorded as addition to debt
|
|
|
|
|
|
|
|
|
|
|
1,253
|
|
Rent and interest income added to loans
|
|
|
(5,556
|
)
|
|
|
(8,894
|
)
|
|
|
(754
|
)
|
Straight-line rent write-off
|
|
|
14,037
|
|
|
|
1,198
|
|
|
|
|
|
Other adjustments
|
|
|
(23
|
)
|
|
|
400
|
|
|
|
334
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and rent receivable
|
|
|
(4,392
|
)
|
|
|
524
|
|
|
|
(285
|
)
|
Other assets
|
|
|
5,249
|
|
|
|
2,451
|
|
|
|
(2,408
|
)
|
Accounts payable and accrued expenses
|
|
|
4,757
|
|
|
|
(12,855
|
)
|
|
|
6,983
|
|
Deferred revenue
|
|
|
2,854
|
|
|
|
566
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
69,917
|
|
|
|
31,295
|
|
|
|
43,138
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired
|
|
|
(430,710
|
)
|
|
|
(196,599
|
)
|
|
|
(115,539
|
)
|
Proceeds from sale of real estate
|
|
|
89,959
|
|
|
|
68,203
|
|
|
|
7,642
|
|
Principal received on loans receivable
|
|
|
71,941
|
|
|
|
74,894
|
|
|
|
|
|
Investment in loans receivable
|
|
|
(95,567
|
)
|
|
|
(128,986
|
)
|
|
|
(67,597
|
)
|
Construction in progress
|
|
|
|
|
|
|
(12,166
|
)
|
|
|
(114,362
|
)
|
Other investments
|
|
|
(4,286
|
)
|
|
|
(5,527
|
)
|
|
|
(7,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(368,663
|
)
|
|
|
(200,181
|
)
|
|
|
(296,861
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
424,055
|
|
|
|
559,186
|
|
|
|
362,128
|
|
Payments of debt
|
|
|
(267,900
|
)
|
|
|
(427,556
|
)
|
|
|
(118,607
|
)
|
Payment of deferred financing costs
|
|
|
(6,072
|
)
|
|
|
(4,123
|
)
|
|
|
(1,238
|
)
|
Distributions paid
|
|
|
(65,098
|
)
|
|
|
(53,079
|
)
|
|
|
(36,106
|
)
|
Lease deposits and other obligations to tenants
|
|
|
2,963
|
|
|
|
5,534
|
|
|
|
(1,055
|
)
|
Proceeds from sale of common shares, net of offering costs
|
|
|
128,331
|
|
|
|
135,809
|
|
|
|
|
|
Cost of call spread transactions
|
|
|
|
|
|
|
|
|
|
|
(6,290
|
)
|
Proceeds from forward equity sale
|
|
|
|
|
|
|
43,289
|
|
|
|
|
|
Treasury stock acquired
|
|
|
|
|
|
|
(262
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
200
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
216,279
|
|
|
|
258,998
|
|
|
|
198,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents for the year
|
|
|
(82,467
|
)
|
|
|
90,112
|
|
|
|
(55,013
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
94,215
|
|
|
|
4,103
|
|
|
|
59,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
11,748
|
|
|
$
|
94,215
|
|
|
$
|
4,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, including capitalized interest of $ in
2008, $1,335 in 2007, and $6,220 in 2006
|
|
$
|
31,277
|
|
|
$
|
24,584
|
|
|
$
|
5,351
|
|
Supplemental schedule of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction period rent and interest receivable recorded as
deferred revenue
|
|
$
|
|
|
|
$
|
3,798
|
|
|
$
|
9,083
|
|
Real estate acquisitions and new loans receivable recorded as
lease and loan deposits
|
|
|
|
|
|
|
1,640
|
|
|
|
218
|
|
Real estate acquisitions and new loans receivable recorded as
deferred revenue
|
|
|
|
|
|
|
75
|
|
|
|
1,184
|
|
Construction and acquisition costs charged to loans and real
estate
|
|
|
|
|
|
|
4,971
|
|
|
|
1,455
|
|
Lease deposit applied to loan receivable
|
|
|
|
|
|
|
|
|
|
|
3,769
|
|
Construction in progress transferred to land and building
|
|
|
|
|
|
$
|
69,013
|
|
|
$
|
94,661
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other common stock transactions
|
|
$
|
48
|
|
|
$
|
54
|
|
|
$
|
264
|
|
Supplemental schedule of non-cash operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant deposits recorded in other assets
|
|
$
|
|
|
|
$
|
7,500
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
44
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial Statements
Medical Properties Trust, Inc., a Maryland corporation, was
formed on August 27, 2003 under the General Corporation Law
of Maryland for the purpose of engaging in the business of
investing in and owning commercial real estate. Our operating
partnership subsidiary, MPT Operating Partnership, L.P. (the
Operating Partnership) through which it conducts all
of its operations, was formed in September 2003. Through another
wholly owned subsidiary, Medical Properties Trust, LLC, is the
sole general partner of the Operating Partnership.
Our primary business strategy is to acquire and develop real
estate and improvements, primarily for long term lease to
providers of healthcare services such as operators of general
acute care hospitals, inpatient physical rehabilitation
hospitals, long-term acute care hospitals, surgery centers,
centers for treatment of specific conditions such as cardiac,
pulmonary, cancer, and neurological hospitals, and other
healthcare-oriented facilities. We also make mortgage and other
loans to operators of similar facilities. We manage our business
as a single business segment as defined in Statement of
Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
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 make decisions about the entities activities
based upon the terms of the respective entities ownership
agreements. For these entities, we record a minority interest
representing equity held by minority interests.
We evaluate all of our transactions and investments to determine
if they represent variable interests in a variable interest
entity as defined by FASB Interpretation No. 46 (revised
December 2003)
(FIN 46-R),
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. If we determine that
we have a variable interest in a variable interest entity, we
determine if we are the primary beneficiary of the variable
interest entity. 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. Upon a
reconsideration event, we re-evaluate our status as primary
beneficiary.
Cash and Cash Equivalents: Certificates of
deposit and short-term investments with original maturities of
three months or less and money-market mutual funds are
considered cash equivalents. The majority of our cash and cash
equivalents are held at major commercial banks which at times
may exceed the Federal Deposit Insurance Corporation limit of
$250,000. We have not experienced any losses to date on our
invested cash. Cash and cash equivalents which have been pledged
as security for letters of credit or have been restricted as to
its use are recorded in other assets.
Deferred Costs: Costs incurred prior to the
completion of offerings of stock or other capital instruments
that directly relate to the offering are deferred and netted
against proceeds received from the offering. External costs
incurred in connection with anticipated financings and
refinancing of debt are capitalized as deferred financing costs
in other assets and amortized over the lives of the related
loans as an addition to interest expense. For debt with defined
principal re-payment terms, the deferred costs are amortized to
produce a constant effective yield on the loan (interest
method). For debt without defined principal repayment terms,
such as revolving credit agreements, the deferred costs are
amortized on the straight-line method over the term of the debt.
Costs that are specifically
45
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
identifiable with, and incurred prior to the completion of,
probable acquisitions are deferred and, to the extent not
collected from the sellers proceeds at acquisition,
capitalized upon closing. We begin deferring costs when we and
the seller have executed a binding letter of intent (LOI),
commitment letter or similar document or when we begin incurring
costs, such as for our due diligence procedures, for the
purchase of the property by us. Deferred acquisition costs are
written off to expense when management determines that the
acquisition is no longer probable. Leasing commissions and other
leasing costs directly attributable to tenant leases are
capitalized as deferred leasing costs and amortized on the
straight-line method over the terms of the related lease
agreements. Costs identifiable with loans made to lessees are
recognized as a reduction in interest income over the life of
the loan by the interest method.
Revenue Recognition: We receive income from
operating leases based on the fixed, minimum required rents
(base rents) and from additional rent based on a percentage of
tenant revenues once the tenants revenue has exceeded an
annual threshold (percentage rents). Rent revenue from base
rents is recorded on the straight-line method over the terms of
the related lease agreements for new leases and the remaining
terms of existing leases for acquired properties. The
straight-line method records the periodic average amount of base
rent earned over the term of a lease, taking into account
contractual rent increases over the lease term. The
straight-line method typically has the effect of recording more
rent revenue from a lease than a tenant is required to pay early
in the term of the lease. During the later parts of a lease
term, this effect reverses with less rent revenue recorded than
a tenant is required to pay. Rent revenue as recorded on the
straight-line method in the consolidated statements of income is
shown as two amounts. Billed rent revenue is the amount of base
rent actually billed to the customer each period as required by
the lease. Straight-line rent revenue is the difference between
base rent revenue earned based on the straight-line method and
the amount recorded as billed base rent revenue. We record the
difference between base rent revenues earned and amounts due per
the respective lease agreements, as applicable, as an increase
or decrease to straight-line rent receivable. Percentage rents
are recognized in the period in which revenue thresholds are
met. Rental payments received prior to their recognition as
income are classified as deferred revenue. We may also receive
additional rent (contingent rent) under some leases when the
U.S. Department of Labor consumer price index exceeds the
annual minimum percentage increase in the lease. Contingent
rents are recorded as billed rent revenue in the period earned.
We begin recording base rent income from our development
projects when the lessee takes physical possession of the
facility, which may be different from the stated start date of
the lease. Also, during construction of our development
projects, we are generally entitled to accrue rent based on the
cost paid during the construction period (construction period
rent). We accrue construction period rent as a receivable and
deferred revenue during the construction period. When the lessee
takes physical possession of the facility, we begin recognizing
the accrued construction period rent on the straight-line method
over the remaining term of the lease.
Commitment fees received from development and leasing services
for lessees are initially recorded as deferred revenue and
recognized as income over the initial term of an operating lease
to produce a constant effective yield on the lease (interest
method). Commitment and origination fees from lending services
are recorded as deferred revenue and recognized as income over
the life of the loan using the interest method.
Acquired Real Estate Purchase Price
Allocation: We allocate the purchase price of
acquired properties to net tangible and identified intangible
assets acquired based on their fair values in accordance with
the provisions of SFAS No. 141, Business
Combinations. In making estimates of fair values for
purposes of allocating purchase prices, we utilize a number of
sources, including independent appraisals that may be obtained
in connection with the acquisition or financing of the
respective property and other market data. 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.
46
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
We record above-market and below-market in-place lease values,
if any, for our facilities, which are based on the present value
(using an interest rate which reflects the risks associated with
the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases
and (ii) managements 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 remaining
non-cancelable terms of the respective leases. We amortize any
resulting capitalized below-market lease values as an increase
to rental income over the initial term and any fixed-rate
renewal periods in the respective leases.
We measure the aggregate value of other intangible assets
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.
Managements 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. Management also considers information
obtained about each targeted facility as a result of
pre-acquisition due diligence, marketing and leasing activities
in estimating the fair value of the tangible and intangible
assets acquired. In estimating carrying costs, management also
includes real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during
the expected
lease-up
periods, which are expected to range primarily from three to
18 months, depending on specific local market conditions.
Management also estimates costs to execute similar leases
including leasing commissions, legal and other related expenses
to the extent that such costs are not already incurred in
connection with a new lease origination as part of the
transaction.
The total amount of other intangible assets acquired, if any, is
further allocated to in-place lease values and customer
relationship intangible values based on managements
evaluation of the specific characteristics of each prospective
tenants 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
tenants credit quality and expectations of lease renewals,
including those existing under the terms of the lease agreement,
among other factors.
We amortize the value of in-place leases, if any, to expense
over the initial term of the respective leases, which range
primarily from 10 to 19 years. The value of customer
relationship intangibles is amortized to expense over the
initial term and any renewal periods in the respective leases,
but in no event will the amortization period for intangible
assets exceed the remaining depreciable life of the building. If
a lease is terminated, the unamortized portion of the in-place
lease value and customer relationship intangibles are charged to
expense.
Real Estate and Depreciation: Depreciation is
calculated on the straight-line method over the estimated useful
lives of the related assets, as follows:
|
|
|
Buildings and improvements
|
|
40 years
|
Tenant lease intangibles
|
|
Remaining terms of the related leases
|
Tenant improvements
|
|
Term of related leases
|
Furniture and equipment
|
|
3-7 years
|
Real estate is carried at depreciated cost. Expenditures for
ordinary maintenance and repairs are expensed to operations as
incurred. Significant renovations and improvements which improve
and/or
extend the useful life of the asset are capitalized and
depreciated over their estimated useful lives. In accordance
with SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to Be Disposed Of,
we record impairment losses on long-lived assets used in
operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets, including an
estimated liquidation amount, during the expected holding
periods are less than the carrying amounts of those assets.
Impairment losses are measured as the difference between
carrying value and fair value of assets. For assets held for
sale, impairment is measured as the difference between carrying
value and fair value, less cost of disposal.
47
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Fair value is based on estimated cash flows discounted at a
risk-adjusted rate of interest. We classify real estate assets
as held for sale when we have commenced an active program to
sell the assets, and in the opinion of management, it is
probable the asset will be sold within the next 12 months.
We record the results of operations from material property sales
or planned sales (which include real property, loans and any
receivables) as discontinued operations in the consolidated
statements of income for all periods presented. Results of
discontinued operations include interest expense from debt which
specifically secures the property sold or held for sale or which
we can otherwise reasonably allocate to the property.
Construction in progress includes the cost of land, the cost of
construction of buildings, improvements and equipment, and costs
for design and engineering. Other costs, such as interest,
legal, property taxes and corporate project supervision, which
can be directly associated with the project during construction,
are also included in construction in progress.
Loans: Loans consist of mortgage loans,
working capital loans and other long-term loans. Interest income
from loans is recognized as earned based upon the principal
amount outstanding. Mortgage loans are collateralized by
interests in real property. Working capital and other long-term
loans are generally collateralized by interests in receivables
and corporate and individual guarantees. We record loans at
cost. We evaluate the collectability of both interest and
principal for each of our loans to determine whether they are
impaired. A loan is considered impaired when, based on current
information and events, it is probable that we will be unable to
collect all amounts due according to the existing contractual
terms. When a loan is considered to be impaired, the amount of
the allowance is calculated by comparing the recorded investment
to either the value determined by discounting the expected
future cash flows or the loans effective interest rate or to the
fair value of the collateral if the loan is collateral dependent.
Losses from Rent Receivables: A provision for
losses on rent receivables is 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 the
collateral, if any.
Net Income Per Share: We report earnings per
share pursuant to SFAS No. 128, Earnings Per
Share. Basic net income per share is computed by
dividing net income available to common stockholders by the
weighted average number of common shares outstanding during the
period. Diluted net income per share is computed by dividing net
income available to common stockholders by the weighted average
number of common shares outstanding during the period, adjusted
for the assumed conversion of all potentially dilutive
outstanding shares, warrants and options.
Income Taxes: We conduct our business as a
real estate investment trust (REIT) under
Sections 856 through 860 of the Internal Revenue Code. To
qualify as a REIT, we must meet certain organizational and
operational requirements, including a requirement to currently
distribute to stockholders at least 90% of our ordinary taxable
income. As a REIT, we generally are not subject to federal
income tax on taxable income that we distribute to our
stockholders. If we fail to qualify as a REIT in any taxable
year, we will then be subject to federal income taxes on our
taxable income at regular corporate rates and will not be
permitted to qualify for treatment as a REIT for federal income
tax purposes for four years following the year during which
qualification is lost, unless the Internal Revenue Service
grants us relief under certain statutory provisions. Such an
event could materially adversely affect our net income and net
cash available for distribution to stockholders. However, we
intend to operate in such a manner so that we will remain
qualified as a REIT for federal income tax purposes.
Our financial statements include the operations of a taxable
REIT subsidiary, MPT Development Services, Inc.
(MDS) that is not entitled to a dividends paid
deduction and is subject to federal, state and local income
taxes.
48
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
MDS is authorized to provide property development, leasing and
management services for third-party owned properties and makes
loans to lessees and operators.
Stock-Based Compensation: We currently sponsor
the Second Amended and Restated Medical Properties Trust, Inc.
2004 Equity Incentive Plan (the Equity Incentive
Plan) that was established in 2004. We account for our
stock-based awards under the recognition and measurement
provisions of SFAS No. 123(R), Share-Based
Payment, which is a revision of SFAS No. 123,
Accounting for Stock Based Compensation. Awards of
restricted stock, stock options and other equity-based awards
with service conditions are amortized to compensation expense
over the vesting periods which range from three to five years,
using the straight-line method. Awards of deferred stock units
vest when granted and are charged to expense at the date of
grant. Awards that contain market conditions are amortized to
compensation expense over the derived vesting periods, which
correspond to the periods over which we estimate the awards will
be earned, which range from two to seven years, using the
straight-line method. Awards with performance conditions are
amortized using the straight-line method over the service period
in which the performance conditions are measured, adjusted for
the probability of achieving the performance conditions.
Derivative Financial Investments and Hedging
Activities. We account for our derivative and
hedging activities using SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as
amended by SFAS Nos. 137, 138 and 149 and interpreted,
which requires all derivative instruments to be carried at fair
value on the balance sheet.
We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objective and strategy for undertaking the hedge. This process
includes specific identification of the hedging instrument and
the hedge transaction, the nature of the risk being hedged and
how the hedging instruments effectiveness in hedging the
exposure to the hedged transactions variability in cash
flows attributable to the hedged risk will be assessed. Both at
the inception of the hedge and on an ongoing basis, we assess
whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows or fair
values of hedged items. We discontinue hedge accounting if a
derivative is not determined to be highly effective as a hedge
or has ceased to be a highly effective hedge. We are not
currently a party to any derivatives contracts that require
accounting under SFAS No. 133.
Emerging Issues Task Force (EITF)
No. 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
(EITF 00-19),
provides guidance on the accounting and reporting for
free-standing derivative financial instruments and for embedded
derivatives which are indexed to and settled in our stock.
EITF 00-19
provides criteria by which certain derivative financial
instruments should be reported as liabilities or equity. It also
provides guidance as to when embedded derivatives should be
separated or bifurcated from the host instrument. We
follow the provisions of this EITF to account for the conversion
feature and capped call transactions related to our
debt which is exchangeable for shares of our common stock.
Reclassifications: Certain reclassifications
have been made to the 2006 and 2007 consolidated financial
statements to conform to the 2008 consolidated financial
statement presentation in order to comply with
SFAS No. 144. These reclassifications have no impact
on stockholders equity or net income.
New Accounting Pronouncements: The following
is a summary of recently issued accounting pronouncements which
have been issued but not adopted by us.
In May 2008, the FASB issued FASB Staff Position APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash
Settlements) (FSP), which affects the accounting
for our exchangeable notes. The FSP requires that the initial
debt proceeds from the sale of our exchangeable notes be
allocated between a liability component and an equity component.
The resulting debt discount is amortized over the period the
debt is expected to be outstanding as additional interest
expense. The FSP is effective for fiscal years beginning after
December 15, 2008, and requires retroactive application to
all periods presented and does not grandfather existing
instruments. The adoption of FSP will result in the recognition
of an aggregate unamortized debt discount of $7.7 million
in our consolidated balance sheet as of January 1, 2009 and
49
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
additional non-cash interest expense in our consolidated
statements of income (both past and future) as follows: (amounts
in thousands)
|
|
|
|
|
For the Year Ended December 31:
|
|
|
|
|
2006
|
|
$
|
161
|
|
2007
|
|
|
1,294
|
|
2008
|
|
|
1,787
|
|
2009
|
|
|
2,093
|
|
2010
|
|
|
2,305
|
|
2011
|
|
|
2,302
|
|
2012
|
|
|
824
|
|
2013
|
|
|
218
|
|
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141R). SFAS 141R changes the
accounting model for business combinations from a cost
accumulation standard to a standard that provides, with limited
exceptions, for the recognition of all identifiable assets and
liabilities of the business acquired at fair value, regardless
of whether the acquirer acquires 100% or a lesser controlling
interest of the business. SFAS 141R defines the acquisition
date of a business acquisition as the date on which control is
achieved (generally the closing date of the acquisition).
SFAS 141R also provides for the recognition of acquisition
costs as expenses when incurred and for certain expanded
disclosures. SFAS 141R is effective for business
acquisitions with acquisition dates on or after January 1,
2009. The adoption of SFAS 141R will require us to start
expensing all transaction costs, which have historically been
capitalized as part of the real estate cost, for business
combinations completed after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for a parent companys
non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Under SFAS 160,
non-controlling interests in consolidated subsidiaries (formerly
known as minority interests) are reported in the
consolidated statement of financial position as a separate
component within stockholders equity. Net earnings and
comprehensive income attributable to the controlling and
non-controlling interests are to be shown separately in the
consolidated statements of income and comprehensive income.
SFAS 160 is effective for fiscal years beginning after
December 15, 2008 and is to be applied prospectively,
except that the presentation and disclosure requirements are to
be applied retrospectively for all periods presented. Except for
having to present non-controlling interest in the
stockholders equity section of the Consolidated Balance
Sheets, we do not believe this pronouncement will have a
material effect on the consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157
(SFAS No. 157), which establishes a
framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 was effective for our
financial assets and liabilities on January 1, 2008. In
February 2008, the FASB reached a conclusion to defer the
implementation of the SFAS No. 157 provisions relating
to non-financial assets and liabilities until January 1,
2009. The FASB also reached a conclusion to amend
SFAS No. 157 to exclude SFAS No. 13,
Accounting for Leases, and its related interpretive
accounting pronouncements. SFAS No. 157 is not
expected to materially affect how we determine fair value. We
adopted effective January 1, 2008 for financial assets and
financial liabilities and this adoption had no material effect
on the consolidated results of operations or financial position.
We also adopted the deferral provisions of FASB Staff Position,
or FSP,
SFAS No. 157-2,
Effective Date of FASB Statement No. 157, which
delays the effective date of SFAS No. 157 for all
nonrecurring fair value measurements of non-financial assets and
liabilities (except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis)
until fiscal years beginning after November 15, 2008. We
also adopted FSP
SFAS No. 157-3,
Determining the Fair Value of a Financial Asset
50
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
When the Market for That Asset is Not Active. This FSP,
which provides guidance on measuring the fair value of a
financial asset in an inactive market, had no impact on our
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161
requires enhanced disclosures about (a) how and why
derivative instruments are used, (b) how derivative
instruments and related hedged items are accounted for and
(c) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. At this time, we do not
believe this new standard will have any impact on us.
In April 2008, the FASB issued FSP
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets.
This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under
SFAS No. 142, Goodwill and Other Intangible
Assets. This FSP allows us to use its historical experience
in renewing or extending the useful life of intangible assets.
This FSP is effective for fiscal years beginning January 1,
2009 and shall be applied prospectively to intangible assets
acquired after the effective date. We do not expect the
application of this FSP to have a material impact on our
consolidated financial statements.
In June 2008, the FASB issued FASB Staff Position EITF Issue
No. 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, (FSP
EITF 03-6-1).
FSP EITF 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method as
described in SFAS No. 128, Earnings per
Share. Under the guidance in FSP
EITF 03-6-1,
unvested share-based payment awards that contain non-forfeitable
rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. FSP
EITF 03-6-1
is effective on January 1, 2009 for the Company. Upon
adoption, all prior-period earnings per share data presented
will be adjusted retrospectively. We are still evaluating the
adoption of FSP
EITF 03-6-1
and how it will impact our results of operations.
|
|
3.
|
Real
Estate and Loans Receivable
|
Acquisitions
We have acquired the following assets in 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Land
|
|
$
|
45,293
|
|
|
$
|
27,207
|
|
Buildings
|
|
|
373,472
|
|
|
|
140,040
|
|
Intangible lease assets-subject to amortization
(weighted-average useful life 10.7 years in
2008 and 13.4 years in 2007)
|
|
|
11,945
|
|
|
|
29,352
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
430,710
|
|
|
$
|
196,599
|
|
|
|
|
|
|
|
|
|
|
During the second and third quarters of 2008, we completed the
acquisition of 20 properties, consisting of six acute care
hospitals, three long-term acute care hospitals, five
rehabilitation hospitals and six wellness centers, from a single
seller. These 20 facilities represent an investment of
approximately $357.2 million, and achieve our goal of
diversifying our tenant base and geographic locations.
In May 2008, we acquired a long-term acute care hospital at a
cost of $10.8 million from an unrelated party and entered
into an operating lease with Vibra Healthcare
(Vibra).
51
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In June 2008, we entered into a $60 million loan with
affiliates of Prime Healthcare Services, Inc.
(Prime) related to three southern California
hospital campuses operated by Prime. In July 2008, we acquired
one of the facilities from a Prime affiliate for approximately
$15.0 million and in November 2008 acquired the remaining
two facilities for an aggregate cost of approximately
$45 million. We entered into
10-year
leases with the Prime affiliate concurrent with our acquisition
of each of these facilities.
In May 2007, we acquired a general acute care hospital located
in San Diego, California at a cost of $22.8 million
and entered into an operating lease with the operator. The lease
has a 15 year fixed term and contains annual rent
escalations at the general increase in the consumer price index.
In addition, we funded a loan totaling $25.0 million
collateralized by interests in real property and is
cross-defaulted with the lease. This loan requires the payment
of interest only during the 15 year term with principal due
in full at maturity. The loan may be prepaid under certain
specified conditions.
In August 2007, we acquired two general acute care hospitals in
Houston, Texas and Redding, California at a cost of
$100.0 million and entered into operating leases with the
operators, affiliates of Hospital Partners of America, Inc.
(HPA), a multi-hospital operating company. See the
further description under leasing operations.
The results of operations for each of the properties acquired
are included in our consolidated results from the effective date
of each acquisition. The following table sets forth certain
unaudited pro forma consolidated financial data for 2008, 2007,
and 2006, as if each significant acquisition in 2008 and 2007
and sale of three rehabilitation facilities (since the proceeds
of these property sales were used to fund the 2008 acquisitions)
was consummated on the same terms at the beginning of each year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Amounts in thousands except per share amounts)
|
|
|
Total revenues
|
|
$
|
131,190
|
|
|
$
|
127,791
|
|
|
$
|
85,982
|
|
Net income
|
|
|
31,715
|
|
|
|
68,110
|
|
|
|
56,883
|
|
Income per share-diluted
|
|
$
|
0.49
|
|
|
$
|
1.12
|
|
|
$
|
1.09
|
|
Disposals
In the second quarter of 2008, we sold the real estate assets of
three inpatient rehabilitation facilities to Vibra for proceeds
of approximately $105.0 million, including
$7.0 million in early lease termination fees and
$8.0 million of a loan pre-payment. The sale was completed
on May 7, 2008, realizing a gain on the sale of
approximately $9.3 million. We also wrote off approximately
$9.5 million in related straight-line rent receivable upon
completion of the sales. The three Vibra properties were
classified as held for sale and were reflected in our
accompanying Consolidated Balance Sheets at $81.4 million
at December 31, 2007.
In January 2007, we completed the sale of a general acute care
hospital and attached medical office building (MOB)
located in Houston, Texas for cash proceeds of approximately
$70.3 million which were used to reduce debt, and we
recorded a gain on the sale of this facility of
$4.1 million.
In the first quarter of 2007, we sold to affiliates of Prime two
hospital properties located in San Bernardino, California
for $120 million funded by two mortgage loans made in
conjunction with the sales. We deferred a gain of
$1.9 million on the sale of these properties due to
seller-financing provided by us. We have not reversed any of
this deferred gain into income during the years ended
December 31, 2008 and 2007.
Intangible
Assets
At December 31, 2008 and 2007, our intangible lease assets
were $52,771,494 ($43,018,356, net of accumulated amortization)
and $39,677,361 ($38,043,065, net of accumulated amortization),
respectively.
52
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
We recorded amortization expense related to intangible lease
assets of approximately $8,118,842 (including $4.5 million
of accelerated amortization as described below), $1,128,857 and
$480,081 in 2008, 2007, and 2006, respectively, and expect to
recognize amortization expense from existing lease intangible
assets as follows: (amounts in thousands)
|
|
|
|
|
For the Year Ended December 31:
|
|
|
|
|
2009
|
|
$
|
3,841
|
|
2010
|
|
|
3,823
|
|
2011
|
|
|
3,610
|
|
2012
|
|
|
3,245
|
|
2013
|
|
|
3,212
|
|
As of December 31, 2008, capitalized lease intangibles have
a weighted average remaining life of approximately
10.7 years.
Leasing
Operations
Minimum rental payments due to us in future periods under
operating leases which have non-cancelable terms extending
beyond one year at December 31, 2008, are as follows:
($ amounts in thousands)
|
|
|
|
|
2009
|
|
$
|
83,077
|
|
2010
|
|
|
93,981
|
|
2011
|
|
|
89,572
|
|
2012
|
|
|
87,327
|
|
2013
|
|
|
88,577
|
|
Thereafter
|
|
|
620,718
|
|
|
|
|
|
|
|
|
$
|
1,063,252
|
|
|
|
|
|
|
Upon acquisition of two general acute care hospitals in Houston,
Texas and Redding, California in August 2007, we entered into
operating leases with the operators, affiliates of HPA. In June
2008, we received notification from the Houston operator that
due in part to irregularities recently discovered by independent
members of the HPA board of directors, the Houston hospital
would close and enter bankruptcy proceedings. On
September 24, 2008, HPA and most of its affiliates (other
than the Redding operator and management company) entered into
bankruptcy proceedings. We have recorded approximately
$9 million of receivables from affiliates of Hospital
Partners of America outstanding relating to the Redding and
Houston facilities at December 31, 2008 which are expected
to be repaid from a security interest in certain accounts
receivable of the former operator of the Redding facility and
from other sources.
In September 2008, the Houston facilities were damaged by
Hurricane Ike and we recorded a $1.3 million charge for the
uninsured portion of such damage. Our Houston facilities are
comprised of two separate campuses that will likely be sold or
leased independent of each other. In addition to the value of
the facilities that would result from sale or releasing, we also
have an interest in certain accounts receivable of the Redding
facility. In connection with the original purchase transaction
in August 2007, a portion of the Houston purchase price was
allocated to intangible lease costs and was amortized over the
term of the lease. We recorded $1.8 million of accelerated
amortization related to this lease intangible in the third
quarter of 2008, which we recorded in the real estate
depreciation and amortization line of our consolidated
statements of income. In addition, in the third quarter of 2008,
we recorded a $0.6 million charge for the write-off of
straight-line rent receivables.
In November 2008 we entered into a new lease agreement for the
Redding hospital. The new operator, an affiliate of Prime,
agreed to increase the lease base from $60.0 million to
$63.0 million and to pay up to $20.0 million in
additional rent in the form of profit participation based on the
future profitability of the new lessees operations. In
53
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
connection with the original purchase transaction in August
2007, a portion of the Redding purchase price was allocated to
intangible lease costs and was amortized over the term of the
lease. We recorded $2.7 million of accelerated amortization
related to this lease intangible in the third quarter of 2008,
which was recorded in the real estate depreciation and
amortization line of our consolidated statements of income. In
addition, we recorded a $0.9 million charge for the
write-off of straight-line rent associated with the Redding
hospital in the third quarter of 2008.
In January 2009, the current operator of our Bucks County
facility gave notice of its intentions to close the facility.
The lease was terminated and operations at the Bucks County
facility are winding down. We stopped accrual of revenue from
the Bucks County Hospital and wrote off the rent and receivables
that are deemed to not be collectible of $4.7 million as of
December 31, 2008. At December 31, 2008, we had
approximately $3.8 million of receivables related to Bucks
that are guaranteed by its parent company. We are presently
negotiating payment terms, and although management believes
these receivables are fully collectible and no reserve has been
recorded, there is no assurance that we will receive all of the
guaranteed amounts.
Since approximately January 2007 we have made loans to the
operator of our Monroe Hospital to partially fund the costs of
operations. We have also accrued rent and interest on the loan
as part of the loan balance. The operator has not made lease or
loan payments required by the terms of the agreements and the
loan is therefore considered impaired. As of December 31,
2008 we had accrued approximately $4.4 million in rent and
other receivables and had loaned the operator approximately
$26.6 million (including $2.5 million of interest
income earned in 2008) for operating costs and for the costs of
acquiring certain physician practices. These receivables are
collateralized by approximately $3.9 million in cash that
we possess, a first lien security interest in patient accounts
receivable of approximately $5.3 million at
December 31, 2008, and the equity in the operator.
The operator has recently begun generating cash flow from
operations and started paying base rent in 2009. In addition we
are negotiating with multiple parties to lease or purchase our
interest. Based on the value of our collateral, the expected
continual profitability of operations, and terms indicated in
non-binding letters of intent concerning a potential sale of our
interests, we expect to recover our investments related to
Monroe and have therefore not recorded any loss allowances or
reserves.
For the years ended December 31, 2008, 2007, and 2006,
affiliates of Prime accounted for 33.3%, 30.4%, and 26.9%,
respectively, of our total revenues from continuing operations,
and Vibra accounted for approximately 15.8%, 19.1%, and 37.6%,
respectively, of our total revenues from continuing operations.
Loans
The following is a summary of our loans ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Mortgage loans
|
|
$
|
185,000
|
|
|
|
9.6
|
%
|
|
$
|
185,000
|
|
|
|
9.2
|
%
|
Other loans
|
|
|
108,523
|
|
|
|
10.3
|
%
|
|
|
80,758
|
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
293,523
|
|
|
|
|
|
|
$
|
265,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the sale to affiliates of Prime of the two
San Bernardino, California hospitals in March 2007, we made
two mortgage loans totaling $120 million on the same
properties to Prime. In May 2007, we also made mortgage loans
totaling $25.0 million to affiliates of Prime,
collateralized by interests in Prime affiliated facilities
located in California. The loans require the payment of interest
only, which escalates each year based on changes in the consumer
price index, during their 15 year terms with principal due
in full at maturity. The loans may be prepaid under certain
specified conditions.
54
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In 2006, we made two mortgage loans totaling $65.0 million,
collateralized by two general acute care hospitals in
California. The loans require the payment of interest only
during their 15 year terms with principal due in full at
maturity. Interest is paid monthly and increases each year based
on the annual change in the consumer price index. The loans may
be prepaid under certain specified conditions. In May 2007, we
received full payment on our $25 million Alliance mortgage
loan and received a prepayment fee of approximately
$2.3 million. In November 2007, we received full payment on
our $25 million mortgage loan (that was part of the
previously mentioned 2006 $65.0 million transaction) on a
facility located in Inglewood, California and received a
prepayment fee of approximately $1.5 million. The borrower
sold the facility to an affiliate of Prime in an unrelated
transaction. We subsequently purchased the facility from the
Prime affiliate and entered into a 15 year lease with the
Prime affiliate.
In February 2007, we funded the remaining contingent purchase
prices related to five hospitals leased to Prime aggregating
$20 million via loans. The loans require the payment of
interest only during their 15 year terms with principal due
in full at maturity. Interest is paid monthly and increases each
year based on the annual change in the consumer price index. The
loans may be prepaid under certain specified conditions.
Our other loans primarily consist of loans to our tenants for
acquisitions and working capital purposes. In 2008 and as part
of the leasing of our Redding Hospital, we agreed to provide
Prime a working capital loan up to $20 million. At
December 31, 2008, we had funded $15 million of this
working capital loan. This loan bears interest of 9.25%, and
escalates each year by 2.0% starting in 2010. In conjunction
with our purchase of six healthcare facilities in July and
August 2004, we also made loans aggregating $41.4 million
to Vibra. As of December 31, 2008, Vibra has reduced the
balance of the loans to approximately $21.0 million.
We have determined that Vibra, Monroe Hospital, and the operator
of our Redding hospital are variable interest entities in
accordance with the provisions of
FIN 46-R.
We have outstanding loans and other receivables due from these
entities (as discussed previously in this
Note 3) which represent our maximum exposure to loss
with them. Through both qualitative and quantitative analysis,
we have determined that we are not the primary beneficiary of
these entities as parties other than us absorb the majority of
the expected losses from these entities. Therefore, we have not
consolidated these entities in our financial statements.
The following is a summary of debt ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
As of December 31, 2007
|
|
|
Balance
|
|
|
Interest Rate
|
|
Balance
|
|
|
Interest Rate
|
|
Revolving credit facilities
|
|
$
|
193,000
|
|
|
Variable
|
|
$
|
154,986
|
|
|
Variable
|
Senior unsecured notes fixed rate through July and
October, 2011, due July and October, 2016
|
|
|
125,000
|
|
|
7.333%-7.871%
|
|
|
125,000
|
|
|
7.333%-7.871%
|
Exchangeable senior notes
|
|
|
216,391
|
|
|
6.125%-9.250%
|
|
|
134,704
|
|
|
6.125%
|
Term loans
|
|
|
103,975
|
|
|
Various
|
|
|
65,835
|
|
|
Variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
638,366
|
|
|
|
|
$
|
480,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
As of December 31, 2008, principal payments due for our
debt (which exclude any debt discounts recorded) are as follows:
|
|
|
|
|
2009
|
|
$
|
2,008
|
|
2010
|
|
|
182,273
|
(A)
|
2011
|
|
|
211,094
|
|
2012
|
|
|
39,600
|
|
2013
|
|
|
82,000
|
|
Thereafter
|
|
|
125,000
|
|
|
|
|
|
|
Total
|
|
$
|
641,975
|
|
|
|
|
|
|
|
|
|
(A) |
|
$151,000 of the revolving credit facilities due in 2010 may
be extended until 2011 provided that we give written notice to
the Administrative Agent at least 60 days prior to the
termination date and as long as no default has occurred. If we
elect to extend, we will be required to pay an aggregate
extension fee equal to 0.25% of the existing revolving
commitments. |
During the third quarter of 2006, we issued $125.0 million
of Senior Unsecured Notes (the Senior Notes). The
Senior Notes were placed in private transactions exempt from
registration under the Securities Act of 1933, as amended, (the
Securities Act). One of the Senior Notes totaling
$65.0 million pays interest quarterly at a fixed annual
rate of 7.871% through July 30, 2011, thereafter, at a
floating annual rate of three-month LIBOR plus 2.30% and may be
called at par value by us at any time on or after July 30,
2011. This portion of the Senior Notes matures in July 2016. The
remaining Senior Notes pay interest quarterly at fixed annual
rates ranging from 7.333% to 7.715% through October 30,
2011, thereafter, at a floating annual rate of three-month LIBOR
plus 2.30% and may be called at par value by us at any time on
or after October 30, 2011. These remaining notes mature in
October 2016.
In November 2006, our Operating Partnership issued and sold, in
a private offering, $138.0 million of Exchangeable Senior
Notes (the 2006 Exchangeable Notes). The 2006
Exchangeable Notes pay interest semi-annually at a rate of
6.125% per annum and mature on November 15, 2011. The 2006
exchangeable notes have an initial exchange rate of 60.3346 of
our common shares per $1,000 principal amount of the notes,
representing an exchange price of approximately $16.57 per
common share. The initial exchange rate is subject to adjustment
under certain circumstances. The 2006 exchangeable notes are
exchangeable, prior to the close of business on the second
business day immediately preceding the stated maturity date at
any time beginning on August 15, 2011 and also upon the
occurrence of specified events, for cash up to their principal
amount and our common shares for the remainder of the exchange
value in excess of the principal amount. Net proceeds from the
offering of the 2006 exchangeable notes were approximately
$134.0 million, after deducting the initial
purchasers discount. The 2006 Exchangeable Notes are
senior unsecured obligations of the Operating Partnership,
guaranteed by us.
Concurrent with the pricing of the 2006 Exchangeable Notes, the
Operating Partnership entered into a capped call
transaction with affiliates of the initial purchasers (the
option counterparties) in order to increase the
effective exchange price of the 2006 Exchangeable Notes to
$18.94 per common share. The capped call transaction is expected
to reduce the potential dilution with respect to our common
stock upon exchange of the 2006 Exchangeable Notes to the extent
the then market value per share of our common stock does not
exceed $18.94 during the observation period relating to an
exchange. We have reserved approximately 8.3 million
shares, which may be issued in the future to settle the 2006
exchangeable notes. The premium of $6.3 million paid for
the capped call transaction has been recorded as a
permanent reduction to additional paid in capital in the
consolidated statement of stockholders equity.
In June 2007, we signed a collateralized revolving bank credit
facility for up to $42 million. The terms are for five
years with interest at the
30-day LIBOR
plus 1.50% (1.94% at December 31, 2008 and 6.1% at
December 31, 2007). The amount available under the facility
will decrease by $800,000 per year beginning in June 2009. The
facility is collateralized by one real estate property with a
book value of approximately $59.4 million at
56
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
December 31, 2008. This facility had an outstanding balance
of $42.0 million and $35.0 million at December, 31,
2008 and December 31, 2007, respectively. The
weighted-average interest rate on this revolving bank credit
facility was 4.2% and 6.3%, for 2008 and 2007, respectively.
In November 2007, we signed a Credit Agreement for a revolving
credit facility and a term loan. The revolving credit facility
has an initial three year term that can be extended for one more
year under certain conditions and has an interest rate option of
(1) LIBOR plus a spread ranging from 150 to 225 basis
points depending upon our total leverage ratio or (2) the
higher of the prime rate or federal funds rate plus
1.5%. For 2008 and 2007, our interest rate was primarily at the
30-day LIBOR plus 1.75% (2.19% and 6.35% at December 31,
2008 and 2007, respectively). In addition, the revolving credit
facility provides for a quarterly commitment fee on the unused
portion ranging from 0.20% to 0.35%. The weighted average
interest rate on this revolving credit facility was 4.54% and
3.6% for 2008 and 2007, respectively. The Credit Facility is
collateralized by (i) the equity interests of certain of
our subsidiaries and (ii) mortgage loans payable to us. We
may borrow up to $154.0 million under the revolving credit
facility so long as we do not permit the ratio of outstanding
indebtedness to exceed 50% of the value of the borrowing base,
as described in the Credit Agreement. We may also request to
increase the available line of credit to a maximum of
$350.0 million by May 2009 by adding more qualified
properties to the borrowing base although any such
increase is subject to market conditions. The term loan has a
four-year term and has an interest rate of the
30-day LIBOR
plus a spread of 200 basis points (2.44% at
December 31, 2008 and 6.6% at December 31, 2007). We
make quarterly principal payments of $165,000 on the term loan.
This facility had outstanding balances of $151.0 million
and $65.2 million on the revolving credit facility and the
term loan, respectively, at December 31, 2008. As of
December 31, 2008, we could have borrowed $3.0 million
of additional funds under the revolving credit facility.
In March 2008, our Operating Partnership issued and sold, in a
private offering, $75.0 million of Exchangeable Senior
Notes (the 2008 Exchangeable Notes) and received
proceeds of $72.8 million. In April 2008, the Operating
Partnership sold an additional $7.0 million of the 2008
Exchangeable Notes (under the initial purchasers
overallotment option) and received proceeds of
$6.8 million. The 2008 Exchangeable Notes will pay interest
semi-annually at a rate of 9.25% per annum and mature on
April 1, 2013. The 2008 Exchangeable Notes have an initial
exchange rate of 80.8898 shares of our common stock per
$1,000 principal amount, representing an exchange price of
approximately $12.36 per common share. The initial exchange rate
is subject to adjustment under certain circumstances. The 2008
Exchangeable Notes are exchangeable prior to the close of
business on the second day immediately preceding the stated
maturity date at any time beginning on January 1, 2013 and
also upon the occurrence of specified events, for cash up to
their principal amounts and our common shares for the remainder
of the exchange value in excess of the principal amount. The
2008 Exchangeable Notes are senior unsecured obligations of the
Operating Partnership, guaranteed by us.
In June 2008, our Operating Partnership signed a term loan
agreement for $30.0 million. That facility has a maturity
of November 2010 and the maximum amount of borrowings may be
increased, subject to market conditions, to $75.0 million.
The loan has a variable interest rate of 400 basis points
in excess of LIBOR (4.44% at December 31, 2008). We make
quarterly principal payments of $75,000 on the term loan. The
facility is collateralized by (i) the equity interests of
certain of our subsidiaries, and (ii) mortgage loans
payable to us. This term loan enabled us to terminate, without
utilizing, a short-term bridge facility that was committed by a
syndicate of banks in March 2008 in order to facilitate the
$357.2 million acquisition from a single seller. As a
result of terminating the short-term bridge facility, we
recorded a charge of approximately $3.2 million of
associated financing costs in the second quarter of 2008.
In November 2008, we signed a collateralized term loan facility
for $9 million with interest fixed at 5.66%. The term loan
has a stated maturity date of November 2013; however, this could
mature earlier if the lease of the collateralized property (that
comes due in December 2011) is not extended. We make
monthly principal and interest payments on this loan. The
facility is collateralized by one real estate property with a
book value of approximately $19.3 million at
December 31, 2008. This facility had an outstanding balance
of $8.9 million at December 31, 2008.
57
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Our revolving credit agreement and term loans impose certain
restrictions on us including restrictions on our ability to:
incur debts; grant 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; and change our business. In addition, these
agreements limit the amount of dividends we can pay to 100% of
funds from operations, as defined in the agreements, on a
rolling four quarter basis. These agreements also contain
provisions for the mandatory prepayment of outstanding
borrowings under these facilities from the proceeds received
from the sale of properties that serve as collateral.
In addition to these restrictions, our revolving credit
agreement and term loans contain customary financial and
operating covenants, including covenants relating to total
leverage ratio, fixed charge coverage ratio, mortgage secured
leverage ratio, recourse mortgage secured leverage ratio,
consolidated adjusted net worth, floating rate debt, facility
leverage ratio, and borrowing base interest coverage ratio.
These agreements also contain 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 these facilities, the entire outstanding
balance may become immediately due and payable. At
December 31, 2008, we were in compliance with all such
financial and operating covenants.
We have maintained and intend to maintain our election as a REIT
under the Internal Revenue Code of 1986, as amended. 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 federal income tax if
we distribute 100% of our taxable income to our stockholders and
satisfy certain other requirements. 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 taxable REIT
subsidiaries is subject to applicable federal, state and local
income taxes. For 2008, 2007, and 2006, we recorded a tax
benefit of $1.1 million, $0.2 million, and
$0.5 million, respectively, which are included in general
and administrative expense. At December 2008, we had a
$2.3 million deferred tax asset related to federal and
state net operating loss carry forwards (NOLs) for
which no valuation allowance was recorded. NOLs are available to
offset future earnings in our taxable REIT subsidiary within the
periods specified by law. At December 31, 2008, we had
U.S. federal and state NOLs of approximately
$6.2 million and $6.7 million, respectively that
expire in 2020 through 2028.
Earnings and profits, which determine the taxability of
distributions to stockholders, will differ from net income
reported for financial reporting purposes due primarily to
differences in cost bases, 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Common share distribution
|
|
$
|
1.080000
|
|
|
$
|
1.080000
|
|
|
$
|
0.990000
|
|
Ordinary income
|
|
|
0.677940
|
|
|
|
0.681994
|
|
|
|
0.531249
|
|
Capital gains(1)
|
|
|
0.145400
|
|
|
|
0.192358
|
|
|
|
0.007080
|
|
Unrecaptured Sec. 1250 gain
|
|
|
0.138168
|
|
|
|
0.085269
|
|
|
|
0.007080
|
|
Return of capital
|
|
|
0.256660
|
|
|
|
0.205648
|
|
|
|
0.181671
|
|
Allocable to next year
|
|
|
|
|
|
|
|
|
|
|
0.270000
|
|
|
|
|
(1) |
|
Capital gains include unrecaptured Sec. 1250 gains. |
58
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following is a reconciliation of the weighted average shares
used in net income per common share basic to the
weighted average shares used in net income per common
share assuming dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average number of shares issued and outstanding
|
|
|
61,971,045
|
|
|
|
47,671,736
|
|
|
|
39,498,712
|
|
Vested deferred stock units
|
|
|
66,466
|
|
|
|
45,290
|
|
|
|
39,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
62,037,511
|
|
|
|
47,717,026
|
|
|
|
39,537,877
|
|
Restricted stock and other share based awards
|
|
|
106,500
|
|
|
|
186,406
|
|
|
|
164,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
62,144,011
|
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007, and 2006,
1.0 million, 0.9 million, and 0.5 million,
respectively, of options and restricted stock awards were
excluded from the diluted earnings per share calculation as they
were not determined to be dilutive. Shares that may be issued in
the future in accordance with our convertible bonds were
excluded from the diluted earnings per share calculation as they
were not determined to be dilutive.
We have adopted the Second Amended and Restated Medical
Properties Trust, Inc. 2004 Equity Incentive Plan (the
Equity Incentive Plan) which 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. The Equity Incentive Plan is administered by the
Compensation Committee of the Board of Directors. We have
reserved 7,441,180 shares of common stock for awards under
the Equity Incentive Plan for which 4,127,668 shares remain
available for future stock awards as of December 31, 2008.
The Equity Incentive Plan contains a limit of
1,000,000 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. In the event
of a change in control, outstanding and unvested options will
immediately vest, unless otherwise provided in the participants
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 participants 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.
We awarded 50,000 common stock options in 2007, with an exercise
price and estimated grant date fair values of $12.09 and $1.36
per option, respectively. The options awarded in 2007 vest
annually in equal amounts over three years from the date of
award and expire in 2012. We use the Black-Scholes pricing model
to calculate the fair values of the options awarded. In 2007,
the following assumptions were used to derive the fair values:
an option term of four years; expected volatility of 28.34%; a
weighted average risk-free rate of return of 4.62%; and a
dividend yield of 8.93%. The intrinsic value of options
exercisable and outstanding at December 31, 2008, is $-0-.
No options were granted, exercised, or forfeited in 2008. At
December 31, 2008 we had 130,000 options outstanding and
96,666 options exercisable, with weighted-average exercise
prices of $10.80 and $10.36 per option, respectively. The
weighted average remaining contractual term of options
exercisable and outstanding is approximately 5.4 years and
5.0 years, respectively.
The Compensation Committee also awarded deferred stock units in
2006 to each of the five independent directors. These deferred
stock units vested on the date of the award and were recorded as
a non-cash expense of $267,250 in 2006. Deferred stock units are
exchanged for common stock three years from the date of grant.
During the deferral period, deferred stock units do not receive
cash dividends, but receive an equivalent amount of additional
deferred stock units.
59
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Other stock-based awards are in the form of service-based awards
and performance-based awards. The service-based awards vest as
the employee provides the required service over periods of three
to seven years. Service based awards are valued at the average
price per share of common stock on the date of grant. In 2006
and 2007, the Compensation Committee made awards which vest
based on us achieving certain performance levels, stock price
levels, total shareholder return or comparison to peer total
return indices. The 2006 awards are based on us achieving levels
of total shareholder return compared to an industry index. The
2007 awards were made under our 2007 Multi-year Incentive Plan
(MIP) adopted by the Compensation Committee and
consisted of three components: service-based awards, core
performance awards (CPRE), and superior performance
awards (SPRE). The service-based awards vest
annually and ratably over a seven-year period beginning
December 31, 2007. The CPRE awards also vest annually and
ratably over the same seven-year period contingent upon our
achievement of a simple 9% annual total return to shareholders
(pro-rated to 7.5% for the first vesting period ending
December 31, 2007). In years in which the annual total
return exceeds 9%, the excess return may be used to earn CPRE
awards not earned in a prior or future year. SPRE awards are
earned based on achievement of specified share price thresholds
during the period beginning March 1, 2007 through
December 31, 2010, and will then vest annually and ratably
over the subsequent three-year period
(2011-2013).
In the event that at the end of the measurement period, no SPRE
awards have been earned based on the criteria set forth above
but we have performed at or above the 50th percentile of
all real estate investment trusts included in the Morgan Stanley
REIT Index in terms of total return to shareholders over the
same period, 33.334% of the SPRE awards will be earned as of
December 31, 2010. All unvested 2007 MIP awards provide for
payment of dividends and other non-liquidating distributions,
except that the SPRE awards pay dividends at 20% of the per
share dividend amount. The 2007 MIP awards were made in the form
of restricted shares and a new class of partnership units in our
Operating Partnership (LTIP units). The LTIP units
that are earned may eventually be converted, at our election,
into either shares of common stock on a one-for-one basis or
their equivalent in cash. We have valued our LTIP awards at the
same per unit value as a corresponding restricted stock award.
We used an independent valuation consultant to assist us in
determining the value of the 2007 MIP awards CPRE and SPRE
components using a Monte Carlo simulation. The following
assumptions were used to derive the fair values for the SPRE and
CPRE, respectively: term 3.4 years and
6.4 years; expected (implied) volatility 27.00% and 26.00%;
risk-free rate of return 4.55% and 4.65%; and,
dividends $1.08 in 2007, $1.10 in 2008, $1.13 in
2009, and 3% annual increase thereafter through 2013. No CPRE or
SPRE awards were earned in 2008 or 2007.
The following summarizes restricted equity awards activity in
2008 and 2007, respectively:
For the
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Based on
|
|
|
|
Vesting Based
|
|
|
Market/Performance
|
|
|
|
on Service
|
|
|
Conditions
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Outstanding at beginning of year
|
|
|
680,515
|
|
|
$
|
11.85
|
|
|
|
1,380,375
|
|
|
$
|
6.79
|
|
Awarded
|
|
|
405,512
|
|
|
$
|
12.07
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(256,321
|
)
|
|
$
|
11.04
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,600
|
)
|
|
$
|
12.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
828,106
|
|
|
$
|
12.20
|
|
|
|
1,380,375
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
For the
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Based on
|
|
|
|
Vesting Based
|
|
|
Market/Performance
|
|
|
|
on Service
|
|
|
Conditions
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Outstanding at beginning of year
|
|
|
504,679
|
|
|
$
|
10.18
|
|
|
|
105,375
|
|
|
$
|
11.60
|
|
Awarded
|
|
|
532,750
|
|
|
$
|
12.41
|
|
|
|
1,275,000
|
|
|
$
|
6.39
|
|
Vested
|
|
|
(348,914
|
)
|
|
$
|
10.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,000
|
)
|
|
$
|
11.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
680,515
|
|
|
$
|
11.85
|
|
|
|
1,380,375
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of stock-based awards is charged to compensation
expense over the vesting periods. In the years ended
December 31, 2008, 2007 and 2006, we recorded approximately
$6.4 million, $4.5 million, and $2.9 million
respectively, of non-cash compensation expense. The remaining
unrecognized cost from restricted equity awards at
December 31, 2008, is approximately $14.4 million and
will be recognized over a weighted average period of
approximately 4.0 years. Restricted equity awards which
vested in 2008 had a value of approximately $2.3 million on
the vesting dates.
|
|
8.
|
Commitments
and Contingencies
|
Our operating leases primarily consist of ground leases in which
certain of our facilities or other related property reside.
These ground leases are long-term leases and some contain
escalation provisions. Our ground leases are subleased to our
tenants. Lease and rental expense for fiscal years ending 2008,
2007, and 2006, respectively, were $919,735, $702,860, and
$414,479 which was offset by sublease rental income of $417,395,
$374,468, and $63,468 for the fiscal years ending 2008, 2007,
and 2006, respectively.
Fixed minimum payments due under operating leases with
non-cancelable terms of more than one year at December 31,
2008 are as follows: (amounts in thousands)
|
|
|
|
|
2009
|
|
$
|
841
|
|
2010
|
|
|
835
|
|
2011
|
|
|
845
|
|
2012
|
|
|
849
|
|
2013
|
|
|
745
|
|
Thereafter
|
|
|
29,721
|
|
|
|
|
|
|
|
|
$
|
33,836
|
|
|
|
|
|
|
The total amount to be received in the future from
non-cancellable subleases at December 31, 2008, is
approximately $31.9 million.
We are a party to various legal proceedings incidental to our
business. In the opinion of management, after consultation with
legal counsel, the ultimate liability, if any, with respect to
those proceedings is not presently expected to materially affect
our financial position, results of operations or cash flows,
except for potentially the Stealth litigation.
In October 2006, two of our subsidiaries terminated their
respective leases with Stealth, L.P. (Stealth), the
operator of a hospital and medical office building complex that
we owned in Houston, Texas. Pursuant to our subsidiaries
rights under these leases, we took possession of the real estate
and contracted with a third party to operate the facilities for
an interim period. In January 2007, we completed the sale of
these properties to Memorial Hermann
61
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Healthcare System (Memorial Hermann). Several
limited partners of Stealth filed suit against the general
partner of Stealth, our subsidiaries, the interim operator and
several other parties in December 2006, in Harris County, Texas
District Court, generally alleging that the defendants breached
duties, interfered with the plaintiffs partnership rights
and misappropriated assets of Stealth. Further amended petitions
filed by the plaintiffs added Memorial Hermann as a defendant
and, while dropping some of the original claims, alleged new
claims that our conduct violated the antitrust laws and
constituted tortuous interference with Stealths business
contracts and relationships.
In May 2007, Stealth itself filed a cross claim against our
subsidiaries and the interim operator, later amended to include
us, our operating partnership and Memorial Hermann, broadly
alleging, among other things, fraud, negligent
misrepresentation, breaches of contract and warranty, and that
we operated all our subsidiaries as a single enterprise
and/or
conspired with our subsidiaries to commit the other tort claims
asserted. Stealth recently consolidated all of its claims
against us in a consolidated petition that added claims of
breach of fiduciary duty and seeking actual and punitive money
damages. Memorial Hermann has agreed to defend and indemnify us
against one of Stealths breach of contract claims.
The plaintiffs and Stealth jointly seek more than
$120 million in actual damages and more than
$350 million in punitive damages. The case is set for trial
in September 2009. We believe that all of the claims asserted by
Stealth and its limited partners are without merit and we intend
to continue defending them vigorously. We have not recorded a
liability at December 31, 2008 related to the Stealth
litigation.
In the first quarter of 2007, we sold 12,217,900 shares of
common stock at a price of $15.60 per share, less an
underwriting commission of five percent. Of the shares sold, the
underwriters borrowed from third parties and sold
3,000,000 shares of our common stock in connection with
forward sale agreements between us and affiliates of the
underwriters (the forward purchasers). We did not
initially receive any proceeds from the sale of shares of our
common stock by the forward purchasers. In December 2007, we
settled the forward sale agreements and received proceeds, net
of underwriting commission of five percent and other
adjustments, of approximately $43.3 million.
In March 2008, we sold 12,650,000 shares of common stock at
a price of $10.75 per share. After deducting underwriters
commissions and offering expenses, we realized proceeds of
$128.3 million.
In January 2009, we completed a public offering of
12.0 million shares of our common stock at $5.40 per share.
Including the underwriters purchase of approximately
1.3 million additional shares to cover over allotments, net
proceeds from this offering, after underwriting discount and
commissions, were approximately $68.4 million. The net
proceeds of this offering were generally used to repay
borrowings outstanding under our revolving credit facilities.
On January 9, 2009, we filed Articles of Amendment to our
charter with the Maryland State Department of Assessments and
Taxation increasing the number of authorized shares of common
stock, par value $0.001 per share available for issuance from
100,000,000 to 150,000,000.
|
|
10.
|
Fair
Value of Financial Instruments
|
We have various assets and liabilities that are considered
financial instruments. We estimate that the carrying value of
cash and cash equivalents, and accounts payable and accrued
expenses approximates their fair values. We estimate the fair
value of our loans, interest, and other receivables by
discounting the estimated future cash flows using the current
rates at which similar receivables would be made to others with
similar credit ratings and for the same remaining maturities. We
determine the fair value of our exchangeable notes based on
quotes from securities dealers and market makers. We estimate
the fair value of our senior notes, revolving credit facilities,
and term loans based on the present value of future payments,
discounted at a rate which we consider appropriate for such debt.
62
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following table summarizes fair value information for our
financial instruments: (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Book
|
|
|
Fair
|
|
|
Book
|
|
|
Fair
|
|
Asset (Liability)
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Interest and Rent Receivables
|
|
$
|
13,837
|
|
|
$
|
12,475
|
|
|
$
|
10,326
|
|
|
$
|
10,398
|
|
Loans
|
|
|
293,523
|
|
|
|
282,459
|
|
|
|
265,758
|
|
|
|
293,347
|
|
Debt
|
|
|
(638,366
|
)
|
|
|
(487,198
|
)
|
|
|
(480,525
|
)
|
|
|
(467,890
|
)
|
|
|
11.
|
Discontinued
Operations
|
In the second quarter of 2008, we sold the real estate assets of
three inpatient rehabilitation facilities to Vibra for proceeds
of approximately $105.0 million, including
$7.0 million in early lease termination fees and
$8.0 million of a loan pre-payment. The sale was completed
on May 7, 2008, resulting in a gain on the sale of
approximately $9.3 million. We also wrote off approximately
$9.5 million in related straight-line rent receivables upon
completion of the sales. The three Vibra properties were
classified as held for sale and were reflected in the
accompanying Consolidated Balance Sheet at $81.4 million at
December 31, 2007.
In 2006, we terminated leases for a hospital and medical office
building (MOB) complex and repossessed the real
estate. In January 2007, we sold the hospital and MOB complex
and recorded a gain on the sale of real estate of approximately
$4.1 million. During the period between termination of the
lease and sale of the real estate, we substantially funded
through loans the working capital requirements of the
hospitals operator pending the operators collection
of patient receivables from Medicare and other sources. At
December 31, 2007, we had approximately $4.2 million
in working capital loans included in assets of discontinued
operations on the consolidated balance sheet. In July 2008, we
received from Medicare the substantial remainder of amounts that
we expect to collect and based thereon wrote off in the second
quarter of 2008 approximately $2.1 million (net of
approximately $1.2 million in tax benefits) of remaining
uncollectible receivables from the operator.
The following table presents the results of discontinued
operations for the years ended December 31, 2008, 2007 and
2006 (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
2,477
|
|
|
$
|
14,634
|
|
|
$
|
21,498
|
|
Gain on sale
|
|
|
9,305
|
|
|
|
4,061
|
|
|
|
|
|
Net income
|
|
|
7,282
|
|
|
|
13,351
|
|
|
|
12,177
|
|
Earnings per share diluted
|
|
$
|
0.11
|
|
|
$
|
0.28
|
|
|
$
|
0.31
|
|
63
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
|
|
12.
|
Quarterly
Financial Data (unaudited)
|
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 2008 and 2007:
($ amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2008 Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
23,413
|
|
|
$
|
31,098
|
|
|
$
|
33,117
|
|
|
$
|
29,934
|
|
Income from continuing operations
|
|
|
8,440
|
|
|
|
8,599
|
|
|
|
7,090
|
|
|
|
3,076
|
|
Income (loss) from discontinued operations
|
|
|
2,794
|
|
|
|
5,242
|
|
|
|
412
|
|
|
|
(1,166
|
)
|
Net income
|
|
|
11,234
|
|
|
|
13,841
|
|
|
|
7,502
|
|
|
|
1,910
|
|
Net income per share basic
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.12
|
|
|
$
|
0.03
|
|
Weighted average shares outstanding basic
|
|
|
52,933,616
|
|
|
|
64,991,168
|
|
|
|
65,059,876
|
|
|
|
65,061,424
|
|
Net income per share diluted
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.12
|
|
|
$
|
0.03
|
|
Weighted average shares outstanding diluted
|
|
|
53,045,790
|
|
|
|
65,173,660
|
|
|
|
65,177,364
|
|
|
|
65,075,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2007 Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
14,733
|
|
|
$
|
21,285
|
|
|
$
|
21,429
|
|
|
$
|
24,338
|
|
Income from continuing operations
|
|
|
3,310
|
|
|
|
10,793
|
|
|
|
8,424
|
|
|
|
5,362
|
|
Income (loss) from discontinued operations
|
|
|
6,894
|
|
|
|
719
|
|
|
|
3,223
|
|
|
|
2,515
|
|
Net income
|
|
|
10,204
|
|
|
|
11,512
|
|
|
|
11,647
|
|
|
|
7,877
|
|
Net income per share basic
|
|
$
|
0.23
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
Weighted average shares outstanding basic
|
|
|
42,823,619
|
|
|
|
49,040,141
|
|
|
|
49,071,806
|
|
|
|
49,761,733
|
|
Net income per share diluted
|
|
$
|
0.23
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
Weighted average shares outstanding diluted
|
|
|
43,070,303
|
|
|
|
49,293,328
|
|
|
|
49,371,555
|
|
|
|
50,069,759
|
|
64
|
|
ITEM 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
The Audit Committee of the Board of Directors of the Company
annually considers the selection of the Companys
independent registered public accountants. On September 8,
2008, the Company notified KPMG LLP (KPMG) that the
Companys Audit Committee, on September 8, 2008,
decided not to renew the engagement of its independent
registered public accountants, KPMG, and selected
PricewaterhouseCoopers LLP (PwC) to serve as the Companys
independent registered public accountants for 2008.
The audit reports of KPMG on the consolidated financial
statements of the Company as of and for the years ended
December 31, 2005 and 2004 did not contain an adverse
opinion or disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting
principles. The audit reports of KPMG on the consolidated
financial statements and on the effectiveness of internal
control over financial reporting of the Company as of and for
the years ended December 31, 2007 and 2006 did not contain
an adverse opinion or disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.
During the two fiscal years ended December 31, 2007 and
2006 and the subsequent interim periods through
September 8, 2008: (1) there were no disagreements
with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of KPMG
would have caused it to make reference to the subject matter of
the disagreements in its audit reports on the consolidated
financial statements of the Company, and (2) there were no
reportable events as defined in
Item 304(a)(1)(v) of
Regulation S-K.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management is required to apply our judgment in
evaluating the cost-benefit relationship of possible controls
and procedures.
As required by
Rule 13a-15(b),
under the Securities Exchange Act of 1934, as amended, we have
carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of the end of the period covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information
required to be disclosed by us in the reports that we file with
the SEC.
Changes
in Internal Controls over Financial Reporting
There has been no change in our internal control over financial
reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Managements
Report on Internal Control over Financial Reporting
The management of Medical Properties Trust, Inc. has prepared
the consolidated financial statements and other information in
our Annual Report in accordance with accounting principles
generally accepted in the United States of America and is
responsible for its accuracy. The financial statements
necessarily include amounts that are based on managements
best estimates and judgments. In meeting its responsibility,
management relies on internal accounting and related control
systems. The internal control systems are designed to ensure
that transactions are properly authorized and recorded in our
financial records and to safeguard our assets from material loss
or misuse. Such assurance cannot be absolute because of inherent
limitations in any internal control system.
65
Management of Medical Properties Trust, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Our internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles.
Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual financial
statements, management has undertaken an assessment of the
effectiveness of our internal control over financial reporting
as of December 31, 2008. The assessment was based upon the
framework described in the Integrated Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Managements assessment included an evaluation of the
design of internal control over financial reporting and testing
of the operational effectiveness of internal control over
financial reporting. We have reviewed the results of the
assessment with the Audit Committee of our Board of Trustees.
Based on our assessment under the criteria set forth in COSO,
management has concluded that, as of December 31, 2008,
Medical Properties Trust maintained effective internal control
over financial reporting.
The effectiveness of our internal control over financial
reporting as of December 31, 2008 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
ITEM 9B. Other
Information
None.
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item 10 is incorporated by
reference to our definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2009.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by this Item 11 is incorporated by
reference to our definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2009.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item 12 is incorporated by
reference to our definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2009.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item 13 is incorporated by
reference to our definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2009.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item 14 is incorporated by
reference to our definitive Proxy Statement for the 2009 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2009.
66
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
(a)
|
Financial
Statements and Financial Statement Schedules
|
|
|
|
|
|
Index of Financial Statements of Medical Properties Trust,
Inc. which are included in Part II, Item 8 of this
Annual Report on
Form 10-K:
|
|
|
|
|
|
|
|
39
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
Index of Consolidated Financial Statement Schedules
|
|
|
|
|
|
|
|
III-1
|
|
|
|
|
IV-1
|
|
67
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
3
|
.1(1)
|
|
Registrants Second Articles of Amendment and Restatement
|
|
3
|
.2(2)
|
|
Registrants Amended and Restated Bylaws
|
|
3
|
.3(3)
|
|
Articles of Amendment of Registrants Second Articles of
Amendment and Restatement
|
|
4
|
.1(1)
|
|
Form of Common Stock Certificate
|
|
4
|
.2(4)
|
|
Indenture, dated July 14, 2006, among Registrant, MPT Operating
Partnership, L.P. and the Wilmington Trust Company, as trustee
|
|
4
|
.3(5)
|
|
Indenture, dated November 6, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington Trust Company, as
trustee
|
|
4
|
.4(5)
|
|
Registration Rights Agreement among Registrant, MPT Operating
Partnership, L.P. and UBS Securities LLC and J.P. Morgan
Securities Inc., as representatives of the initial purchasers,
dated as of November 6, 2006
|
|
4
|
.5(16)
|
|
Indenture, dated as of March 26, 2008, among MPT Operating
Partnership, L.P., as Issuer, Medical Properties Trust, Inc., as
Guarantor, and Wilmington Trust Company, as Trustee.
|
|
4
|
.6(16)
|
|
Registration Rights Agreement among MPT Operating Partnership,
L.P., Medical Properties Trust, Inc. and UBS Securities LLC, as
representative of the initial purchases of the notes, dated as
of March 26, 2008
|
|
10
|
.1(11)
|
|
Second Amended and Restated Agreement of Limited Partnership of
MPT Operating Partnership, L.P.
|
|
10
|
.2(6)
|
|
Amended and Restated 2004 Equity Incentive Plan
|
|
10
|
.3(7)
|
|
Form of Stock Option Award
|
|
10
|
.4(7)
|
|
Form of Restricted Stock Award
|
|
10
|
.5(7)
|
|
Form of Deferred Stock Unit Award
|
|
10
|
.6(1)
|
|
Employment Agreement between Registrant and Edward K. Aldag,
Jr., dated September 10, 2003
|
|
10
|
.7(1)
|
|
First Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated March 8, 2004
|
|
10
|
.8(1)
|
|
Employment Agreement between Registrant and R. Steven Hamner,
dated September 10, 2003
|
|
10
|
.9
|
|
Not used
|
|
10
|
.10(1)
|
|
Employment Agreement between Registrant and Emmett E. McLean,
dated September 10, 2003
|
|
10
|
.11(1)
|
|
Employment Agreement between Registrant and Michael G. Stewart,
dated April 28, 2005
|
|
10
|
.12(1)
|
|
Form of Indemnification Agreement between Registrant and
executive officers and directors
|
|
10
|
.13(8)
|
|
Credit Agreement dated October 27, 2005, among MPT Operating
Partnership, L.P., as borrower, and Merrill Lynch Capital, a
division of Merrill Lynch Business Financial Services, Inc., as
Administrative Agent and Lender, and Additional Lenders from
Time to Time a Party thereto
|
|
10
|
.14(1)
|
|
Third Amended and Restated Lease Agreement between 1300 Campbell
Lane, LLC and 1300 Campbell Lane Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.15(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between 1300 Campbell Lane, LLC and 1300 Campbell Lane Operating
Company, LLC, dated December 31, 2004
|
|
10
|
.16(1)
|
|
Second Amended and Restated Lease Agreement between 92 Brick
Road, LLC and 92 Brick Road, Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.17(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 92 Brick Road, LLC and 92 Brick Road, Operating Company,
LLC, dated December 31, 2004
|
|
10
|
.18(1)
|
|
Ground Lease Agreement between West Jersey Health System and
West Jersey/Mediplex Rehabilitation Limited Partnership, dated
July 15, 1993
|
|
10
|
.19(1)
|
|
Third Amended and Restated Lease Agreement between
San Joaquin Health Care Associates Limited Partnership and
7173 North Sharon Avenue Operating Company, LLC, dated December
20, 2004
|
|
10
|
.20(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between San Joaquin Health Care Associates Limited
Partnership and 7173 North Sharon Avenue Operating Company, LLC,
dated December 31, 2004
|
68
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.21(1)
|
|
Second Amended and Restated Lease Agreement between 8451 Pearl
Street, LLC and 8451 Pearl Street Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.22(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 8451 Pearl Street, LLC and 8451 Pearl Street Operating
Company, LLC, dated December 31, 2004
|
|
10
|
.23(1)
|
|
Second Amended and Restated Lease Agreement between 4499
Acushnet Avenue, LLC and 4499 Acushnet Avenue Operating Company,
LLC, dated December 20, 2004
|
|
10
|
.24(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 4499 Acushnet Avenue, LLC and 4499 Acushnet Avenue
Operating Company, LLC, dated December 31, 2004
|
|
10
|
.25(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bucks County Hospital, L.P., Bucks County
Oncoplastic Institute, LLC, Jerome S. Tannenbaum, M.D., M.
Stephen Harrison and DSI Facility Development, LLC, dated March
3, 2005
|
|
10
|
.26(1)
|
|
Amendment to Purchase and Sale Agreement among MPT Operating
Partnership, L.P., MPT of Bucks County Hospital, L.P., Bucks
County Oncoplastic Institute, LLC, DSI Facility Development,
LLC, Jerome S. Tannenbaum, M.D., M. Stephen Harrison and G.
Patrick Maxwell, M.D., dated April 29, 2005
|
|
10
|
.27(1)
|
|
Lease Agreement between Bucks County Oncoplastic Institute, LLC
and MPT of Bucks County, L.P., dated September 16, 2005
|
|
10
|
.28(1)
|
|
Development Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
|
10
|
.29(1)
|
|
Funding Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
|
10
|
.30(1)
|
|
Purchase and Sale Agreement between MPT of North Cypress, L.P.
and North Cypress Medical Center Operating Company, Ltd., dated
as of June 1, 2005
|
|
10
|
.31(1)
|
|
Contract for Purchase and Sale of Real Property between North
Cypress Property Holdings, Ltd. and MPT of North Cypress, L.P.,
dated as of June 1, 2005
|
|
10
|
.32(1)
|
|
Sublease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of June
1, 2005
|
|
10
|
.33(1)
|
|
Net Ground Lease between North Cypress Property Holdings, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
|
10
|
.34(1)
|
|
Lease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of June
1, 2005
|
|
10
|
.35(1)
|
|
Net Ground Lease between Northern Healthcare Land Ventures, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
|
10
|
.36(1)
|
|
Construction Loan Agreement between North Cypress Medical Center
Operating Company, Ltd. and MPT Finance Company, LLC, dated June
1, 2005
|
|
10
|
.37(1)
|
|
Purchase, Sale and Loan Agreement among MPT Operating
Partnership, L.P., MPT of Covington, LLC, MPT of Denham Springs,
LLC, Covington Healthcare Properties, L.L.C., Denham Springs
Healthcare Properties, L.L.C., Gulf States Long Term Acute Care
of Covington, L.L.C. and Gulf States Long Term Acute Care of
Denham Springs, L.L.C., dated June 9, 2005
|
|
10
|
.38(1)
|
|
Lease Agreement between MPT of Covington, LLC and Gulf States
Long Term Acute Care of Covington, L.L.C., dated June 9, 2005
|
|
10
|
.39(1)
|
|
Promissory Note made by Denham Springs Healthcare Properties,
L.L.C. in favor of MPT of Denham Springs, LLC, dated June 9, 2005
|
|
10
|
.40(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Redding, LLC, Vibra Healthcare, LLC and Northern
California Rehabilitation Hospital, LLC, dated June 30, 2005
|
|
10
|
.41(1)
|
|
Lease Agreement between Northern California Rehabilitation
Hospital, LLC and MPT of Redding, LLC, dated June 30, 2005
|
|
10
|
.42(1)
|
|
Amendment No. 1 to Ground Lease Agreement between National
Medical Specialty Hospital of Redding, Inc. and Ocadian Care
Centers, Inc., dated November 29, 2001
|
69
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.43(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bloomington, LLC, Southern Indiana Medical Park II,
LLC and Monroe Hospital, LLC, dated October 7, 2005
|
|
10
|
.44(1)
|
|
Lease Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
|
10
|
.45(1)
|
|
Development Agreement among Monroe Hospital, LLC, Monroe
Hospital Development, LLC and MPT of Bloomington, LLC, dated
October 7, 2005
|
|
10
|
.46(1)
|
|
Funding Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
|
10
|
.47(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Chino, LLC, Prime Healthcare Services, LLC, Veritas
Health Services, Inc., Prime Healthcare Services, Inc., Desert
Valley Hospital, Inc. and Desert Valley Medical Group, Inc.,
dated November 30, 2005
|
|
10
|
.48(1)
|
|
Lease Agreement among Veritas Health Services, Inc., Prime
Healthcare Services, LLC and MPT of Chino, LLC, dated November
30, 2005
|
|
10
|
.49(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Sherman Oaks, LLC, Prime A Investments, L.L.C.,
Prime Healthcare Services II, LLC, Prime Healthcare Services,
Inc., Desert Valley Medical Group, Inc. and Desert Valley
Hospital, Inc., dated December 30, 2005
|
|
10
|
.50(1)
|
|
Lease Agreement between MPT of Sherman Oaks, LLC and Prime
Healthcare Services II, LLC, dated December 30, 2005
|
|
10
|
.51(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (LTIP Units)
|
|
10
|
.52(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (Restricted Shares)
|
|
10
|
.53(12)
|
|
Term Loan Credit Agreement among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JP Morgan Chase Bank,
N.A. as Administrative Agent, with J.P. Morgan Securities
Inc. and KeyBank National Association, as Joint Lead Arrangers
and Bookrunners
|
|
10
|
.54(10)
|
|
First Amendment to Term Loan Agreement
|
|
10
|
.55(16)
|
|
Revolving Credit and Term Loan Agreement, dated November 30,
2007, among Medical Properties Trust, Inc., MPT Operating
Partnership, L.P., as Borrower, the Several Lenders from Time to
Time Parties Thereto, KeyBank National Association, as
Syndication Agent, and JPMorgan Chase Bank, N.A. as
Administrative Agent, with J.P. Morgan Securities Inc. and
KeyBank National Association, as Joint Lead Arrangers and
Bookrunners
|
|
10
|
.56(16)
|
|
Second Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated September 29, 2006
|
|
10
|
.57(16)
|
|
First Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated September 29, 2006
|
|
10
|
.58(1)
|
|
First Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated September 29, 2006
|
|
10
|
.59(16)
|
|
First Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated September 29, 2006
|
|
10
|
.60(8)
|
|
Second Amended and Restated 2004 Equity Incentive Plan
|
|
10
|
.61(14)
|
|
First Amendment to Revolving Credit and Term Loan Agreement
dated March 13, 2008
|
|
10
|
.62(14)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., HCP Inc., FAEC Holdings(BC), LLC, HCPI Trust, HCP Das
Petersburg VA, LP, and Texas HCP Holdings, L.P. dated as of
March 13, 2008
|
|
10
|
.63(14)
|
|
First Amendment to Purchase and Sale Agreement among MPT
Operating Partnership, L.P., HCP Inc., FAEC Holdings(BC), LLC,
HCPI Trust, HCP Das Petersburg VA, LP, and Texas HCP Holdings,
L.P. dated as of March 28, 2008
|
|
10
|
.64(15)
|
|
Second Amendment to Purchase and Sale Agreement among MPT
Operating Partnership, L.P., HCP Inc., FAEC Holdings(BC), LLC,
HCPI Trust, HCP Das Petersburg VA, LP, and Texas HCP Holdings,
L.P. dated as of April 1, 2008
|
70
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.65(15)
|
|
Third Amendment to Purchase and Sale Agreement among MPT
Operating Partnership, L.P., HCP Inc., FAEC Holdings(BC), LLC,
HCPI Trust, HCP Das Petersburg VA, LP, and Texas HCP Holdings,
L.P. dated as of April 17, 2008
|
|
10
|
.66(15)
|
|
Fourth Amendment to Purchase and Sale Agreement among MPT
Operating Partnership, L.P., HCP Inc., FAEC Holdings(BC), LLC,
HCPI Trust, HCP Das Petersburg VA, LP, and Texas HCP Holdings,
L.P. dated as of May 14, 2008
|
|
10
|
.67(15)
|
|
Fifth Amendment to Purchase and Sale Agreement among MPT
Operating Partnership, L.P., HCP Inc., FAEC Holdings(BC), LLC,
HCPI Trust, HCP Das Petersburg VA, LP, and Texas HCP Holdings,
L.P. dated as of June 18, 2008
|
|
10
|
.68(15)
|
|
Sixth Amendment to Purchase and Sale Agreement among MPT
Operating Partnership, L.P., HCP Inc., FAEC Holdings(BC), LLC,
HCPI Trust, HCP Das Petersburg VA, LP, and Texas HCP Holdings,
L.P. dated as of June 30, 2008
|
|
10
|
.71(17)
|
|
Second Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated February 27, 2009
|
|
10
|
.72(17)
|
|
Second Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated January 1, 2008
|
|
10
|
.73(17)
|
|
Third Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated January 1, 2009
|
|
10
|
.74(17)
|
|
Second Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated January 1, 2008
|
|
10
|
.75(17)
|
|
Third Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated January 1, 2009
|
|
10
|
.76(17)
|
|
Second Amendment to Employment Agreement between Registrant and
Richard S. Hamner, dated January 1, 2008
|
|
10
|
.77(17)
|
|
Third Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated January 1, 2009
|
|
10
|
.78(17)
|
|
Third Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated January 1, 2008
|
|
10
|
.79(17)
|
|
Fourth Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated January 1, 2009
|
|
10
|
.80(17)
|
|
Third Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated January 1, 2008
|
|
10
|
.81(17)
|
|
Fourth Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated January 1, 2009
|
|
21
|
.1(17)
|
|
Subsidiaries of Registrant
|
|
23
|
.1(17)
|
|
Consent of PricewaterhouseCoopers LLP
|
|
23
|
.2(17)
|
|
Consent of KPMG LLP
|
|
23
|
.3(17)
|
|
Consent of Moss Adams LLP
|
|
31
|
.1(17)
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934
|
|
31
|
.2(17)
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934
|
|
32
|
(17)
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(b) under the Securities Exchange
Act of 1934 and 18 U.S.C. Section 1350
|
|
99
|
.1(18)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of December 31, 2007 and 2006
|
|
99
|
.2(18)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of September 30, 2008
|
71
|
|
|
(1) |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-11
filed with the Commission on October 26, 2004, as amended
(File
No. 333-119957). |
|
(2) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended June 30, 2005, filed with the
Commission on July 26, 2005. |
|
(3) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2005, filed with the
Commission on November 10, 2005. |
|
(4) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on July 20, 2006. |
|
(5) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on November 13, 2006. |
|
(6) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
September 13, 2005. |
|
(7) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on October 18, 2005. |
|
(8) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
April 14, 2007. |
|
(9) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on February 28, 2007. |
|
(10) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2007, filed with
the Commission on November 9, 2007. |
|
(11) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 6, 2007. |
|
(12) |
|
Incorporated by reference to Registrants current report on
Form 8-K, filed with the Commission on August 15, 2007. |
|
(13) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on March 26, 2008. |
|
(14) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended March 31, 2008, filed with the
Commission on May 9, 2008. |
|
(15) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended June 30, 2008, filed with the
Commission on August 8, 2008. |
|
(16) |
|
Incorporated by reference to Registrants annual report on
Form 10-K/A
for the period ended December 31, 2007, filed with the
Commission on July 11, 2008. |
|
(17) |
|
Included in this
Form 10-K. |
|
(18) |
|
Since affiliates of Prime Healthcare Services, Inc. lease more
than 20% of our total assets under triple net leases, the
financial status of Prime may be considered relevant to
investors. Primes most recently available audited
consolidated financial statements (as of and for the years ended
December 31, 2007 and 2006) and Primes most
recently available financial statements (unaudited, as of and
for the period ended September 30, 2008) are
incorporated by reference to Registrants annual report on
Form 10-K/A for the period ended December 31, 2007 filed
with the Commission on July 11, 2008 and to
Registrants quarterly report on Form 10-Q for the
quarter ended September 30, 2008, filed with the Commission
on November 10, 2008, respectively. We have not
participated in the preparation of Primes financial
statements nor do we have the right to dictate the form of any
financial statements provided to us by Prime. |
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEDICAL PROPERTIES TRUST, INC.
R. Steven Hamner
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 13, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Edward
K. Aldag, Jr.
Edward
K. Aldag, Jr.
|
|
Chairman of the Board, President, Chief Executive Officer and
Director (Principal Executive Officer)
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Virginia
A. Clarke
Virginia
A. Clarke
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Sherry
A. Kellett
Sherry
A. Kellett
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ R.
Steven Hamner
R.
Steven Hamner
|
|
Executive Vice President, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
|
|
March 13, 2009
|
|
|
|
|
|
/s/ G.
Steven Dawson
G.
Steven Dawson
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Robert
E. Holmes
Robert
E. Holmes, Ph.D.
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ William
G. McKenzie
William
G. McKenzie
|
|
Vice Chairman of the Board
|
|
March 13, 2009
|
|
|
|
|
|
/s/ L.
Glenn Orr, Jr.
L.
Glenn Orr, Jr.
|
|
Director
|
|
March 13, 2009
|
73
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions Subsequent to Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs
|
|
|
|
|
|
Carrying
|
|
|
Cost at December 31, 2008
|
|
|
Accumulated
|
|
|
|
|
|
Date of
|
|
|
Date
|
|
Depreciable
|
|
Location
|
|
Type of Property
|
|
Land
|
|
|
Buildings
|
|
|
Improvements
|
|
|
Costs
|
|
|
Land
|
|
|
Buildings
|
|
|
Total
|
|
|
Depreciation
|
|
|
Encumbrances
|
|
|
Construction
|
|
|
Acquired
|
|
Life (Years)
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thornton, CO
|
|
Long term acute care hospital
|
|
$
|
2,130
|
|
|
$
|
6,013
|
|
|
$
|
1,012
|
|
|
$
|
|
|
|
$
|
2,130
|
|
|
$
|
7,025
|
|
|
$
|
9,155
|
|
|
$
|
693
|
|
|
|
|
|
|
|
1962
|
|
|
August 17, 2004
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Bedford, MA
|
|
Long term acute care hospital
|
|
|
1,400
|
|
|
|
19,772
|
|
|
|
256
|
|
|
|
|
|
|
|
1,400
|
|
|
|
20,028
|
|
|
|
21,428
|
|
|
|
2,155
|
|
|
|
|
|
|
|
1942
|
|
|
August 17, 2004
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covington, LA
|
|
Long term acute care hospital
|
|
|
821
|
|
|
|
10,238
|
|
|
|
|
|
|
|
14
|
|
|
|
821
|
|
|
|
10,252
|
|
|
|
11,073
|
|
|
|
918
|
|
|
|
|
|
|
|
1984
|
|
|
June 9, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denham Springs, LA
|
|
Long term acute care hospital
|
|
|
429
|
|
|
|
5,340
|
|
|
|
|
|
|
|
49
|
|
|
|
428
|
|
|
|
5,390
|
|
|
|
5,818
|
|
|
|
416
|
|
|
|
|
|
|
|
1960
|
|
|
June 9, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redding, CA
|
|
Long term acute care hospital
|
|
|
|
|
|
|
19,952
|
|
|
|
|
|
|
|
3,622
|
|
|
|
1,629
|
|
|
|
21,945
|
|
|
|
23,574
|
|
|
|
1,799
|
|
|
|
|
|
|
|
1991
|
|
|
June 30, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sherman Oaks, CA
|
|
Acute care general hospital
|
|
|
5,290
|
|
|
|
13,587
|
|
|
|
|
|
|
|
31
|
|
|
|
5,290
|
|
|
|
13,618
|
|
|
|
18,908
|
|
|
|
1,023
|
|
|
|
|
|
|
|
1956
|
|
|
December 30, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bloomington, IN
|
|
Acute care general hospital
|
|
|
2,457
|
|
|
|
31,209
|
|
|
|
|
|
|
|
408
|
|
|
|
2,576
|
|
|
|
31,498
|
|
|
|
34,074
|
|
|
|
1,857
|
|
|
|
|
|
|
|
2006
|
|
|
August 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montclair, CA
|
|
Acute care general hospital
|
|
|
1,500
|
|
|
|
17,419
|
|
|
|
|
|
|
|
42
|
|
|
|
1,500
|
|
|
|
17,461
|
|
|
|
18,961
|
|
|
|
1,054
|
|
|
|
|
|
|
|
1971
|
|
|
August 9, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX
|
|
Long term acute care hospital
|
|
|
1,000
|
|
|
|
13,589
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
1,000
|
|
|
|
13,536
|
|
|
|
14,536
|
|
|
|
789
|
|
|
|
|
|
|
|
2006
|
|
|
September 5, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington Beach, CA
|
|
Acute care general hospital
|
|
|
937
|
|
|
|
10,907
|
|
|
|
|
|
|
|
3
|
|
|
|
937
|
|
|
|
10,910
|
|
|
|
11,847
|
|
|
|
591
|
|
|
|
|
|
|
|
1965
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La Palma, CA
|
|
Acute care general hospital
|
|
|
937
|
|
|
|
10,907
|
|
|
|
|
|
|
|
3
|
|
|
|
937
|
|
|
|
10,910
|
|
|
|
11,847
|
|
|
|
591
|
|
|
|
|
|
|
|
1971
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anaheim, CA
|
|
Acute care general hospital
|
|
|
1,875
|
|
|
|
21,814
|
|
|
|
|
|
|
|
10
|
|
|
|
1,875
|
|
|
|
21,824
|
|
|
|
23,699
|
|
|
|
1,182
|
|
|
|
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|
|
1964
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
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|
|
Luling, TX
|
|
Long term acute care hospital
|
|
|
811
|
|
|
|
9,345
|
|
|
|
|
|
|
|
|
|
|
|
811
|
|
|
|
9,345
|
|
|
|
10,156
|
|
|
|
487
|
|
|
|
|
|
|
|
2002
|
|
|
December 1, 2006
|