e10vk
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,
2009
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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 þ No o
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 has submitted
electronically and posted on its Website, if any, every
Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No 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
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller
reporting company)
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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 June 30, 2009, the aggregate market value of the
80,164,801 shares of common stock, par value $0.001 per
share (Common Stock), held by non-affiliates of the
Registrant was $486,600,342 based upon the last reported sale
price of $6.07 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 February 10, 2010, 80,414,982 shares of the
Registrants Common Stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 20,
2010 are incorporated by reference into Part III,
Items 9 through 13 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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national and local economic, business, real estate, and other
market conditions;
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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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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 maintain our status as a REIT for federal and
state income tax purposes;
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our ability to attract and retain qualified personnel;
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federal and state healthcare and other regulatory
requirements; and
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(i)
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the impact of the recent credit crisis and global economic
slowdown, which has had 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 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 7 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.
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 Note 2 of
Item 7 in Part II of this Annual Report on
Form 10-K.
At December 31, 2009, we had $1.3 billion invested in
healthcare real estate and related assets.
All of our investments are located in the United States, and we
have no present plans to invest in
non-U.S. markets
in the foreseeable future. The following is our revenue by
operating type for the year ended December 31 (dollars in
thousands):
Revenue
by property type:
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2009
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2008
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2007
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General Acute Care Hospitals
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$
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90,479
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69.7
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%
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$
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81,647
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69.9
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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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Long-term Acute Care Hospitals
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25,031
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19.3
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%
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25,200
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21.6
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17,939
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21.9
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Rehabilitation Hospitals
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10,032
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7.7
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7,418
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6.4
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3,689
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4.5
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Wellness Centers
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2,549
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2.0
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%
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1,612
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1.3
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%
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Medical Office Buildings
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1,660
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1.3
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894
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0.8
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%
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Total revenue
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$
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129,751
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100.0
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%
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$
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116,771
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100.0
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%
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81,786
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100
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%
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See Overview in Item 6 of this
Form 10-K
for details of transaction activity for 2009, 2008 and 2007.
Portfolio
of Properties
As of February 10, 2010, our portfolio consists of 51
properties: 45 facilities (of the 48 facilities that we own) are
leased to 14 tenants, three are presently not under lease, and
the remainder are in the form of mortgage loans to two
operators. Our owned facilities consist 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.
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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. In addition, we have and will continue to obtain profits
interest in our tenant operations, from time to time, in order
to enhance our overall return. 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 16.2% 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, from interest income from
loans to our tenants and other facility owners and from profits
interest in certain of our tenants operations. 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;
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the effect of evolving healthcare and other regulations on our
tenants and borrowers profitability and
liquidity; 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,
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utilities and other charges incurred in the operation of the
facilities, as well as real estate and certain other taxes,
ground lease rent (if any) and the costs of capital
expenditures, repairs and maintenance (including any repairs
required by regulatory requirements). 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 2 to
15 years (see Item 2 for more information on remaining
lease terms) and generally provide for annual rent or interest
escalation. In certain other cases we have arrangements that
provide for additional rents based on the level of our
tenants revenue and limited profits interests.
Significant
Tenants
At February 10, 2010, we had leases with 14 hospital
operating companies covering 45 facilities and we had three
mortgage loans with two hospital operating companies.
Affiliates of Prime leased 12 of these facilities at
February 10, 2010. Each of our leases with Prime contain
annual escalation provisions that are generally tied to the
U.S. Consumer Price Index, limited in certain instances to
minimum and maximum increases. These facilities have an average
remaining initial lease term of about 10 years, which can
be extended for three additional periods of five years each, at
the tenants option. These leases contain options for the
tenant to purchase the facilities at the end of the lease term,
if no default has occurred, at prices generally at least equal
to our purchase price of the facility. In addition to leases, we
hold mortgage loans on two facilities owned by affiliates of
Prime that will mature in 2022. The terms and provisions of
these loans are generally equivalent to the terms and provisions
of our Prime lease arrangements. Total revenue (including rent
and interest from mortgage and working capital loans) from Prime
affiliates in 2009 was $49.8 million, or 38.4% of total
revenue, up from 32.8% in 2008.
At February 10, 2010, Vibra Healthcare, LLC
(Vibra) leased six of our facilities. Four of these
leases contain annual escalation provisions that are generally
tied to the U.S. Consumer Price Index with minimum annual
escalations of 2.5%. Two facility leases provide for 2.5% annual
escalations. These facilities have an average remaining initial
term of about 14 years, but can be extended for three
additional periods of five years each, at the tenants
option. All of these leases contain options for the tenant to
purchase the facilities at the end of the lease term, if no
default has occurred, at prices generally equal to the greater
of fair value or our purchase price increased by a certain
annual rate of return from lease commencement date. Total
revenue (including rent and interest from working capital loans)
from Vibra in 2009 was $17.9 million, or 13.8% of total
revenue, down from 15.9% in the prior year.
No other tenant accounted for more than 7% of our total revenues
in 2009.
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
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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.
California
Seismic Standards
Californias Alfred E. Alquist Hospital Facilities Seismic
Safety Act of 1973 (the Alquist Act) required that
the California Building Standards Commission adopt earthquake
performance categories, seismic evaluation procedures, standards
and timeframes for upgrading certain facilities, and seismic
retrofit building standards. These regulations required
hospitals to meet seismic performance standards to ensure that
they are capable of providing medical services to the public
after an earthquake or other disaster. The Building Standards
Commission completed its adoption of evaluation criteria and
retrofit standards in 1998. The Alquist Act required the
Building Standards Commission adopt certain evaluation criteria
and retrofit standards:
1) Hospitals in California must conduct seismic evaluations
and submit these evaluations to the Office of Statewide Health
Planning and Development (OSHPD), Facilities
Development Division for its review and approval;
2) Hospitals in California must identify the most critical
nonstructural systems that represent the greatest risk of
failure during an earthquake and submit timetables for upgrading
these systems to the OSHPD, Facilities Development Division for
its review and approval; and
3) Hospitals in California must prepare a plan and
compliance schedule for each regulated building demonstrating
the steps a hospital will take to bring the hospital buildings
into substantial compliance with the regulations and standards.
Within the past several years, engineering studies were
conducted at our hospitals to determine whether and to what
extent modifications to the hospital facilities will be
required. These studies were performed by our tenants, and it
was determined that, for some of our facilities, capital
expenditures may be required in the future to comply with the
seismic standards.
Since the original Alquist Act, several amendments have been
adopted that have modified the requirements of the state
building code. OSHPD is currently implementing a voluntary
program to re-evaluate the seismic risk of hospital buildings
classified as Structural Performance Category
(SPC-1). Buildings classified as SPC-1 are
considered hazardous and at risk of collapse in the event of an
earthquake and must be retrofitted, replaced or removed from
providing acute care services by January 1, 2013. However,
Senate Bill 499 was signed into law in October 2009 that
provides for a number of seismic relief measures, including
reclassifying HAZUS, a
state-of-the-art
loss estimation methodology, thresholds, which will enable more
SPC-1 buildings to be reclassified as SPC-2, a lower seismic
risk category. The SPC-2 buildings would have until
January 1, 2030 to comply with the structural seismic
safety standards. Any buildings that are denied reclassification
will remain in the SPC-1 category, and these buildings must meet
seismic compliance standards by January 1, 2015, unless
further extensions are granted. Furthermore, the AB 306
legislation permits OSHPD to grant an extension to acute care
hospitals that lack the financial capacity to meet the
January 1, 2013 retrofit deadline, and instead, requires
them to replace those buildings by January 1, 2020.
Our tenants are currently in various stages in the process of
applying the revised requirements of Senate Bill 499, and based
on their early estimates, the potential capital expenditure
outlay has been reduced significantly. Under our current leases,
our tenants are fully responsible for any capital expenditures
in connection with seismic laws. Pursuant to one of our leases,
we expect to fund up to $7.2 million for any required
upgrades due to the seismic standards; however, this
$7.2 million funding, if required, will be added to our
lease base and the lessee will pay us rent on such higher lease
base. Thus, we do not expect the California seismic standards to
have a significant negative impact on our financial condition or
cash flows.
4
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 highly competitive
environments, 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 29 full time employees as of February 10, 2010. 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.
5
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 has recently been experiencing unprecedented
levels of volatility, dislocation in the credit markets, and
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 recent 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 borrowers, tenants and operators,
which may result in defaults under loans or 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 recent 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 between now and 2011 of approximately $340 million. 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 or to
meet our obligations, 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, 2009, we had $576.7 million of debt
outstanding. As of February 10, 2010, we had total
outstanding indebtedness of approximately $585 million and
approximately $50 million available to us for borrowing
under our existing revolving credit facilities, and
$10.8 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, 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; and
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place us at a competitive disadvantage compared to our
competitors that have less debt.
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Our future borrowings under our loan facilities may bear
interest at variable rates in addition to the
$231.3 million in variable interest rate debt that we had
outstanding as of December 31, 2009. If interest rates
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, 2009, we had $231.3 million in
variable interest rate debt (approximately $240 million at
February 10, 2010), which constitutes 40% 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
7
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 and other 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.
At February 10, 2010, two of our facilities, River Oaks and
Sharpstown (both located in Houston, Texas) are vacant due to
tenant defaults and are not generating revenues for us. In
addition, we are incurring costs to maintain these properties in
good condition. We are currently working to re-lease or sell
these facilities, but no assurances can be made that we will be
able to re-lease or sell them in the near future. Our inability
to re-lease or sell 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. If a
tenant-operator defaults and we choose to terminate our lease,
we then are 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 Sharpstown 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, 2009, our real estate portfolio included
51 healthcare properties in 21 states of which 45
facilities are 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 14 facilities, representing 37.9% of the original
total cost of our operating facilities and mortgage loans as of
December 31, 2009, and Vibra, leased six of our facilities,
representing 10.5% of the original total cost of our operating
facilities and mortgage loans as of December 31, 2009.
Total revenue from Prime and Vibra, including rent, percentage
rent and interest, was $49.8 million and
$17.9 million, respectively, or 38.4% and 13.8%,
respectively, of total revenue from continuing operations in the
year ended December 31, 2009.
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.
The
bankruptcy or insolvency of our tenants under our leases could
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
8
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. 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.
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. There is no assurance that the formulas we have developed
for setting the purchase price will yield a fair market value
purchase price.
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 have 43 leased properties that are subject to purchase
options as of December 31, 2009. For 28 of these
properties, the purchase option generally allows the lessee to
purchase the real estate at the end of the lease term, as long
as no default has occurred, at a price equivalent to the greater
of (i) fair market value or (ii) our purchase price
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(increased, in some cases, by a certain annual rate of return
from lease commencement date). The lease agreements provide for
an appraisal process to determine fair market value. For 13 of
these properties, the purchase option generally allows the
lessee to purchase the real estate at the end of the lease term,
as long as no default has occurred, at our purchase price
(increased, in some cases, by a certain annual rate of return
from lease commencement date). For the remaining 2 leases, the
purchase options approximate fair value. At December 31,
2009, none of our leases contained any bargain purchase options.
In certain circumstances, a prospective purchaser of our
hospital real estate may be deemed to be subject to
Anti-Kickback and Stark statutes, which are described on pages
13 and 14 of this 2009
Form 10-K.
In such event, it may not be practicable for us to sell property
to such prospective purchasers at prices other than fair market
value.
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.
There is no assurance 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 global, 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 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.
10
Development
and construction risks could adversely affect our ability to
make distributions to our stockholders.
We have completed development and construction of four
facilities. 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 or reduce
distribution. There is no assurance 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.
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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.
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.
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.
If our facilities do not achieve expected results and generate
ample cash flows from operations or if we are unable to obtain
funds from borrowings or the capital markets to finance our
acquisition and development activities, 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.
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. For those properties
not currently under lease, we carry such insurance. 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, regulatory requirements,
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, however, we are
ultimately responsible for payment of the taxes to the
government. If property taxes increase, our
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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 the
operations of our tenants and, accordingly, our operations. In
addition, in several instances we own a minority interest in our
tenant operators and, in addition to the effect on these
tenants ability to meet their financial obligations to us,
our ownership and investment interests may also be negatively
impacted. 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.
13
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 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 comply with all applicable laws,
including healthcare laws. We intend for all of our business
activities and operations to conform in all material respects
with all applicable laws and regulations, including healthcare
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 and 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.
14
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 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), as amended,
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 as of
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. The tenant operators of the
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 healthcare facilities 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, and our tenants, are in
compliance with such federal and state laws, but future review
by courts or regulatory authorities could result in a
determination that could adversely affect the operations of our
tenants and, consequently, our operations.
Healthcare Industry
Investigations. Significant media and public
attention has focused in recent years on the healthcare
industry. While we are currently not aware of any material
investigations of our facilities under federal or
15
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 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. Many states have enacted, or
are considering enacting, measures designed to reduce their
Medicaid expenditures and change private healthcare insurance,
and states continue to face significant challenges in
maintaining appropriate levels of Medicaid funding due to state
budget shortfalls. Healthcare facility operating margins may
continue to be under significant pressure due to the
deterioration in pricing flexibility and payor 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
the business of our tenants, or our business, will be adversely
impacted. In instances where we own a minority interest in our
tenant operators, in addition to the effect on these
tenants ability to meet their financial obligations to us,
our ownership and investment interests may also be negatively
impacted.
Health Reform Measures. As of
December 24, 2009, both the United States House and United
States Senate successfully passed their respective health reform
bills. It is unclear whether the House and Senate will be able
to reconcile the numerous differences between the two bills and
present a final version to the President for enactment. Given
the expansiveness of the bills, a detailed discussion is not
provided herein. However, from a policy standpoint, the
legislation is intended to expand health insurance coverage to
many of our nations uninsured, while at the same time
decreasing costs, improving quality, and increasing access to
care. With respect to long term acute care hospitals or LTACHs,
and inpatient rehabilitation facilities or IRFs, which account
for a significant percentage of our tenant-operators, the Senate
version includes provisions that require such hospitals and
facilities to report various quality measures to be set forth by
the Secretary of Health and Human Services. Failure to report
would result in a reduction in reimbursement rates. By contrast,
the House version contains no such reporting requirement, but
rather incorporates productivity improvements into certain
market basket updates. Regardless of whether such provisions are
included in the final version of the reconciled bill, if
enacted, this legislation will ultimately lead to significant
changes in the healthcare system, which will undoubtedly affect
our facilities. We cannot predict the possible impact of this
legislation, as some aspects could benefit the operations of our
tenants, while other aspects could present challenges.
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
16
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. In instances where we own a minority interest in
our tenant operators, in addition to the effect on these
tenants ability to meet their financial obligations to us,
our ownership and investment interests may also be negatively
impacted.
Over the past several years, CMS has increased its attention on
reimbursement for LTACHs and 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. In instances
where we own a minority interest in our tenant operators, in
addition to the effect on these tenants ability to meet
their financial obligations to us, our ownership and investment
interests may also be negatively impacted.
The
healthcare industry is heavily regulated and 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.
In instances where we own a minority interest in our tenant
operators, in addition to the effect on these tenants
ability to meet their financial obligations to us, our ownership
and investment interests may also be negatively impacted.
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 instances where we own a minority
interest
17
in our tenant operators, in addition to the effect on these
tenants ability to meet their financial obligations to us,
our ownership and investment interests may also be negatively
impacted.
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. In instances where we own a minority interest in
our tenant operators, in addition to the effect on these
tenants ability to meet their financial obligations to us,
our ownership and investment interests may also be negatively
impacted.
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. In
instances where we own a minority interest in our tenant
operators, in addition to the effect on these tenants
ability to meet their financial obligations to us, our ownership
and investment interests may also be negatively impacted.
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. In instances where we own a minority
interest in our tenant operators, in addition to the effect on
these tenants ability to meet their financial obligations
to us, our ownership and investment interests may also be
negatively impacted.
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.
18
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.
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.
19
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.
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
20
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 $41.4 million to acquire the
operations at those Vibra Facilities. As of February 10,
2010, that loan had been reduced to $20.3 million. 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.
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:
|
|
|
|
|
actual or anticipated variations in our quarterly operating
results or distributions;
|
|
|
|
changes in our funds from operations or earnings estimates or
publication of research reports about us or the real estate
industry;
|
|
|
|
increases in market interest rates that lead purchasers of our
shares of common stock to demand a higher yield;
|
|
|
|
changes in market valuations of similar companies;
|
|
|
|
adverse market reaction to any increased indebtedness we incur
in the future;
|
|
|
|
additions or departures of key management personnel;
|
|
|
|
actions by institutional stockholders;
|
|
|
|
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;
|
|
|
|
speculation in the press or investment community; and
|
|
|
|
general market and economic conditions.
|
21
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.
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
Not applicable.
At December 31, 2009, our portfolio consisted of 51
properties: 45 facilities (of the 48 facilities that we own) are
leased to 14 operators with the remainder 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 three
non-owned facilities on which we have made mortgage loans
consist of general acute care facilities.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2009
|
|
|
Percentage of
|
|
|
Total
|
|
State
|
|
Revenue
|
|
|
Total Revenue
|
|
|
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
Arizona
|
|
$
|
669
|
|
|
|
0.52
|
%
|
|
$
|
7,057
|
|
Arkansas
|
|
|
1,727
|
|
|
|
1.33
|
%
|
|
|
19,523
|
|
California
|
|
|
57,326
|
|
|
|
44.18
|
%
|
|
|
563,939
|
|
Colorado
|
|
|
1,446
|
|
|
|
1.11
|
%
|
|
|
9,742
|
|
Connecticut
|
|
|
1,311
|
|
|
|
1.01
|
%
|
|
|
7,838
|
|
Florida
|
|
|
2,250
|
|
|
|
1.73
|
%
|
|
|
25,809
|
|
Idaho
|
|
|
5,025
|
|
|
|
3.87
|
%
|
|
|
45,619
|
|
Indiana
|
|
|
7,193
|
|
|
|
5.54
|
%
|
|
|
61,027
|
|
Kansas
|
|
|
1,794
|
|
|
|
1.38
|
%
|
|
|
19,720
|
|
Louisiana
|
|
|
2,948
|
|
|
|
2.27
|
%
|
|
|
37,589
|
(A)
|
Massachusetts
|
|
|
6,366
|
|
|
|
4.91
|
%
|
|
|
46,766
|
|
Michigan
|
|
|
1,513
|
|
|
|
1.17
|
%
|
|
|
11,165
|
|
Missouri
|
|
|
3,875
|
|
|
|
2.99
|
%
|
|
|
41,443
|
|
Oregon
|
|
|
3,472
|
|
|
|
2.68
|
%
|
|
|
27,541
|
|
Pennsylvania
|
|
|
936
|
|
|
|
0.72
|
%
|
|
|
45,297
|
|
Rhode Island
|
|
|
572
|
|
|
|
0.44
|
%
|
|
|
3,737
|
|
South Carolina
|
|
|
3,938
|
|
|
|
3.04
|
%
|
|
|
37,956
|
|
Texas
|
|
|
17,911
|
|
|
|
13.80
|
%
|
|
|
183,362
|
(B)
|
Utah
|
|
|
6,601
|
|
|
|
5.09
|
%
|
|
|
66,355
|
|
Virginia
|
|
|
1,072
|
|
|
|
0.83
|
%
|
|
|
10,915
|
|
West Virginia
|
|
|
1,806
|
|
|
|
1.39
|
%
|
|
|
21,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,751
|
|
|
|
100.0
|
%
|
|
$
|
1,294,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Includes our Covington facility. We terminated the lease on this
facility in April 2009 after the operator defaulted on the
lease. The operator has entered into bankruptcy proceedings,
during which it has continued to operate the facility and make
payments to us generally equivalent to the amounts payable under
the terms of the terminated lease. In January 2010, the operator
filed a Plan of Reorganization with the bankruptcy court, which
has been confirmed subject to entry of court order. Thus, we
expect to have a new operator and new long-term lease in place
on this facility in early 2010. |
|
(B) |
|
Includes our River Oaks and Sharpstown facilities that are
currently not being operated. Our total investment in the
facilities is $33.2 million. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
Number of
|
Type of Property
|
|
Properties
|
|
Square Feet
|
|
Licensed Beds
|
|
General Acute Care Hospitals
|
|
|
24
|
|
|
|
3,469,404
|
|
|
|
3,087
|
|
Long-Term Acute Care Hospitals
|
|
|
13
|
|
|
|
937,278
|
|
|
|
1,049
|
|
Medical Office Buildings
|
|
|
2
|
|
|
|
80,710
|
|
|
|
NA
|
|
Rehabilitation Hospitals
|
|
|
6
|
|
|
|
473,543
|
|
|
|
436
|
|
Wellness Centers
|
|
|
6
|
|
|
|
251,213
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
5,212,148
|
|
|
|
4,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The following table shows tenant lease expirations for the next
10 years and thereafter at our leased properties, assuming
that none of the tenants exercise any of their renewal options
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Total
|
|
|
Total
|
|
Base
|
|
% of Total
|
|
Square
|
|
Licensed
|
Total Portfolio(2)
|
|
Leases
|
|
Rent(1)
|
|
Base Rent
|
|
Footage
|
|
Beds
|
|
2010
|
|
|
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
2011
|
|
|
3
|
|
|
$
|
5,657
|
|
|
|
6.1
|
%
|
|
|
225,282
|
|
|
|
266
|
|
2012
|
|
|
3
|
|
|
$
|
2,851
|
|
|
|
3.1
|
%
|
|
|
216,821
|
|
|
|
173
|
|
2013
|
|
|
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
2014
|
|
|
1
|
|
|
$
|
2,000
|
|
|
|
2.2
|
%
|
|
|
126,541
|
|
|
|
24
|
|
2015
|
|
|
2
|
|
|
$
|
3,845
|
|
|
|
4.2
|
%
|
|
|
137,977
|
|
|
|
174
|
|
2016
|
|
|
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
2018
|
|
|
12
|
|
|
$
|
14,814
|
|
|
|
16.1
|
%
|
|
|
865,626
|
|
|
|
578
|
|
2019
|
|
|
3
|
|
|
$
|
10,896
|
|
|
|
11.8
|
%
|
|
|
517,847
|
|
|
|
456
|
|
Thereafter
|
|
|
21
|
|
|
$
|
52,113
|
|
|
|
56.5
|
%
|
|
|
2,426,326
|
|
|
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45
|
|
|
$
|
92,176
|
|
|
|
100.0
|
%
|
|
|
4,516,420
|
|
|
|
4,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The most recent monthly base rent annualized. Base rent does not
include tenant recoveries, additional rents and other
lease-related adjustments to revenue (i.e., straight-line rents
and deferred revenues). |
|
(2) |
|
Excludes our three facilities, River Oaks, Sharpstown and
Covington, as they are currently not subject to lease. |
|
|
ITEM 3.
|
Legal
Proceedings
|
In November 2009, we reached agreement to settle all of the
claims asserted by Stealth, L.P. in previously disclosed
litigation concerning the termination of leases of the Houston
Town and Country Hospital and medical office building in October
2006, with the exception of a single contract claim for which
Memorial Hermann Healthcare System has agreed to provide
indemnification. Claims separately asserted against us by six of
Stealth L.P.s limited partners are not affected by the
settlement.
Stealth, L.P. was seeking approximately $330 million for
tort claims that we have now settled for a single payment of
$1.7 million. In addition, we paid $1.0 million to
settle certain contract claims asserted by Stealth, L.P. We
continue to vigorously deny any liability at all and vigorously
deny that Stealth suffered any damages as a result of any
conduct by us.
In January 2010, Memorial Hermann settled all claims asserted by
Stealth including the single tort claim against us at no
additional cost to us.
Also not affected by the settlement with Stealth are certain
contract and tort claims asserted by six of Stealths
limited partners. As part of the settlement in November,
however, Stealth has indemnified us for any judgment amount and
certain defense costs that we may incur related to these claims.
We continue to vigorously deny any liability and intend to
continue vigorously defending against such claims, and believe
that any future costs related to them will not be material.
24
PART II
|
|
ITEM 4.
|
Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
|
(a) 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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.61
|
|
|
$
|
2.91
|
|
|
$
|
0.20
|
|
Second Quarter
|
|
|
6.85
|
|
|
|
3.87
|
|
|
|
0.20
|
|
Third Quarter
|
|
|
8.06
|
|
|
|
5.78
|
|
|
|
0.20
|
|
Fourth Quarter
|
|
|
10.47
|
|
|
|
7.62
|
|
|
|
0.20
|
|
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
|
|
On February 10, 2010, the closing price for our common
stock, as reported on the New York Stock Exchange, was $9.58. As
of February 10, 2010, there were 73 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.
25
The following graph provides comparison of cumulative total
stockholder return for the period from July 7, 2005 through
December 31, 2009, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
07/07/05
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
12/31/09
|
Medical Properties Trust, Inc.
|
|
|
100.00
|
|
|
|
96.50
|
|
|
|
163.45
|
|
|
|
118.15
|
|
|
|
80.81
|
|
|
|
144.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell 2000
|
|
|
100.00
|
|
|
|
104.29
|
|
|
|
123.44
|
|
|
|
121.51
|
|
|
|
80.45
|
|
|
|
102.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAREIT All Equity REIT Index
|
|
|
100.00
|
|
|
|
98.41
|
|
|
|
132.92
|
|
|
|
112.06
|
|
|
|
69.78
|
|
|
|
89.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL US REIT Healthcare
|
|
|
100.00
|
|
|
|
95.19
|
|
|
|
137.89
|
|
|
|
139.87
|
|
|
|
124.54
|
|
|
|
159.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
ITEM 5.
|
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 7, Financial
Statements and Supplementary Data, and Item 6,
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this
Form 10-K.
During the periods presented below, for those properties that
have been sold, we reclassified the properties as held for sale
and 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, 2009 (amounts in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
129,751
|
|
|
$
|
116,771
|
|
|
$
|
81,786
|
|
|
$
|
36,403
|
|
|
$
|
16,512
|
|
Depreciation and amortization
|
|
|
25,648
|
|
|
|
25,458
|
|
|
|
10,342
|
|
|
|
4,437
|
|
|
|
1,915
|
|
Property-related and general and administrative expenses
|
|
|
27,209
|
|
|
|
24,198
|
|
|
|
15,683
|
|
|
|
10,080
|
|
|
|
7,915
|
|
Interest income
|
|
|
43
|
|
|
|
86
|
|
|
|
364
|
|
|
|
515
|
|
|
|
2,091
|
|
Interest expense
|
|
|
(37,663
|
)
|
|
|
(42,440
|
)
|
|
|
(29,530
|
)
|
|
|
(4,580
|
)
|
|
|
(1,521
|
)
|
Income from continuing operations
|
|
|
39,274
|
|
|
|
24,761
|
|
|
|
26,595
|
|
|
|
17,821
|
|
|
|
7,252
|
|
Income (loss) from discontinued operations
|
|
|
(2,908
|
)
|
|
|
7,972
|
|
|
|
13,655
|
|
|
|
12,313
|
|
|
|
12,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
36,366
|
|
|
|
32,733
|
|
|
|
40,250
|
|
|
|
30,134
|
|
|
|
19,676
|
|
Net income attributable to non-controlling interests
|
|
|
(36
|
)
|
|
|
(33
|
)
|
|
|
(304
|
)
|
|
|
(136
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT common stockholders
|
|
$
|
36,330
|
|
|
$
|
32,700
|
|
|
$
|
39,946
|
|
|
$
|
29,998
|
|
|
$
|
19,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to MPT common
stockholders per diluted share
|
|
$
|
0.48
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
|
$
|
0.43
|
|
|
$
|
0.22
|
|
Income (loss) from discontinued operations attributable to MPT
common stockholders per diluted share
|
|
|
(0.03
|
)
|
|
|
0.13
|
|
|
|
0.28
|
|
|
|
0.31
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, attributable to MPT common stockholders per diluted
share
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
|
$
|
0.80
|
|
|
$
|
0.74
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares diluted
|
|
|
78,117
|
|
|
|
62,035
|
|
|
|
47,805
|
|
|
|
39,560
|
|
|
|
32,328
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.80
|
|
|
$
|
1.01
|
|
|
$
|
1.08
|
|
|
$
|
0.99
|
|
|
$
|
0.62
|
|
|
|
|
(1) |
|
We invested $15.6 million, $469.5 million,
$342.0 million, $303.4 million, and
$222.4 million in real estate in 2009, 2008, 2007, 2006,
and 2005, 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 7 of this Annual Report on
Form 10-K
for further information on acquisitions of real estate, new
loans, and other investments. 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 7 on this Annual Report on
Form 10-K
for further information regarding our debt, common stock and
discontinued operations, respectively. |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009(1)
|
|
2008(1)
|
|
2007(1)
|
|
2006(1)
|
|
2005(1)
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets at cost
|
|
$
|
983,184
|
|
|
$
|
996,368
|
|
|
$
|
649,528
|
|
|
$
|
558,124
|
|
|
$
|
337,102
|
|
Other loans and investments
|
|
|
311,006
|
|
|
|
293,523
|
|
|
|
265,758
|
|
|
|
150,173
|
|
|
|
85,813
|
|
Cash and equivalents
|
|
|
15,307
|
|
|
|
11,748
|
|
|
|
94,215
|
|
|
|
4,103
|
|
|
|
59,116
|
|
Total assets
|
|
|
1,309,898
|
|
|
|
1,311,373
|
|
|
|
1,051,652
|
|
|
|
744,747
|
|
|
|
495,453
|
|
Debt
|
|
|
576,678
|
|
|
|
630,557
|
|
|
|
474,388
|
|
|
|
297,530
|
|
|
|
65,010
|
|
Other liabilities
|
|
|
61,645
|
|
|
|
54,473
|
|
|
|
57,937
|
|
|
|
95,022
|
|
|
|
71,992
|
|
Total Medical Properties Trust, Inc. Stockholders Equity
|
|
|
671,444
|
|
|
|
626,100
|
|
|
|
519,250
|
|
|
|
351,144
|
|
|
|
356,277
|
|
Non-controlling interests
|
|
|
131
|
|
|
|
243
|
|
|
|
77
|
|
|
|
1,052
|
|
|
|
2,174
|
|
Total equity
|
|
|
671,575
|
|
|
|
626,343
|
|
|
|
519,327
|
|
|
|
352,196
|
|
|
|
358,451
|
|
Total liabilities and equity
|
|
|
1,309,898
|
|
|
|
1,311,373
|
|
|
|
1,051,652
|
|
|
|
744,747
|
|
|
|
495,453
|
|
28
|
|
ITEM 6.
|
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
conduct our business operations in one segment. 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
1% to 4%, although a limited number 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.
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.
At December 31, 2009, our portfolio consisted of 51
properties: 45 healthcare facilities (of the 48 we own) are
leased to 14 tenants with the remainder in the form of mortgage
loans collateralized by interests in health care real estate.
The following is a discussion of our highlights for the years
ended December 31, 2009, 2008 and 2007, which should be
read in conjunction with the financial statements appearing in
Item 7 of this Annual Report on
Form 10-K.
2009
Highlights
In 2009, our primary business goal was to preserve capital
during the recent economic and credit crisis. Below are actions
taken to achieve that goal along with other highlights for the
year:
|
|
|
|
|
Issued 13.3 million shares of common stock resulting in net
proceeds of $67.8 million.
|
|
|
|
Sold an acute care facility to Prime for $15.0 million,
realized a gain of $0.3 million.
|
|
|
|
Executed a $20 million mortgage loan, of which we advanced
$15.0 million by end of year. Loan is collateralized by
Primes Desert Valley facility. The purpose of the mortgage
loan is to help fund a $35 million expansion and renovation
project.
|
|
|
|
Re-leased our Bucks County facility within six months of
terminating the previous lease on the facility due to tenant
defaults.
|
|
|
|
Terminated leases on two of our Louisiana (Covington and Denham
Springs) facilities but subsequently re-leased the Denham
Springs facility with a new operator at similar terms within
2 months of the prior lease termination. For Covington, the
operator has entered into bankruptcy proceedings during which it
has made payments to us generally equivalent to the amounts
payable under the terms of the terminated lease. In January
2010, the operator filed a Plan of Reorganization with the
bankruptcy court, which has been confirmed, subject to entry of
court order. Thus, we expect to have a new operator and new
long-term lease in place on the Covington facility in early 2010.
|
29
|
|
|
|
|
Entered into an
at-the-market
offering, which will allow us to sell up to $50 million in
stock and will be used for general corporate purposes, which may
from time to time include reduction of our debt balances and
investments in healthcare real estate and other assets.
|
|
|
|
Settled the Stealth litigation for $2.7 million. See
Item 3 of Part I of this
Form 10-K
for more detail.
|
2008
Highlights
In 2008, our primary business goal was to grow and diversify our
tenant and geographical concentration. See below for actions
taken to reach this goal along with other highlights for the
year:
|
|
|
|
|
Completed the acquisition of 20 properties leased to 7 unrelated
operators for $357.2 million. Four of the 7 operators
(HealthSouth Corporation, Community Health Systems, Inc., IASIS
Healthcare LLC and Health Management Associates, Inc.) are
publicly reporting companies. This acquisition significantly
improved both our tenant and geographical concentrations.
|
|
|
|
Acquired a long-term acute care hospital in Detroit, Michigan
for $10.8 million and entered into an operating lease with
Vibra.
|
|
|
|
Acquired three Southern California hospital facilities, along
with two medical office buildings for approximately
$60 million and leased these facilities to Prime under
long-term net leases.
|
|
|
|
Completed the sale of three rehabilitation facilities to Vibra
realizing proceeds of $105.0 million
|
|
|
|
Issued exchangeable notes realizing net proceeds of
$72.8 million and issued 12.7 million shares of stock,
realizing net proceeds of $128.3 million. These proceeds
along with proceeds from our existing revolving credit facility
and the sale of the three rehabilitation facilities were used to
fund the 2008 acquisitions noted above.
|
|
|
|
Terminated leases on two general acute care hospitals in
Houston, Texas, and one hospital in Redding, California due to
tenant (affiliates Hospital Partners of America, Inc.
(HPA), a multi-hospital operating company) defaults.
Within a few months of lease termination, we re-leased the
Redding facility to a Prime affiliate. The new operator agreed
to increase the lease base from $60.0 million to
$63.0 million and to pay up to $20 million in
additional rent and profit participation based on the expected
future profitability of the new lessees operations.
Through December 31, 2009, we have recognized
$1.4 million of additional rent under this net lease.
|
In regards to the two Houston properties, these vacant
facilities were further negatively impacted after suffering
damage from Hurricane Ike in September 2008. These facilities
remain vacant as of December 31, 2009. We continue to have
multiple parties showing interest in these facilities, and
management still believes we will recover our current basis in
the properties along with any funding (not covered by insurance,
if any) that may be needed due to the damage caused by Hurricane
Ike. However, there is no assurance that we will receive amounts
to fully recover this investment.
2007
Highlights
In 2007, our primary business goal was to grow by selectively
investing in strong facilities and strong markets. See below for
actions taken to achieve such goals along with other highlights
in the year:
|
|
|
|
|
Acquired a general acute care facility in San Diego,
California for $22.8 million and leased the facility under
a long-term net lease to an affiliate of Prime. In addition, we
funded a loan totaling $25.0 million collateralized by
interest in the real property.
|
|
|
|
Acquired the two Houston facilities and Redding facility for
$100.0 million and leased them to HPA.
|
|
|
|
Sold a general acute care facility in Houston, Texas for
$70.3 million, realizing a gain on sale of
$4.1 million.
|
|
|
|
Issued 15.2 million shares of stock, realizing net proceeds
of $135.8 million.
|
30
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 (either
as part of a purchase price allocation or impairment analysis)
and periodic depreciation of our real estate assets, and stock
compensation expense, along with our assessment as to whether an
entity that we do business with should be consolidated with our
results, have significant effects on our financial statements.
Each of these items involves estimates that require us to make
subjective judgments. We rely on our experience, collect
historical and current market data, and develop relevant
assumptions to arrive at what we believe to be reasonable
estimates. Under different conditions or assumptions, materially
different amounts could be reported related to the 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.
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 (such
as with our vacant facilities in Houston, Texas), we expense
those costs as incurred. We compute depreciation using the
straight-line method over the weighted-average useful life of
39.6 years for buildings and improvements.
When circumstances indicate a possible impairment of the value
of our real estate investments, we review the recoverability of
the 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, 2009 and 2008; however, given the highly
specialized aspects of our properties along with the length of
time our Houston properties have been vacant, no assurance can
be given that future impairment charges will not be taken.
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-
31
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 have a weighted
average useful life of 13.8 years at December 31,
2009. 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, 2009, 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 using 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 (including straight-line 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.
Stock-Based Compensation. During the years
ended December 31, 2009, 2008, and 2007 we recorded
$5.5 million, $6.4 million, and $4.5 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 granted performance-based
restricted share awards that vest based on the achievement of
certain market conditions as defined by the accounting rules.
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.
Because these awards vest based on the achievement of these
market conditions, we must initially evaluate and estimate the
probability of achieving those market conditions in order to
determine the fair value of the award and over what period we
should recognize stock compensation expense. 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 the
achievement of certain market conditions. 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. The accounting rules
require that we estimate the period over which the awards will
likely be earned, regardless of the period over which the award
32
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.
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 non-controlling
interest representing equity held by non-controlling interests.
We evaluate all of our transactions and investments to determine
if they represent variable interests in a variable interest
entity. If we determine that we have a variable interest in a
variable interest entity, we 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. At
December 31, 2009, 2008 and 2007, we have determined that
we are not the primary beneficiary of any such variable interest
entity nor were there any reconsideration events, as defined,
during 2009, 2008 or 2007.
Disclosure
of Contractual Obligations
The following table summarizes known material contractual
obligations as of December 31, 2009 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Senior unsecured notes(5)
|
|
$
|
9,631
|
|
|
$
|
10,803
|
|
|
$
|
6,327
|
|
|
$
|
130,375
|
|
|
$
|
157,136
|
|
Exchangeable senior notes
|
|
|
16,038
|
|
|
|
160,534
|
|
|
|
83,746
|
|
|
|
|
|
|
|
260,318
|
|
Revolving credit facilities(1)
|
|
|
99,261
|
|
|
|
41,441
|
|
|
|
|
|
|
|
|
|
|
|
140,702
|
|
Term loans(2)
|
|
|
33,726
|
|
|
|
74,004
|
|
|
|
|
|
|
|
|
|
|
|
107,730
|
|
Operating lease commitments(3)
|
|
|
846
|
|
|
|
1,716
|
|
|
|
1,182
|
|
|
|
29,289
|
|
|
|
33,033
|
|
Purchase obligations(4)
|
|
|
10,804
|
|
|
|
7,200
|
|
|
|
|
|
|
|
|
|
|
|
18,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
170,306
|
|
|
$
|
295,698
|
|
|
$
|
91,255
|
|
|
$
|
159,664
|
|
|
$
|
716,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the balance and interest rates are those in effect at
December 31, 2009 and no principal payments are made until
the expiration of the facilities. Approximately $96 million
of the amount coming due in 2010 may be extended for one year
for a nominal fee. |
|
(2) |
|
Assumes interest rates in effect at December 31, 2009 based
on terms of the debt agreements. |
|
(3) |
|
Most of our contractual obligations to make operating lease
payments are related to ground leases for which we are
reimbursed by our tenants. |
|
(4) |
|
Includes $7.2 million that we currently expect to provide
to the lessee of one of our California facilities to renovate
and upgrade the facility as necessary to comply with the
applicable Seismic laws see Item 1 of this
Form 10-K
for more information on current seismic laws. This additional
investment would increase our lease base, and accordingly, the
lessee would subsequently pay higher rent for the facility. |
|
(5) |
|
The interest rates on these notes are currently fixed, but in
2011 will be switched to variable rates. For this disclosure, we
have assumed 2.53% in determining our interest payment
obligations from 2011 to maturity in 2016. See Note 4 of
Item 7 to this
Form 10-K
for more information. |
33
Liquidity
and Capital Resources
We generated cash of $62.8 million from operating
activities during 2009, which, along with borrowings from our
revolving credit facility, were used to fund our dividends of
$61.6 million and investing activities of
$12.1 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
1.3 million additional shares to cover over allotments, net
proceeds from this offering, after underwriting discount and
commission and fees, were approximately $68 million. The
net proceeds of this offering were generally used to repay
borrowings outstanding under our revolving credit facilities. At
December 31, 2009, we had approximately $58 million
available borrowing capacity under our credit facilities and
cash of $15.3 million.
We generated cash of $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 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 million from a term loan facility and
$105 million from the sale of three facilities to Vibra.
These resources were used primarily for the acquisition of new
healthcare facilities during 2008.
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, 2009 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. See section titled
Distribution Policy within this Item 6 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: At
February 10, 2010, our availability under our revolving
credit facilities plus cash on-hand approximated
$63.3 million. Our first significant maturity of debt is in
November 2010 when our $30.0 million term loan ($29.6
million outstanding on February 10, 2010) and our
$154.0 million revolving credit facility ($104 million
outstanding on February 10, 2010) mature. However, of
this $133.6 million of debt coming due in 2010,
$104 million related to our revolving credit facility can
be extended to November 2011 so long as no default has occurred
and we provide necessary notice of our intentions to extend the
facility. In addition, we have an
at-the-market
offering in place under which we are allowed to sell up to
$50 million in shares, which we will use for general
corporate purposes as needed. Besides these maturities, we have
only nominal principal payments due and only $10.8 million
in approved capital projects. We believe the current liquidity
available to us, along with our monthly cash receipts from rent
and loan interest, as well as proceeds that can be generated
from the
at-the-market
offering, will be sufficient for operations, debt service,
committed capital project funding, and distributions in
compliance with REIT requirements during 2010.
34
Long-term
Liquidity Requirements
We will require external capital in 2011 and beyond to satisfy
debt maturities, including $138 million in maturing
exchangeable notes and $64.5 million in a maturing term
loan in November 2011 along with the $104.0 million that is
currently outstanding under our revolver. In recent months, debt
and equity capital market conditions have improved, and we
believe capital is currently more available than at any time
during the past 24 months. We believe we have several
alternatives for refinancing debt as it matures, including:
|
|
|
|
|
Proceeds from property sales;
|
|
|
|
Issuance of new debt, including convertible notes, senior
unsecured notes and replacement or extension of our existing
credit arrangements; and
|
|
|
|
Sale of equity.
|
However, there is no assurance that conditions will remain
favorable for such possible transactions or that our plans will
be successful.
Results
of Operations
We began operations during the second quarter of 2004. Since
then, we have substantially increased our income earning
investments each year (see Overview section in this
item for more details), 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.
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Net income for the year ended December 31, 2009 was
$36.4 million compared to net income of $32.7 million
for the year ended December 31, 2008.
A comparison of revenues for the years ended December 31,
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
Change
|
|
|
|
(Dollar amounts in thousands)
|
|
|
Base rents
|
|
$
|
90,092
|
|
|
|
69.5
|
%
|
|
$
|
81,654
|
|
|
|
70.0
|
%
|
|
$
|
8,438
|
|
Straight-line rents
|
|
|
8,425
|
|
|
|
6.5
|
%
|
|
|
3,971
|
|
|
|
3.4
|
%
|
|
|
4,454
|
|
Percentage rents
|
|
|
1,985
|
|
|
|
1.5
|
%
|
|
|
1,454
|
|
|
|
1.2
|
%
|
|
|
531
|
|
Interest from loans
|
|
|
28,813
|
|
|
|
22.2
|
%
|
|
|
28,409
|
|
|
|
24.3
|
%
|
|
|
404
|
|
Fee income
|
|
|
436
|
|
|
|
0.3
|
%
|
|
|
1,283
|
|
|
|
1.1
|
%
|
|
|
(847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
129,751
|
|
|
|
100.0
|
%
|
|
$
|
116,771
|
|
|
|
100.0
|
%
|
|
$
|
12,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2009, was comprised
of rents (77.5%) and interest and fee income from loans (22.5%).
The increase in base rents, percentage rent, and interest is
primarily due to incremental revenue from acquisitions made in
2008 and other new investments.
Straight-line rents more than doubled compared to the prior year
due to the $4.5 million write-off of straight-line rent
receivables in 2008 associated with the lease termination of
River Oaks, Bucks County and our hospital in Redding,
California, partially offset by a similar reserve/write-off for
our Covington and Denham Springs properties in the 2009 second
quarter. In addition, straight-line rents included
$1.4 million in additional rent from our Redding facility
in 2009.
Prime (including rent and interest from mortgage and working
capital loans) accounted for 38.4% and 32.8% of our total
revenues in 2009 and 2008, respectively. At December 31,
2009, assets leased and loaned to Prime comprised 37.4% of total
assets and 37.9% of our total real estate portfolio. Vibra
(including rents and interest from working capital loans)
accounted for 13.8% and 15.9% of our gross revenues in 2009 and
2008, respectively. At December 31, 2009, assets leased and
loaned to Vibra comprised 10.4% of our total assets and 10.5% of
our total real estate portfolio.
35
Real estate depreciation and amortization during the year ended
December 31, 2009 was $25.6 million, compared to
$25.5 million in 2008, a 0.7% increase. Depreciation
remained relatively flat despite the incremental depreciation
from the acquisition in 2008. The reason for this is that we
recorded accelerated amortization on our lease intangibles
associated with the River Oaks and Redding hospitals in
September 2008 resulting in a charge of $1.8 million and
$2.7 million, respectively.
Property-related expenses during the years ended
December 31, 2009 and 2008, totaled $6.1 million and
$4.7 million, respectively, which represents an increase of
30.5%. In 2009, we incurred $3.5 million in maintenance,
utility costs, property taxes and legal expenses with our vacant
River Oaks facilities and previously vacant Bucks facility,
while in 2008 we expensed $1.3 million related to the
insurance deductible associated with the Hurricane Ike damage to
the River Oaks facilities. In 2009, we recognized
$1.1 million in bad debt expense related to our six
wellness centers; however, this was more than offset by the
$1.7 million of bad debt recorded in 2008 related to the
termination of the Bucks County lease.
General and administrative expenses during the years ended
December 31, 2009 and 2008, totaled $21.1 million and $19.5
million, respectively, which represents an increase of 8.1%,
reflecting primarily an increase in compensation in 2009 due to
the addition of key employees. In addition, we experienced
higher administrative and travel expenses in 2009 versus 2008 as
a result of the expansion of our portfolio.
Interest expense for the years ended December 31, 2009 and
2008 totaled $37.7 million and $42.4 million,
respectively. Interest expense was higher in the prior year
primarily due to the $3.2 million charge for the write-off
of costs associated with the short-term bridge facility that was
terminated in June 2008. The remainder of the decrease from
prior year is a result of lower LIBOR rates in 2009 compared to
2008.
In addition to the items noted above, net income for the year
was impacted by discontinued operations. See Note 11 to our
consolidated financial statements in Item 7 to this
Form 10-K
for further information.
Year
Ended December 31, 2008 Compared to the Year Ended
December 31, 2007
Net income for the year ended December 31, 2008 was
$32.7 million compared to net income of $40.3 million
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
|
|
$
|
81,654
|
|
|
|
70.0
|
%
|
|
$
|
42,620
|
|
|
|
52.1
|
%
|
|
$
|
39,034
|
|
Straight-line rents
|
|
|
3,971
|
|
|
|
3.4
|
%
|
|
|
8,513
|
|
|
|
10.4
|
%
|
|
|
(4,542
|
)
|
Percentage rents
|
|
|
1,454
|
|
|
|
1.2
|
%
|
|
|
301
|
|
|
|
0.4
|
%
|
|
|
1,153
|
|
Interest from loans
|
|
|
28,409
|
|
|
|
24.3
|
%
|
|
|
26,000
|
|
|
|
31.8
|
%
|
|
|
2,409
|
|
Fee income
|
|
|
1,283
|
|
|
|
1.1
|
%
|
|
|
4,352
|
|
|
|
5.3
|
%
|
|
|
(3,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
116,771
|
|
|
|
100.0
|
%
|
|
$
|
81,786
|
|
|
|
100.0
|
%
|
|
$
|
34,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $39.0 million in 2008 primarily
due to the acquisition of 26 rent-producing facilities in
2008. Our fee income decreased in 2008 due to $3.8 million
in mortgage loan prepayment fees earned 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 (including rent and interest from mortgage and working
capital loans) accounted for 32.8% and 30.4% of our gross
revenues in 2008 and 2007, respectively. At December 31,
2008, assets leased and loaned to Prime comprised 36.1% of total
assets and 37.1% of our total real estate portfolio. Vibra
(including rent and interest from working capital loans)
accounted for 15.9% and 19.1% of our gross revenues in 2008 and
2007, respectively. At December 31, 2008, assets leased and
loaned to Vibra comprised 10.6% of our total assets and 10.9% of
our total real estate portfolio.
36
Depreciation and amortization during the year ended
December 31, 2008 was $25.5 million, compared to
$10.3 million 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 $996.4 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 $19.5 million and
$15.5 million, respectively, which represents an increase
of 25.6%. The increase is partially due to an increase of
$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 $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 $0.9 million as a
result of the expansion of our portfolio.
Property-related expenses increased $4.5 million in 2008 versus
2007. In 2008, 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. No such
expenses were recorded in 2007.
Interest expense for the years ended December 31, 2008 and
2007 totaled $42.4 million and $29.5 million,
respectively. Interest expense in 2007 excludes interest of
$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
was impacted by discontinued operations. See Note 11 to our
consolidated financial statements in Item 7 to this
Form 10-K
for further information.
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, 2009:
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Date of Distribution
|
|
Distribution per Share
|
|
November 19, 2009
|
|
December 17, 2009
|
|
January 14, 2010
|
|
$
|
0.20
|
|
August 20, 2009
|
|
September 17, 2009
|
|
October 15, 2009
|
|
$
|
0.20
|
|
May 21, 2009
|
|
June 11, 2009
|
|
July 14, 2009
|
|
$
|
0.20
|
|
February 24, 2009
|
|
March 19, 2009
|
|
April 9, 2009
|
|
$
|
0.20
|
|
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
|
|
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
37
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. However, 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.
|
|
ITEM 6A.
|
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
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,
2009, our outstanding debt totaled $576.7 million, which
consisted of fixed-rate debt of $345.4 million and variable
rate debt of $231.3 million.
If market interest rates increase by one-percentage point, the
fair value of our fixed rate debt would decrease by
$9.6 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
$2.3 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 $2.3 million per year. This assumes that
the average amount outstanding under our variable rate debt for
a year approximates $231.3 million, the balance at
December 31, 2009.
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
$16.47 per share which equates to 60.7095 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
0.9 million shares. At $25 per share, we would be required
to issue an additional 1.7 million shares.
38
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 $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, 2009.
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 may eventually be settled.
Assuming a price of $20 per share, we would be required to issue
an additional 2.5 million shares. At $25 per share, we
would be required to issue an additional 3.4 million shares.
39
|
|
ITEM 7.
|
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 sheets and
the related consolidated statements of income, of equity, and of
cash flows present fairly, in all material respects, the
financial position of Medical Properties Trust, Inc. and its
subsidiaries (the Company) at December 31, 2009
and December 31, 2008, and the results of their operations
and their cash flows for each of the two years in the period
ended December 31, 2009 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 14(a) present
fairly, in all material respects, the information set forth
therein 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, 2009, 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 8A 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 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 audits 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 audits 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 audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 4, the Company changed the manner in
which it accounts for convertible debt in 2009. As discussed in
Note 6, the Company changed the manner in which it accounts
for earnings per share in 2009.
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
February 12, 2010
40
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medical Properties Trust, Inc.:
We have audited the accompanying consolidated statements of
income, equity, and cash flows of Medical Properties Trust, Inc.
and Subsidiaries for the year ended December 31, 2007. In
connection with our audit of the consolidated financial
statements, we also have audited financial statement
schedules II, 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 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. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the result of
their operations and their cash flows of Medical Properties
Trust, Inc. and Subsidiaries for the year 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.
As discussed in Notes 2, 4 and 6 to the consolidated
financial statements, the Company changed its method of
accounting for the non-controlling interests in a subsidiary,
debt discount related to the exchangeable notes, and
participating securities in the calculation of earnings per
share, respectively, effective January 1, 2009 with
retroactive application to all periods presented.
/s/ KPMG LLP
Birmingham, Alabama
March 13, 2008, except for Notes 2, 4, and 6, as to
which the date is February 12, 2010, and Note 11,
as to which the date is March 13, 2009
41
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands, except for per share data)
|
|
|
ASSETS
|
Real estate assets
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
105,216
|
|
|
$
|
104,795
|
|
Buildings and improvements
|
|
|
829,385
|
|
|
|
823,890
|
|
Construction in progress and other
|
|
|
291
|
|
|
|
493
|
|
Intangible lease assets
|
|
|
48,583
|
|
|
|
52,771
|
|
Mortgage loans
|
|
|
200,164
|
|
|
|
185,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
14,912
|
|
|
|
|
|
|
|
|
|
|
Gross investment in real estate assets
|
|
|
1,183,639
|
|
|
|
1,181,861
|
|
Accumulated depreciation
|
|
|
(51,638
|
)
|
|
|
(30,478
|
)
|
Accumulated amortization
|
|
|
(8,664
|
)
|
|
|
(9,753
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in real estate assets
|
|
|
1,123,337
|
|
|
|
1,141,630
|
|
Cash and cash equivalents
|
|
|
15,307
|
|
|
|
11,748
|
|
Interest and rent receivables
|
|
|
19,845
|
|
|
|
13,837
|
|
Straight-line rent receivables
|
|
|
27,539
|
|
|
|
19,003
|
|
Other loans
|
|
|
110,842
|
|
|
|
108,523
|
|
Assets of discontinued operations
|
|
|
1,185
|
|
|
|
2,385
|
|
Other assets
|
|
|
11,843
|
|
|
|
14,247
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,309,898
|
|
|
$
|
1,311,373
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt, net
|
|
$
|
576,678
|
|
|
$
|
630,557
|
|
Accounts payable and accrued expenses
|
|
|
29,247
|
|
|
|
24,718
|
|
Deferred revenue
|
|
|
15,350
|
|
|
|
16,110
|
|
Lease deposits and other obligations to tenants
|
|
|
17,048
|
|
|
|
13,645
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
638,323
|
|
|
|
685,030
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized
10,000 shares; no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value. Authorized
150,000 shares; issued and outstanding
78,725 shares at December 31, 2009 and
65,056 shares at December 31, 2008
|
|
|
79
|
|
|
|
65
|
|
Additional paid-in capital
|
|
|
759,721
|
|
|
|
686,238
|
|
Distributions in excess of net income
|
|
|
(88,093
|
)
|
|
|
(59,941
|
)
|
Treasury shares, at cost
|
|
|
(262
|
)
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
Total Medical Properties Trust, Inc. Stockholders Equity
|
|
|
671,445
|
|
|
|
626,100
|
|
Non-controlling interests
|
|
|
130
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
671,575
|
|
|
|
626,343
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
1,309,898
|
|
|
$
|
1,311,373
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except for per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed
|
|
$
|
92,077
|
|
|
$
|
83,108
|
|
|
$
|
42,921
|
|
Straight-line rent
|
|
|
8,425
|
|
|
|
3,971
|
|
|
|
8,513
|
|
Interest and fee income
|
|
|
29,249
|
|
|
|
29,692
|
|
|
|
30,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
129,751
|
|
|
|
116,771
|
|
|
|
81,786
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization
|
|
|
25,648
|
|
|
|
25,458
|
|
|
|
10,342
|
|
Property-related
|
|
|
6,113
|
|
|
|
4,683
|
|
|
|
151
|
|
General and administrative
|
|
|
21,096
|
|
|
|
19,515
|
|
|
|
15,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
52,857
|
|
|
|
49,656
|
|
|
|
26,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
76,894
|
|
|
|
67,115
|
|
|
|
55,761
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
43
|
|
|
|
86
|
|
|
|
364
|
|
Interest expense
|
|
|
(37,663
|
)
|
|
|
(42,440
|
)
|
|
|
(29,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other (expense) income
|
|
|
(37,620
|
)
|
|
|
(42,354
|
)
|
|
|
(29,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
39,274
|
|
|
|
24,761
|
|
|
|
26,595
|
|
Income (loss) from discontinued operations
|
|
|
(2,908
|
)
|
|
|
7,972
|
|
|
|
13,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
36,366
|
|
|
|
32,733
|
|
|
|
40,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
|
(36
|
)
|
|
|
(33
|
)
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT common stockholders
|
|
$
|
36,330
|
|
|
$
|
32,700
|
|
|
$
|
39,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to MPT common
stockholders
|
|
$
|
0.48
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
Income (loss) from discontinued operations attributable to MPT
common stockholders
|
|
|
(0.03
|
)
|
|
|
0.13
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT common stockholders
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
78,117
|
|
|
|
62,027
|
|
|
|
47,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to MPT common
stockholders
|
|
$
|
0.48
|
|
|
$
|
0.37
|
|
|
$
|
0.52
|
|
Income (loss) from discontinued operations attributable to MPT
common stockholders
|
|
|
(0.03
|
)
|
|
|
0.13
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT common stockholders
|
|
$
|
0.45
|
|
|
$
|
0.50
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
78,117
|
|
|
|
62,035
|
|
|
|
47,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of
Equity
For the Years Ended December 31, 2009, 2008 and 2007
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Additional
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
in Excess
|
|
|
Treasury
|
|
|
Non-Controlling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
of Net Income
|
|
|
Stock
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
39,585
|
|
|
$
|
39
|
|
|
$
|
364,263
|
|
|
$
|
(13,158
|
)
|
|
$
|
|
|
|
$
|
1,052
|
|
|
$
|
352,196
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
54
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock vesting and 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
|
|
Distributions to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,279
|
)
|
|
|
(1,279
|
)
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
|
|
|
|
|
|
(262
|
)
|
Dividends declared ($1.08 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,360
|
)
|
|
|
|
|
|
|
|
|
|
|
(55,360
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,946
|
|
|
|
|
|
|
|
304
|
|
|
|
40,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
52,133
|
|
|
|
52
|
|
|
|
548,086
|
|
|
|
(28,626
|
)
|
|
|
(262
|
)
|
|
|
77
|
|
|
|
519,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock vesting and amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
273
|
|
|
|
|
|
|
|
6,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,386
|
|
Purchase of Wichita Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
145
|
|
Distributions to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
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
|
)
|
Issuance of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,700
|
|
|
|
|
|
|
|
33
|
|
|
|
32,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
65,056
|
|
|
|
65
|
|
|
|
686,238
|
|
|
|
(59,941
|
)
|
|
|
(262
|
)
|
|
|
243
|
|
|
|
626,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
1
|
|
|
|
5
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Stock vesting and amortization of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
|
5,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,488
|
|
Proceeds from offering (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
13,371
|
|
|
|
13
|
|
|
|
67,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,003
|
|
Distributions to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
(149
|
)
|
Dividends declared ($0.80 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,478
|
)
|
|
|
|
|
|
|
|
|
|
|
(64,478
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,330
|
|
|
|
|
|
|
|
36
|
|
|
|
36,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
78,725
|
|
|
$
|
79
|
|
|
$
|
759,721
|
|
|
$
|
(88,093
|
)
|
|
$
|
(262
|
)
|
|
$
|
130
|
|
|
$
|
671,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,366
|
|
|
$
|
32,733
|
|
|
$
|
40,250
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
26,309
|
|
|
|
26,535
|
|
|
|
13,172
|
|
Amortization and write-off of deferred financing costs and debt
discount
|
|
|
5,824
|
|
|
|
7,961
|
|
|
|
6,133
|
|
Straight-line rent revenue
|
|
|
(9,536
|
)
|
|
|
(9,402
|
)
|
|
|
(12,278
|
)
|
Share-based compensation expense
|
|
|
5,488
|
|
|
|
6,386
|
|
|
|
4,483
|
|
(Gain) loss from sale of real estate
|
|
|
(278
|
)
|
|
|
(9,305
|
)
|
|
|
(4,062
|
)
|
Deferred revenue and fee income
|
|
|
(847
|
)
|
|
|
(7,583
|
)
|
|
|
(1,157
|
)
|
Provision for uncollectible receivables and loans
|
|
|
|
|
|
|
5,700
|
|
|
|
1,667
|
|
Rent and interest income added to loans
|
|
|
(921
|
)
|
|
|
(5,556
|
)
|
|
|
(8,894
|
)
|
Straight-line rent write-off
|
|
|
1,111
|
|
|
|
14,037
|
|
|
|
1,198
|
|
Other adjustments
|
|
|
(245
|
)
|
|
|
(57
|
)
|
|
|
97
|
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and rent receivable
|
|
|
(2,433
|
)
|
|
|
(4,392
|
)
|
|
|
524
|
|
Other assets
|
|
|
126
|
|
|
|
5,249
|
|
|
|
2,451
|
|
Accounts payable and accrued expenses
|
|
|
1,700
|
|
|
|
4,757
|
|
|
|
(12,855
|
)
|
Deferred revenue
|
|
|
87
|
|
|
|
2,854
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
62,751
|
|
|
|
69,917
|
|
|
|
31,295
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired
|
|
|
(421
|
)
|
|
|
(430,710
|
)
|
|
|
(196,599
|
)
|
Proceeds from sale of real estate
|
|
|
15,000
|
|
|
|
89,959
|
|
|
|
68,203
|
|
Principal received on loans receivable
|
|
|
4,305
|
|
|
|
71,941
|
|
|
|
74,894
|
|
Investment in loans receivable
|
|
|
(23,243
|
)
|
|
|
(95,567
|
)
|
|
|
(128,986
|
)
|
Construction in progress
|
|
|
|
|
|
|
|
|
|
|
(12,166
|
)
|
Other investments
|
|
|
(7,777
|
)
|
|
|
(4,286
|
)
|
|
|
(5,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(12,136
|
)
|
|
|
(368,663
|
)
|
|
|
(200,181
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
|
|
|
|
119,001
|
|
|
|
318,200
|
|
Payments of debt
|
|
|
(1,232
|
)
|
|
|
(860
|
)
|
|
|
(341,556
|
)
|
Payment of deferred financing costs
|
|
|
232
|
|
|
|
(6,072
|
)
|
|
|
(4,123
|
)
|
Revolving credit facilities, net
|
|
|
(55,800
|
)
|
|
|
38,014
|
|
|
|
154,986
|
|
Distributions paid
|
|
|
(61,649
|
)
|
|
|
(65,098
|
)
|
|
|
(53,079
|
)
|
Lease deposits and other obligations to tenants
|
|
|
3,390
|
|
|
|
2,963
|
|
|
|
5,534
|
|
Proceeds from sale of common shares, net of offering costs
|
|
|
68,003
|
|
|
|
128,331
|
|
|
|
135,809
|
|
Proceeds from forward equity sale
|
|
|
|
|
|
|
|
|
|
|
43,289
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
(47,056
|
)
|
|
|
216,279
|
|
|
|
258,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents for the year
|
|
|
3,559
|
|
|
|
(82,467
|
)
|
|
|
90,112
|
|
Cash and cash equivalents at beginning of year
|
|
|
11,748
|
|
|
|
94,215
|
|
|
|
4,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
15,307
|
|
|
$
|
11,748
|
|
|
$
|
94,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, including capitalized interest of $ in
2009, $ in 2008, and $1,335 in 2007
|
|
$
|
33,272
|
|
|
$
|
31,277
|
|
|
$
|
24,584
|
|
Supplemental schedule of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction period rent and interest receivable recorded as
deferred revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,798
|
|
Real estate acquisitions and new loans receivable recorded as
lease and loan deposits
|
|
|
|
|
|
|
|
|
|
|
1,640
|
|
Real estate acquisitions and new loans receivable recorded as
deferred revenue
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Construction and acquisition costs charged to loans and real
estate
|
|
|
|
|
|
|
|
|
|
|
4,971
|
|
Construction in progress transferred to land and building
|
|
|
|
|
|
|
|
|
|
|
69,013
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other common stock transactions
|
|
$
|
5
|
|
|
$
|
48
|
|
|
$
|
54
|
|
Supplemental schedule of non-cash operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant deposits recorded in other assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,500
|
|
See accompanying notes to consolidated financial statements.
45
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
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. In addition, we may
obtain profits interest in our tenants, from time to time, in
order to enhance our overall return. We manage our business as a
single business segment.
|
|
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 non-controlling
interest representing equity held by non-controlling interests.
We evaluate all of our transactions and investments to determine
if they represent variable interests in a variable interest
entity. If we determine that we have a variable interest in a
variable interest entity, we 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. We
have not experienced any losses to date on our invested cash.
Cash and cash equivalents which 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.
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.
46
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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
presented as two amounts: billed revenue and straight-line
revenue. 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 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.
In instances where we have a profits interest in our
tenants operations, we record revenue equal to our
percentage interest of the tenants profits, as defined in
the lease or tenants operating agreements, once annual
thresholds, if any, are met.
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 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.
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.
47
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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. 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. 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 weighted average
useful lives of the related assets, as follows:
|
|
|
Buildings and improvements
|
|
39.6 years
|
Tenant lease intangibles
|
|
13.8 years
|
Tenant improvements
|
|
5.4 years
|
Furniture, equipment and other
|
|
8.9 years
|
Real estate is carried at depreciated cost. Although typically
paid by our tenants, any expenditures for ordinary maintenance
and repairs that we pay 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. 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. 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 if we do not have
any continuing involvement with the property subsequent to its
sale. Results of discontinued operations include interest
expense from debt which specifically collateralizes the property
sold or held for sale.
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
48
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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 using 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.
Earnings Per Share: Basic earnings per common
share is computed by dividing net income applicable to common
shares by the weighted number of shares of common stock
outstanding during the period. Diluted earnings per common share
is calculated by including the effect of dilutive securities.
On January 1, 2009 we adopted new accounting guidance that
addresses whether instruments granted in share-based payment
awards are participating securities prior to vesting, and
therefore, need to be included in the earnings allocation when
computing earnings per share under the two class method. Certain
of our unvested restricted and performance stock awards contain
non-forfeitable rights to dividends or dividend equivalents,
which are consequently deemed to be participating securities
under the new accounting rules. Therefore, these participating
securities are included in our computation of earnings per share
under the two-class method for both basic and diluted
calculations.
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. 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. 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
49
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
period in which the performance conditions are measured,
adjusted for the probability of achieving the performance
conditions.
Derivative Financial Investments and Hedging
Activities. We record our derivative and hedging
instruments 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.
Reclassifications: Certain reclassifications
have been made to the consolidated financial statements to
conform to the 2009 consolidated financial statement
presentation. These reclassifications had no impact on
stockholders equity or net income. In accordance with the
new accounting guidance on non-controlling interest that we
adopted in 2009, (i) all prior period non-controlling
interests on the condensed consolidated balance sheets have been
reclassified as a component of equity and (ii) all prior
period non-controlling interests share of earnings on the
condensed consolidated statements of income have been
reclassified to clearly identify net income attributable to the
non-controlling interest.
New Accounting Pronouncement: The following is
a summary of a recently issued accounting pronouncement which
has been issued but not adopted by us.
In June 2009, the FASB amended the consolidation guidance for
variable interest entities. This amendment includes:
(1) the elimination of the exemption from the consolidation
for qualifying special purpose entities; (2) a new approach
for determining the primary beneficiary of a variable interest
entity, which requires that the primary beneficiary have both
(i) the power to direct the activities of a variable
interest entity that most significantly impacts the
entitys economic performance and (ii) either the
obligation to absorb losses or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity; and (3) the requirement to
continually reassess who should consolidate a variable interest
entity. This amendment is effective for all variable interest
entities and relationships with variable interest entities
existing as of January 1, 2010. At this time, we do not
believe this amendment will have a significant impact on our
financial position or results of operations.
We evaluated all events or transactions that occurred after
December 31, 2009 up through February 12, 2010, the
date we issued these financial statements.
|
|
3.
|
Real
Estate and Loans Receivable
|
Acquisitions
We acquired the following assets in 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands)
|
|
|
Land
|
|
$
|
421
|
|
|
$
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
421
|
|
|
$
|
430,710
|
|
|
$
|
196,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In the second and third quarters of 2008, we completed the
acquisition of 20 properties from a single seller for
$357.2 million. The properties acquired had existing leases
in place, which we assumed, on six acute care hospitals, three
long-term acute care hospitals, five rehabilitation hospitals,
and six wellness centers. This acquisition allowed us to 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).
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. We acquired one of the
facilities in July 2008 from a Prime affiliate for approximately
$15 million and the other two facilities (including two
medical office buildings) in the 2008 fourth quarter for
$45 million. We entered into a
10-year
lease with the Prime affiliate concurrent with our acquisitions
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
had a 15 year fixed term and contained 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. 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). As disclosed under Leasing
Operations below, these leases were subsequently
terminated.
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 and
2007, as if each significant acquisition in 2008 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
|
|
|
(Amounts in thousands except per share amounts)
|
|
Total revenues
|
|
$
|
129,615
|
|
|
$
|
126,216
|
|
Net income attributable to MPT common stockholders
|
|
|
29,928
|
|
|
|
66,816
|
|
Net income per share attributable to MPT common
stockholders-diluted
|
|
$
|
0.43
|
|
|
$
|
1.08
|
|
Disposals
In the fourth quarter of 2009, we sold the real estate asset of
one acute care facility to Prime for proceeds of
$15.0 million. The sale was completed on December 28,
2009, and we realized a gain on the sale of $0.3 million.
Due to this sale, we have reclassified the asset of this
property to Real Estate Held for Sale in our accompanying
Consolidated Balance Sheet at December 31, 2008.
In the second quarter of 2008, we sold the real estate assets of
three inpatient rehabilitation facilities to Vibra for proceeds
of approximately $105 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 $9.3 million. We also wrote
off $9.5 million in related straight-line rent receivable
upon completion of the sales.
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 $70.3 million,
which were used to reduce debt and recorded a gain on the sale
of this facility of $4.1 million.
51
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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, 2009, 2008 and 2007.
Intangible
Assets
At December 31, 2009 and 2008, our intangible lease assets
were $48.6 million ($39.9 million, net of accumulated
amortization) and $52.8 million ($43.0 million, net of
accumulated amortization), respectively.
We recorded amortization expense related to intangible lease
assets of $4.5 million (including $0.5 million of
accelerated amortization as described below), $8.1 million
(including $4.5 million of accelerated amortization as
described below) and $1.1 million in 2009, 2008, and 2007,
respectively, and expect to recognize amortization expense from
existing lease intangible assets as follows: (amounts in
thousands)
|
|
|
|
|
For the Year Ended December 31:
|
|
|
|
2010
|
|
$
|
4,026
|
|
2011
|
|
|
3,812
|
|
2012
|
|
|
3,448
|
|
2013
|
|
|
3,415
|
|
2014
|
|
|
3,349
|
|
As of December 31, 2009, capitalized lease intangibles have
a weighted average remaining life of 13.8 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, 2009, are as follows:
(amounts in thousands)
|
|
|
|
|
2010
|
|
$
|
89,434
|
|
2011
|
|
|
88,541
|
|
2012
|
|
|
84,946
|
|
2013
|
|
|
85,415
|
|
2014
|
|
|
83,691
|
|
Thereafter
|
|
|
537,591
|
|
|
|
|
|
|
|
|
$
|
969,618
|
|
|
|
|
|
|
In January 2009, the then-operator of our Bucks County facility
gave notice of its intentions to close the facility. The
associated lease was terminated, which resulted in the write-off
of $4.7 million in uncollectible rent and other receivables
in December 2008. This write-off excluded $3.8 million of
receivables that were guaranteed by its parent company. This
$3.8 million receivable remains outstanding at
December 31, 2009. We are aggressively pursuing collection
of this outstanding receivable, and management believes this
receivable is fully collectible and no reserve has been
recorded. Our evaluation and conclusion regarding the
recoverability of this receivable is largely predicated on our
understanding of the capital structure and related liquidity of
the parent company, for which no currently published financial
information exists. We are currently pursuing collection of this
receivable through litigation and there is no assurance that we
will receive all or any of the guaranteed amounts.
In July 2009, we re-leased our Bucks County facility located in
Bensalem, Pennsylvania. The lease has a fixed term of five years
with an option, at the lessees discretion, to extend 15
additional periods of one year each. No rent is required for the
first six months. Thereafter, rent will be $2.0 million per
year with annual escalations of 2%.
52
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Separately, we also obtained a profits interest whereby we may
receive up to an additional $1.0 million annually pursuant
to an agreement that provides for our participation in certain
cash flows, if any, as defined in the agreement. After the fixed
term, the tenant has the right to purchase the facility at a
price based on a formula set forth in the lease agreement.
In April 2009, we terminated leases on two of our facilities in
Louisiana (Covington and Denham Springs) after the operator
defaulted on the leases. As a result of the lease terminations,
we recorded a $1.1 million charge in order to fully reserve
and write off, respectively, the related straight-line rent
receivables associated with the Covington and Denham Springs
facilities. In addition, we accelerated the amortization of the
related lease intangibles resulting in $0.5 million of
expense in the second quarter of 2009. In June 2009, we
re-leased the Denham Springs facility to a new operator under
terms similar to the terminated lease. The operator of the
Covington facility has entered bankruptcy proceedings, during
which it has made payments to us generally equivalent to the
amounts payable under the terms of the terminated lease. All
uncollected receivables due from the operator of the Covington
facility have been fully reserved at December 31, 2009.
In the third quarter of 2008, we terminated leases on two
general acute care hospitals in Houston, Texas and one hospital
in Redding, California due to certain tenant defaults. These
facilities were previously leased to affiliates of HPA that
filed for bankruptcy subsequent to the lease terminations.
Pursuant to these lease terminations, we recorded
$4.5 million in accelerated amortization in the 2008 third
quarter related to lease intangibles. In addition, we recorded a
$1.5 million charge for the write-off of straight-line rent.
On November 1, 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 $12.0 million in
additional rent and a profits participation of up to
$8.0 million based on the future profitability of the new
lessees operations. In 2009, we recorded $1.4 million
of additional rent under this lease. The additional rent is
recognized on a straight-line basis over the life of the lease.
In regards to the two Houston facilities formerly leased to HPA,
both were unoccupied at December 31, 2009. These facilities
had a net book value of $31.0 million at December 31,
2009, and an annual run-rate of operating and maintenance
expenses of $2.9 million. We believe we will recover,
through future undiscounted cash flows, our current basis in the
properties along with any additional funding (not covered by
insurance) that may be needed due to the damage caused by
Hurricane Ike in 2008. However, there is no assurance that we
will receive amounts to fully recover these investments.
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,
including $7.2 million in 2009. The operator has not made
certain lease and loan payments required by the terms of the
agreements and the loan is therefore considered impaired. As of
December 31, 2009, we had accrued $12.6 million in
interest, rent, and other receivables and had loaned the
operator approximately $27 million, which includes
$2.2 million of working capital advances we made in the
third and fourth quarters of 2009. These receivables are
collateralized by $3.8 million in cash that we possess, a
first lien security interest in patient accounts receivable, and
100% of the equity of the operator.
The operations of the Monroe facility are generating cash flows
from operations. However, these cash flows from operations are
currently not enough to satisfy current rent and interest
obligations to us. In assessing whether or not the receivables
are collectible or if the loan is impaired, we have considered
cost saving and revenue enhancement opportunities that the
operator has identified. Cash flows to be generated from these
opportunities, along with the current level of cash flows from
operations are expected to be sufficient on a long term basis
for us to recover the outstanding receivables and loan amount.
Based on this, we believe the outstanding receivables and loan
balance at December 31, 2009 are collectible; therefore, we
have not recorded any loss allowances or reserves. However, no
assurances can be made that these opportunities will be
implemented effectively or timely and generate the cash flows
needed for us to fully recover our investment in this facility.
53
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
For the years ended December 31, 2009, 2008, and 2007,
affiliates of Prime (including rent and interest from mortgage
and working capital loans) accounted for 38.4%, 32.8%, and
30.4%, respectively, of our total revenues , and Vibra
(including rent and interest from working capital loans)
accounted for 13.8%, 15.9%, and 19.1%, respectively, of our
total revenues.
Loans
The following is a summary of our loans ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Mortgage loans
|
|
$
|
200,164
|
|
|
|
9.92
|
%
|
|
$
|
185,000
|
|
|
|
9.6
|
%
|
Other loans
|
|
|
110,842
|
|
|
|
10.64
|
%
|
|
|
108,523
|
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
311,006
|
|
|
|
|
|
|
$
|
293,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2009, we committed to fund a mortgage loan totaling
$20.0 million to an affiliate of Prime, $15.0 million
of which has been advanced as of December 31, 2009. This
loan is collateralized by the Desert Valley facility and the
purpose of the loan is to help fund an overall
$35.0 million expansion and renovation.
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, 2009, we had funded $20 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, 2009, Vibra has reduced the
balance of the loans to $20.4 million.
We have determined that Vibra, Monroe Hospital, and the operator
of our Redding hospital are variable interest entities that have
outstanding loans and other receivables due to us of
approximately 3%, 3%, and 2% of our total assets, respectively.
The outstanding loans and other receivables due from these
entities represent our maximum exposure to loss. Through both
qualitative and quantitative analysis, we have determined that
we are not the primary beneficiary of these entities as parties
other than us absorb the majority of the expected losses from
these entities. Therefore, we have not consolidated these
entities in our financial statements.
54
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following is a summary of debt ($ amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
As of December 31, 2008
|
|
|
Balance
|
|
|
Interest Rate
|
|
Balance
|
|
|
Interest Rate
|
|
Revolving credit facilities
|
|
$
|
137,200
|
|
|
Variable
|
|
$
|
193,000
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal amount
|
|
|
220,000
|
|
|
6.125%-9.250%
|
|
|
220,000
|
|
|
6.125%-9.250%
|
Unamortized discount
|
|
|
(8,265
|
)
|
|
|
|
|
(11,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,735
|
|
|
|
|
|
208,582
|
|
|
|
Term loans
|
|
|
102,743
|
|
|
Various
|
|
|
103,975
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
576,678
|
|
|
|
|
$
|
630,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, principal payments due on our debt
(which exclude the effects of any discounts recorded) are as
follows:
|
|
|
|
|
2010
|
|
$
|
127,252
|
(A)
|
2011
|
|
|
211,091
|
|
2012
|
|
|
39,600
|
|
2013
|
|
|
82,000
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
125,000
|
|
|
|
|
|
|
Total
|
|
$
|
584,943
|
|
|
|
|
|
|
|
|
|
(A) |
|
$96,000 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. |
Revolving
Credit Facilities
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% (1.73% at December 31, 2009 and 1.94% at
December 31, 2008). The amount available under the facility
decreased by $0.8 million in June 2009 and will continue to
decrease $0.8 million per year until maturity. The facility is
collateralized by one real estate property with a net book value
of $57.9 million at December 31, 2009. This facility
had an outstanding balance of $41.2 million and
$42.0 million at December 31, 2009 and December 31,
2008, respectively. The weighted-average interest rate on this
revolving bank credit facility was 1.86% and 4.20% for 2009 and
2008, respectively.
In November 2007, we signed a $220 million Credit Agreement
for a revolving credit facility and a term loan (see discussion
of the term loan under the title Term Loans section
below). 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 2009 and 2008, our interest rate was primarily at the
30-day LIBOR
plus 1.75% (1.99% and 2.19% at December 31, 2009 and 2008,
respectively). In addition, the
55
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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 2.21% and 4.54% for 2009 and 2008, 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 under the credit facility to exceed
50% of the value of the borrowing base, as described in the
Credit Agreement. The revolving credit facility had an
outstanding balance of $96 million at December 31,
2009. As of December 31, 2009, we had borrowing
availability of $58 million under the revolving credit
facility.
Senior
Unsecured Notes
During 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 issuances of 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 issuances of 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.
Exchangeable
Senior Notes
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 $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 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 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 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
equity.
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 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
$12.36 per common share. The initial exchange rate is subject to
adjustment under certain circumstances. The
56
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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 May 2008, the FASB issued a new accounting standard that
affected the accounting for our exchangeable senior notes. The
new standard requires that the initial debt proceeds from the
sale of our exchangeable senior 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. We adopted the new
accounting standard on January 1, 2009 and have applied it
retroactively to all periods presented. The adoption of the new
standard resulted in an increase in unamortized debt discount of
$7.7 million and additional paid in capital of
$11.0 million and a decrease in retained earnings of
$3.3 million in our consolidated balance sheet as of
December 31, 2008. We recorded additional non-cash interest
expense in our consolidated statements of income of
$2.1 million ($0.03 per share), $1.8 million ($0.03
per share), and $1.3 million ($0.03 per share) in 2009,
2008 and 2007, respectively, associated with the amortization of
this discount at an annual effective interest rate of 8.3% and
11.3% for the 2006 and 2008 exchangeable senior notes,
respectively. The unamortized discounts of $4.9 million and
$3.3 million at December 31, 2009 will continue to be
amortized through November 2011 and April 2013 for the 2006 and
2008 exchangeable senior notes, respectively.
Term
Loans
Included in the $220 million Credit Agreement signed in
November 2007 was a term loan that has a four-year term and has
an interest rate of the
30-day LIBOR
plus a spread of 200 basis points (2.26% at
December 31, 2009 and 2.44% at December 31, 2008). We
make quarterly principal payments of $165,000 on the term loan.
The term loan had an outstanding balance of $64.5 million
at December 31, 2009.
In June 2008, our Operating Partnership signed a term loan
agreement for $30.0 million. This 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 (4.23% at December 31, 2009 and 4.44% at
December 31, 2008). Starting January 2010, the LIBOR rate
will have a minimum floor of 1.5%. 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. 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 $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 $18.8 million at December 31, 2009. This
facility had an outstanding balance of $8.7 million at
December 31, 2009.
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.
57
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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, 2009, 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
subsidiary is subject to applicable federal, state and local
income taxes. For 2009, we recorded tax expense of
$0.3 million, while we recorded a tax benefit of
$1.1 million and $0.2 million in 2008 and 2007,
respectively. At December 2009, we had a $1.5 million net
deferred tax asset, which primarily relates to federal and state
net operating loss carry forwards (NOLs). NOLs are
available to offset future earnings in our taxable REIT
subsidiary within the periods specified by law. At
December 31, 2009, we had U.S. federal and state NOLs
of $5.6 million and $6.2 million, respectively, that
expire in 2020 through 2029.
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,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Common share distribution
|
|
$
|
0.800000
|
|
|
$
|
1.080000
|
|
|
$
|
1.080000
|
|
Ordinary income
|
|
|
0.471792
|
|
|
|
0.677940
|
|
|
|
0.681994
|
|
Capital gains(1)
|
|
|
0.003708
|
|
|
|
0.145400
|
|
|
|
0.192358
|
|
Unrecaptured Sec. 1250 gain
|
|
|
0.003708
|
|
|
|
0.138168
|
|
|
|
0.085269
|
|
Return of capital
|
|
|
0.324500
|
|
|
|
0.256660
|
|
|
|
0.205648
|
|
Allocable to next year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Capital gains include unrecaptured Sec. 1250 gains. |
In June 2008, the FASB issued new accounting guidance that
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. Under
this guidance, unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid
58
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method. Certain of our unvested restricted and performance stock
awards contain non-forfeitable rights to dividends, and
accordingly, these awards are deemed to be participating
securities. We adopted this new accounting guidance on
January 1, 2009 which required retroactive restatement. The
adoption of this accounting change resulted in an approximate
$0.02, $0.02, and $0.03 negative impact on earnings per share
for the years ended December 31, 2009, 2008, and 2007,
respectively. Our earnings per share were calculated based on
the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
39,274
|
|
|
$
|
24,761
|
|
|
$
|
26,595
|
|
Non-controlling interests share in continuing operations
|
|
|
(35
|
)
|
|
|
(29
|
)
|
|
|
|
|
Participating securities share in earnings
|
|
|
(1,506
|
)
|
|
|
(1,745
|
)
|
|
|
(1,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, less participating
securities share in earnings
|
|
|
37,733
|
|
|
|
22,987
|
|
|
|
25,058
|
|
Income (loss) from discontinued operations
|
|
|
(2,908
|
)
|
|
|
7,972
|
|
|
|
13,655
|
|
Non-controlling interests share in discontinued operations
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations attributable to MPT
common stockholders
|
|
|
(2,909
|
)
|
|
|
7,968
|
|
|
|
13,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, less participating securities share in earnings
|
|
$
|
34,824
|
|
|
$
|
30,955
|
|
|
$
|
38,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares
|
|
|
78,117
|
|
|
|
62,027
|
|
|
|
47,770
|
|
Dilutive stock options
|
|
|
|
|
|
|
8
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares
|
|
|
78,117
|
|
|
|
62,035
|
|
|
|
47,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, 2008, and 2007,
0.1 million, 0.1 million, and 45,000, respectively, of
options 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
exchangeable senior notes 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 3,694,257 shares remain
available for future stock awards as of December 31, 2009.
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.
59
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
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, 2009, is $-0-.
No options were granted, exercised, or forfeited in 2009 or
2008. In addition, no options were exercised or forfeited in
2007. At December 31, 2009, we had 130,000 options
outstanding and 113,332 options exercisable, with
weighted-average exercise prices of $10.80 and $10.61 per
option, respectively. The weighted average remaining contractual
term of options exercisable and outstanding is 4.2 years
and 4.0 years, respectively.
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 that
generally range from three to five 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 granted
under our 2007 Multi-year Incentive Plan (MIP)
adopted by the Compensation Committee and consist 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. For 2009,
79,287shares/LTIP units were earned under the CPRE award, but no
SPRE awards were earned. No CPRE or SPRE awards were earned in
2008.
60
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following summarizes restricted equity awards activity in
2009 and 2008, respectively:
For the
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Based on
|
|
|
Vesting Based
|
|
Market/Performance
|
|
|
on Service
|
|
Conditions
|
|
|
|
|
Weighted Average
|
|
|
|
Weighted Average
|
|
|
Shares
|
|
Value at Award Date
|
|
Shares
|
|
Value at Award Date
|
|
Nonvested awards at beginning of the year
|
|
|
828,106
|
|
|
$
|
12.20
|
|
|
|
1,380,375
|
|
|
$
|
7.15
|
|
Awarded
|
|
|
441,134
|
|
|
$
|
6.30
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(291,977
|
)
|
|
$
|
10.02
|
|
|
|
(79,287
|
)
|
|
$
|
11.29
|
|
Forfeited
|
|
|
(7,723
|
)
|
|
$
|
8.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at end of year
|
|
|
969,540
|
|
|
$
|
10.21
|
|
|
|
1,301,088
|
|
|
$
|
6.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Nonvested awards at beginning of the year
|
|
|
680,515
|
|
|
$
|
11.85
|
|
|
|
1,380,375
|
|
|
$
|
7.15
|
|
Awarded
|
|
|
405,512
|
|
|
$
|
12.07
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(256,321
|
)
|
|
$
|
11.04
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,600
|
)
|
|
$
|
12.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested awards at end of year
|
|
|
828,106
|
|
|
$
|
12.20
|
|
|
|
1,380,375
|
|
|
$
|
7.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of stock-based awards is charged to compensation
expense over the vesting periods. In the years ended
December 31, 2009, 2008 and 2007, we recorded
$5.5 million, $6.4 million, and $4.5 million
respectively, of non-cash compensation expense. The remaining
unrecognized cost from restricted equity awards at
December 31, 2009, is $11.7 million and will be
recognized over a weighted average period of 3.2 years.
Restricted equity awards which vested in 2009 had a value of
$2.4 million on the vesting dates.
|
|
8.
|
Commitments
and Contingencies
|
Our operating leases primarily consist of ground leases on which
certain of our facilities or other related property reside.
These ground leases are long-term leases and some contain
escalation provisions. Properties subject to these ground leases
are subleased to our tenants. Lease and rental expense for 2009,
2008 and 2007, respectively, were $859,570, $919,735, and
$702,860, which was offset by sublease rental income of
$438,752, $417,395, and $374,468 for 2009, 2008, and 2007,
respectively.
61
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Fixed minimum payments due under operating leases with
non-cancelable terms of more than one year at December 31,
2009 are as follows: (amounts in thousands)
|
|
|
|
|
2010
|
|
$
|
846
|
|
2011
|
|
|
856
|
|
2012
|
|
|
860
|
|
2013
|
|
|
750
|
|
2014
|
|
|
432
|
|
Thereafter
|
|
|
29,289
|
|
|
|
|
|
|
|
|
$
|
33,033
|
|
|
|
|
|
|
The total amount to be received in the future from
non-cancellable subleases at December 31, 2009, is
$31.5 million.
In November 2009, we reached an agreement to settle all of the
claims asserted by Stealth, L.P. in previously disclosed
litigation concerning the termination of leases of the Houston
Town and Country Hospital and medical office building in October
2006, with the exception of a single contract claim for which
Memorial Hermann Healthcare System has agreed to provide
indemnification. Claims separately asserted against us by six of
Stealth L.P.s limited partners are not affected by the
settlement.
Stealth, L.P. was seeking approximately $330 million for
tort claims that we have now settled for a single payment of
$1.7 million. In addition, we paid $1.0 million to
settle certain contract claims asserted by Stealth, L.P. We
continue to vigorously deny any liability related to this matter
and vigorously deny that Stealth suffered any damages as a
result of any conduct by us.
In January 2010, Memorial Hermann settled all claims
asserted by Stealth including the single tort claim against us
at no additional cost to us.
Also not affected by the settlement with Stealth are certain
contract and tort claims asserted by six of Stealths
limited partners. As part of the settlement in November,
however, Stealth has indemnified us for any judgment amount and
certain defense costs that we may incur related to these claims.
We continue to vigorously deny any liability and intend to
continue vigorously defending against such claims, and believe
that any future costs related to them will not be material.
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.
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 $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 1.3 million
additional shares to cover over allotments, net proceeds from
62
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
this offering, after underwriting discount and commissions, were
$67.8 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.
In November 2009, we put an at-the-market program in place, and
we have the ability to sell up to $50 million of stock
under that plan. During the fourth quarter of 2009, we sold
30,000 shares at an average price per share of $10.25
resulting in a proceeds, net of a 2% sales agent commission, of
$0.3 million.
|
|
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.
The following table summarizes fair value information for our
financial instruments: (amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
Book
|
|
Fair
|
|
Book
|
|
Fair
|
Asset (Liability)
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Interest and Rent Receivables
|
|
$
|
19,845
|
|
|
$
|
16,712
|
|
|
$
|
13,837
|
|
|
$
|
12,475
|
|
Loans
|
|
|
311,006
|
|
|
|
299,133
|
|
|
|
293,523
|
|
|
|
282,459
|
|
Debt
|
|
|
(576,678
|
)
|
|
|
(547,242
|
)
|
|
|
(630,557
|
)
|
|
|
(482,175
|
)
|
|
|
11.
|
Discontinued
Operations
|
In the fourth quarter of 2009, we sold the real estate of a
general acute hospital to Prime for proceeds of approximately
$15 million. The sale was completed on December 28,
2009, resulting in a gain on the sale of $0.3 million. Due
to this sale, we have reclassified the assets of this property
to Real Estate Held for Sale in the accompanying Consolidated
Balance Sheet, which approximated $15.0 million at
December 31, 2008.
In the second quarter of 2008, we sold the real estate assets of
three inpatient rehabilitation facilities to Vibra for proceeds
of approximately $105 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 $9.3 million. We also
wrote off $9.5 million in related straight-line rent
receivables upon completion of the sales.
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
$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 $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 $2.1 million (net of $1.2 million in tax
benefits) of remaining uncollectible receivables from the
operator. We are defendants in ongoing litigation related to
this discontinued operation as described in
Note 8 Contingencies. This litigation has
resulted in a significant amount of legal expenses in 2009 and
2008 including a settlement of $2.7 million reached in the
2009 fourth quarter.
63
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
We have classified current and prior year activity related to
these transactions, along with the related operating results of
the facilities prior to these transactions taking place, as
discontinued operations.
The following table presents the results of discontinued
operations for the years ended December 31, 2009, 2008 and
2007 (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Revenues
|
|
$
|
1,583
|
|
|
$
|
3,269
|
|
|
$
|
14,634
|
|
Gain on sale
|
|
|
278
|
|
|
|
9,305
|
|
|
|
4,061
|
|
Income (loss) from discontinued operations
|
|
|
(2,908
|
)
|
|
|
7,972
|
|
|
|
13,655
|
|
Income (loss) from discontinued operations attributable to MPT
common stockholders diluted per share
|
|
$
|
(0.03
|
)
|
|
$
|
0.13
|
|
|
$
|
0.28
|
|
|
|
12.
|
Quarterly
Financial Data (unaudited)
|
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 2009 and 2008:
(amounts in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2009 Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Revenues
|
|
$
|
31,973
|
|
|
$
|
31,114
|
|
|
$
|
33,693
|
|
|
$
|
32,971
|
|
Income from continuing operations
|
|
|
9,733
|
|
|
|
8,101
|
|
|
|
10,784
|
|
|
|
10,656
|
|
Income (loss) from discontinued operations
|
|
|
984
|
|
|
|
(243
|
)
|
|
|
(400
|
)
|
|
|
(3,249
|
)
|
Net income
|
|
|
10,717
|
|
|
|
7,858
|
|
|
|
10,384
|
|
|
|
7,407
|
|
Net income attributable to MPT common stockholders
|
|
|
10,710
|
|
|
|
7,846
|
|
|
|
10,374
|
|
|
|
7,400
|
|
Net income attributable to MPT common stockholders per
share basic
|
|
$
|
0.14
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
Weighted average shares outstanding basic
|
|
|
76,432
|
|
|
|
78,616
|
|
|
|
78,655
|
|
|
|
78,755
|
|
Net income attributable to MPT common stockholders per
share diluted
|
|
$
|
0.14
|
|
|
$
|
0.09
|
|
|
$
|
0.13
|
|
|
$
|
0.09
|
|
Weighted average shares outstanding diluted
|
|
|
76,432
|
|
|
|
78,616
|
|
|
|
78,655
|
|
|
|
78,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2008 Ended
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Revenues
|
|
$
|
23,341
|
|
|
$
|
31,166
|
|
|
$
|
32,723
|
|
|
$
|
29,541
|
|
Income from continuing operations
|
|
|
8,047
|
|
|
|
8,193
|
|
|
|
6,298
|
|
|
|
2,223
|
|
Income (loss) from discontinued operations
|
|
|
2,853
|
|
|
|
5,191
|
|
|
|
738
|
|
|
|
(810
|
)
|
Net income
|
|
|
10,900
|
|
|
|
13,384
|
|
|
|
7,036
|
|
|
|
1,413
|
|
Net income attributable to MPT common stockholders
|
|
|
10,898
|
|
|
|
13,366
|
|
|
|
7,020
|
|
|
|
1,416
|
|
Net income attributable to MPT common stockholders per
share basic
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.10
|
|
|
$
|
0.02
|
|
Weighted average shares outstanding basic
|
|
|
52,992
|
|
|
|
64,996
|
|
|
|
65,059
|
|
|
|
65,061
|
|
Net income attributable to MPT common stockholders per
share diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.10
|
|
|
$
|
0.02
|
|
Weighted average shares outstanding diluted
|
|
|
53,001
|
|
|
|
65,009
|
|
|
|
65,066
|
|
|
|
65,061
|
|
64
|
|
ITEM 8.
|
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.
The Company has agreed to indemnify and hold KPMG harmless
against and from any and all legal costs and expenses incurred
by KPMG in successful defense of any legal action or proceeding
that arises as a result of KPMGs consent to the inclusion
or incorporation by reference of its audit report on the
Companys past consolidated financial statements included
or incorporated by reference in the Registration Statements on
Form S-8
and
Form S-3.
|
|
ITEM 8A.
|
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
65
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.
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, 2009. 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, 2009,
Medical Properties Trust maintained effective internal control
over financial reporting.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
|
|
ITEM 8B.
|
Other
Information
|
None.
PART III
|
|
ITEM 9.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item 9 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 19, 2010.
|
|
ITEM 10.
|
Executive
Compensation
|
The information required by this Item 10 is incorporated by
reference to our definitive Proxy Statement for the 2010 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 19, 2010.
|
|
ITEM 11.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item 11 is incorporated by
reference to our definitive Proxy Statement for the 2010 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 19, 2010.
|
|
ITEM 12.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item 12 is incorporated by
reference to our definitive Proxy Statement for the 2010 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 19, 2010.
|
|
ITEM 13.
|
Principal
Accountant Fees and Services
|
The information required by this Item 13 is incorporated by
reference to our definitive Proxy Statement for the 2010 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 19, 2010.
66
PART IV
|
|
ITEM 14.
|
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 7 of this Annual
Report on
Form 10-K:
|
|
|
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
Index of Consolidated Financial Statement Schedules
|
|
|
|
|
|
|
|
II-1
|
|
|
|
|
III-1
|
|
|
|
|
IV-1
|
|
67
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
3
|
.1(1)
|
|
Registrants Second Articles of Amendment and Restatement
|
|
3
|
.2(2)
|
|
Registrants Second 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(13)
|
|
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(13)
|
|
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 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
|
.26(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (LTIP Units)
|
|
10
|
.27(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (Restricted Shares)
|
|
10
|
.28(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
|
.29(10)
|
|
First Amendment to Term Loan Agreement
|
|
10
|
.30(17)
|
|
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
|
.31(16)
|
|
Second Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated September 29, 2006
|
|
10
|
.32(16)
|
|
First Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated September 29, 2006
|
|
10
|
.33(16)
|
|
First Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated September 29, 2006
|
|
10
|
.34(16)
|
|
First Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated September 29, 2006
|
|
10
|
.35(8)
|
|
Second Amended and Restated 2004 Equity Incentive Plan
|
|
10
|
.36(14)
|
|
First Amendment to Revolving Credit and Term Loan Agreement
dated March 13, 2008
|
|
10
|
.37(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
|
.38(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
|
.39(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
|
|
10
|
.40(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
|
.41(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
|
69
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.42(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
|
.43(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
|
.44(18)
|
|
Second Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated February 27, 2009
|
|
10
|
.45(18)
|
|
Second Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated January 1, 2008
|
|
10
|
.46(18)
|
|
Third Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated January 1, 2009
|
|
10
|
.47(18)
|
|
Second Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated January 1, 2008
|
|
10
|
.48(18)
|
|
Third Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated January 1, 2009
|
|
10
|
.49(18)
|
|
Second Amendment to Employment Agreement between Registrant and
Richard S. Hamner, dated January 1, 2008
|
|
10
|
.50(18)
|
|
Third Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated January 1, 2009
|
|
10
|
.51(18)
|
|
Third Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated January 1, 2008
|
|
10
|
.52(18)
|
|
Fourth Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated January 1, 2009
|
|
10
|
.53(18)
|
|
Third Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated January 1, 2008
|
|
10
|
.54(18)
|
|
Fourth Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated January 1, 2009
|
|
12
|
.1(19)
|
|
Statement re Computation of Ratios
|
|
21
|
.1(19)
|
|
Subsidiaries of Registrant
|
|
23
|
.1(19)
|
|
Consent of PricewaterhouseCoopers LLP
|
|
23
|
.2(19)
|
|
Consent of KPMG LLP
|
|
23
|
.3(19)
|
|
Consent of Moss Adams LLP
|
|
31
|
.1(19)
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
31
|
.2(19)
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
32
|
(19)
|
|
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(20)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of December 31, 2008 and 2007
|
|
99
|
.2(20)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of September 30, 2009
|
|
|
|
(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 current report on
Form 8-K,
filed with the Commission on November 24, 2009. |
|
(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. |
70
|
|
|
(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) |
|
Not used. |
|
(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) |
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Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the period ended September 30, 2009, filed with the
Commission on November 9, 2009. |
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(18) |
|
Incorporated by reference to Registrants annual report on
Form 10-K
for the period ended December 31, 2008, filed with the
Commission on March 13, 2009. |
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(19) |
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Included in this
Form 10-K. |
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(20) |
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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, 2008 and 2007) and Primes most
recently available financial statements (unaudited, as of and
for the period ended September 30, 2009) are
incorporated by reference to Registrants annual report on
Form 10-K/A
for the period ended December 31, 2008 filed with the
Commission on May 11, 2009 and to Registrants
quarterly report on
Form 10-Q
for the quarter ended September 30, 2009, filed with the
Commission on November 9, 2009, 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. |
71
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: February 12, 2010
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.
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Signature
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Title
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Date
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/s/ Edward
K. Aldag, Jr.
Edward
K. Aldag, Jr.
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Chairman of the Board, President, Chief Executive Officer and
Director (Principal Executive Officer)
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February 12, 2010
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/s/ Virginia
A. Clarke
Virginia
A. Clarke
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Director
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February 12, 2010
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/s/ Sherry
A. Kellett
Sherry
A. Kellett
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Director
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February 12, 2010
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/s/ R.
Steven Hamner
R.
Steven Hamner
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Executive Vice President, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
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February 12, 2010
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/s/ G.
Steven Dawson
G.
Steven Dawson
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Director
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February 12, 2010
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/s/ Robert
E. Holmes, Ph.D.
Robert
E. Holmes, Ph.D.
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Director
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February 12, 2010
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/s/ William
G. McKenzie
William
G. McKenzie
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Vice Chairman of the Board
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February 12, 2010
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/s/ L.
Glenn Orr, Jr.
L.
Glenn Orr, Jr.
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Director
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February 12, 2010
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72
Medical
Properties Trust, Inc.
Schedule II: Valuation and Qualifying Accounts
December 31, 2009
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Balance at
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Additions
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Beginning of
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Charged Against
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Net
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Balance at
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Year Ended December 31,
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Year(1)
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Operations(1)
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Recoveries(1)
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End of Year(1)
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(In thousands)
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2009
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$
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397
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$
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5,107
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$
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1,165
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$
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4,339
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2008
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$
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4,202
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$
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397
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$
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4,202(2
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$
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397
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2007
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$
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2,911
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$
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1,500
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$
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209
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$
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4,202
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(1) |
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Includes allowance for doubtful accounts, straight-line rent
reserves, allowance for loans losses and other reserves. |
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(2) |
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Includes $3.2 million of write offs associated with our West
Houston property that was sold in 2007. |
II-1
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2009
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Life on which
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Depreciation in
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Latest Income
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Additions Subsequent to Acquisition
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Statement is
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Initial Costs
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Carrying
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Cost at December 31, 2009
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Accumulated
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Date of
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Date
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Computed
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Location
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Type of Property
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Land
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Buildings
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Improvements
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Costs
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Land
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Buildings
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Total
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Depreciation
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Encumbrances
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Construction
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Acquired
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(Years)
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(Amounts in thousands)
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Thornton, CO
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Long term acute care hospital
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$
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2,130
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$
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6,013
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$
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1,251
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$
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$
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2,130
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$
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7,264
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$
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9,394
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$
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870
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$
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1962
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August 17, 2004
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40
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New Bedford, MA
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Long term acute care hospital
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1,400
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19,772
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256
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1,400
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20,028
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21,428
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2,657
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1942
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August 17, 2004
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40
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Covington, LA
|
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Long term acute care hospital
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821
|
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10,238
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14
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821
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10,252
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11,073
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1,175
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1984
|
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June 9, 2005
|
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40
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Denham Springs, LA
|
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Long term acute care hospital
|
|
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429
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|
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5,340
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