e424b3
Filed pursuant to Rule 424(b)(3)
Registration No. 333-177186-57
PROSPECTUS
MPT OPERATING PARTNERSHIP, L.P.
MPT FINANCE CORPORATION
Exchange Offer for
up to $450,000,000 Principal Amount Outstanding
of 6.875% Senior Notes due 2021
for a Like Principal Amount of
Registered 6.875% Senior Notes due 2021
Offer for outstanding 6.875% Senior Notes due 2021 in the aggregate principal amount of
$450,000,000 (which we refer to as the Old Notes) in exchange for up to $450,000,000 in aggregate
principal amount of 6.875% Senior Notes due 2021 that have been registered under the Securities Act
of 1933, as amended (the Securities Act) (which we refer to as the Exchange Notes and, together
with the Old Notes, the notes).
Terms of the Exchange Offer
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Expires 5:00 p.m., New York City time, November 16, 2011, unless extended. |
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You may withdraw tendered outstanding Old Notes any time before the expiration or
termination of the exchange offer. |
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The exchange offer is subject to customary conditions that may be waived by us. |
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We will not receive any proceeds from the exchange offer. |
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The exchange of Old Notes for the Exchange Notes should not be a taxable exchange for
U.S. federal income tax purposes. See Material United States Federal Income Tax
Considerations. |
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All Old Notes that are validly tendered and not validly withdrawn prior to the
expiration of the exchange offer will be exchanged for the Exchange Notes. |
Terms of the Exchange Notes:
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The Exchange Notes will mature on May 1, 2021. The Exchange Notes will pay interest
semi-annually in cash in arrears on May 1 and November 1 of each year, beginning on
May 1, 2012. |
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The Exchange Notes will be fully and unconditionally guaranteed, jointly and severally,
on an unsecured basis, by our parent company, Medical Properties Trust, Inc., and each of
our subsidiaries that guarantees our credit facility, which we amended and restated on
April 26, 2011. |
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The Exchange Notes and the related guarantees will rank effectively junior to all
secured indebtedness to the extent of the value of the collateral securing such debt, pari
passu with all existing and future senior unsecured indebtedness and senior to all existing
and future indebtedness that by its terms is expressly subordinated to the Exchange Notes. |
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We may redeem the Exchange Notes in whole or in part from time to time. See Description
of Exchange Notes. |
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Upon a change of control, we must give holders the opportunity to sell their Exchange
Notes to us at 101% of their principal amount plus accrued and unpaid interest, if any. |
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The terms of the Exchange Notes are identical to those of the outstanding Old Notes,
except the transfer restrictions, registration rights and additional interest provisions
relating to the Old Notes do not apply to the Exchange Notes. |
For a discussion of the specific risks that you should consider before tendering your Old
Notes in the exchange offer, see Risk Factors beginning
on page 8 of this prospectus.
No public market exists for the outstanding Old Notes. We do not intend to list the Exchange
Notes on any securities exchange and, therefore, no active public market is anticipated for the
Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant to the exchange
offer must acknowledge that it will deliver a prospectus in connection with any resale of such
Exchange Notes. A broker-dealer who acquired Old Notes as a result of market making or other
trading activities may use this exchange offer prospectus, as supplemented or amended from time to
time, in connection with any resales of the Exchange Notes.
Neither the Securities and Exchange Commission (the SEC) nor any state securities commission
has approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
The
date of this prospectus is October 19, 2011.
Each broker-dealer that receives Exchange Notes for its own account pursuant to the exchange
offer must acknowledge that it will deliver a prospectus in connection with any resale of such
Exchange Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the Securities Act. A broker
dealer who acquired Old Notes as a result of market making or other trading activities may use this
prospectus, as supplemented or amended from time to time, in connection with any resales of the
Exchange Notes. We have agreed that, for a period of up to 180 days after the closing of the
exchange offer, we will make this prospectus available for use in connection with any such resale.
See Plan of Distribution.
You should rely only on the information contained in this prospectus. We have not authorized
anyone to provide you with information different from that contained in this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to buy securities
other than those specifically offered hereby or an offer to sell any securities offered hereby in
any jurisdiction where, or to any person whom, it is unlawful to make such offer or solicitation.
The information contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the Exchange Notes.
TABLE OF CONTENTS
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Unless the context requires or otherwise indicates, references in this prospectus to we, our,
us or our company refer to MPT Operating Partnership, L.P., a Delaware limited partnership, and
its consolidated subsidiaries, including MPT Finance Corporation, a Delaware corporation, together
with Medical Properties Trust, LLC, a Delaware limited liability company and MPT Operating
Partnership, L.P.s sole general partner, and Medical Properties Trust, Inc., a Maryland
corporation and the sole equity owner of Medical Properties Trust, LLC. References to Operating
Partnership refer to MPT Operating Partnership, L.P. References to Medical Properties refer to
Medical Properties Trust, Inc. Medical Properties has a 99.9% equity ownership interest in the
Operating Partnership and the Operating Partnership has a 100% equity ownership interest in MPT
Finance Corporation.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements and information. Any statements that do
not relate to historical or current facts or matters are forward-looking statements.
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, if any; and |
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the impact of technology on our facilities, operations and business. |
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 the
Exchange Notes, along with, among others, the following factors that could cause actual results to
vary from our forward-looking statements:
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factors referenced herein under the section captioned Risk Factors; |
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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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Medical Properties Trust, Inc.s ability to maintain its 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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the continuing impact of the recent economic recession, which may 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 to dispose
of assets at attractive prices or obtain or maintain debt financing secured by our
properties or on an unsecured basis. |
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 prospectus to reflect future events or developments.
MARKET AND INDUSTRY DATA
This prospectus includes information with respect to market share and industry conditions from
third-party sources or based upon our estimates using such sources when available. While we believe
that such information and estimates are reasonable and reliable, we have not independently verified
any of the data from third-party sources. Similarly, our internal research is based upon our
understanding of industry conditions, and such information has not been independently verified.
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SUMMARY
This summary highlights information contained in this prospectus. It is not complete and does
not contain all of the information that you should consider before participating in the exchange
offer. You should read the following summary together with the more detailed information regarding
our company, the Exchange Notes and the financial statements and notes thereto appearing elsewhere
in this prospectus.
Our Business
Medical Properties is a self-advised real estate investment trust (REIT) that was
incorporated under Maryland law on August 27, 2003 primarily for the purpose of investing in and
owning net-leased healthcare facilities across the United States. We acquire and develop healthcare
facilities and lease the facilities to healthcare operating companies under long-term net leases,
which require the tenants to bear most of the costs associated with the properties. We also
occasionally make mortgage loans to healthcare operators collateralized by their real estate
assets. In addition, we selectively make loans to, and other investments in, certain of our
operators through our taxable REIT subsidiaries, the proceeds of which have historically been used
for acquisitions and working capital. Finally, from time to time, we acquire a profit or other
equity interest in certain of our tenants that gives us a limited right to share in such tenants
positive cash flow.
As of June 30, 2011, our portfolio consisted of 58 properties: 54 facilities (of the 56
facilities that we own, of which two are subject to long-term ground leases) are leased to 19
tenants, one is presently not under lease, one is under development, and the remainder are in the
form of mortgage loans. Our owned and ground leased facilities consist of 22 general acute care
hospitals, 17 long-term acute care hospitals, nine inpatient rehabilitation hospitals, two medical
office buildings, and six wellness centers. The non-owned facilities on which we have made mortgage
loans consist of general acute care facilities. As of June 30, 2011, our weighted average in-place
remaining lease term across our portfolio was approximately 10 years. In addition, our two mortgage
loans as of June 30, 2011 mature in 2022.
Our strategy is to lease our facilities to tenants that are managed by experienced 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 or other equity
interests in certain of our tenants operations 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 and investors. We focus on acquiring and developing those net-leased facilities that are
specifically designed to address the evolving needs and delivery processes of the nations leading
healthcare providers.
We expect the sources of our revenue for the foreseeable future to be similar to the sources
of our 2010 revenue described in the above paragraphs and the tables in this section. Other sources
presently include, or may include in the future, rents from medical office building tenants,
wellness centers, ambulatory surgery centers, other single discipline licensed hospitals and
smaller facilities such as emergency and other clinics.
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 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 and borrowers 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, which we believe may provide early
indications of conditions that may affect the level of risk in our lease and loan portfolio.
Corporate Information
MPT Operating Partnership, L.P., a Delaware limited partnership, and MPT Finance Corporation,
a Delaware corporation, are subsidiaries of Medical Properties Trust, Inc., a Maryland corporation.
MPT Finance Corporation is a wholly owned subsidiary of the Operating Partnership formed for the
purpose of acting as a co-
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issuer of the notes and does not and will not have any substantial operations, assets or
revenues. The subsidiary guarantors of the notes are all organized in the State of Delaware.
The executive offices of MPT Operating Partnership, L.P., MPT Finance Corporation, Medical
Properties Trust, Inc. and the subsidiary guarantors are located at 1000 Urban Center Drive, Suite
501, Birmingham, Alabama 35242. Our telephone number is (205) 969-3755.
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The Exchange Offer
On April 26, 2011, the Operating Partnership and MPT Finance Corporation (together, the
Issuers) sold, through a private placement exempt from the registration requirements of the
Securities Act, $450,000,000 principal amount of 6.875% Senior Notes due 2021 (the Old Notes), all
of which are eligible to be exchanged for notes which have been registered under the Securities Act
(the Exchange Notes). The Old Notes and the Exchange Notes are referred to together as the
notes.
Simultaneously with the private placement, we entered into a registration rights agreement
with the initial purchasers of the Old Notes (the Registration Rights Agreement). Under the
Registration Rights Agreement, we agreed to cause a registration statement relating to
substantially identical notes, which will be issued in exchange for the Old Notes, to be filed with
the Securities and Exchange Commission (the SEC) and to use our commercially reasonable efforts
to complete the exchange offer within 270 days following the date on which we issued the Old Notes.
You may exchange your Old Notes for Exchange Notes in this exchange offer. You should read the
discussion under the headings The Exchange Notes, The Exchange Offer and Description of
Exchange Notes for further information regarding the Exchange Notes.
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Securities to be Exchanged
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Up to $450,000,000 principal
amount of 6.875% Senior Notes
due 2021. |
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The Exchange Offer; Securities Act
Registration
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We are offering to exchange
the Old Notes for an equal
principal amount of the
Exchange Notes. Old Notes may
be exchanged only in
denominations of $2,000 of
principal amount and any
integral multiple of $1,000 in
excess thereof. |
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The exchange offer is being
made pursuant to the
Registration Rights Agreement,
which grants the initial
purchasers and any subsequent
holders of the Old Notes
certain exchange and
registration rights. This
exchange offer is intended to
satisfy those exchange and
registration rights with
respect to the Old Notes.
After the exchange offer is
complete and except for our
obligations to file a shelf
registration statement under
the circumstances described
below, you will no longer be
entitled to any exchange or
registration rights with
respect to Old Notes. |
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You may tender your
outstanding Old Notes for
Exchange Notes by following
the procedures described under
the heading The Exchange
Offer. |
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Expiration Date
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The exchange offer will expire
at 5:00 p.m., New York City
time, on November 16,
2011, or a later date and time
to which the Issuers may
extend it. |
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Withdrawal Rights
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You may withdraw your tender
of the Old Notes at any time
prior to the expiration date
of the exchange offer. Any Old
Notes not accepted by us for
exchange for any reason will
be returned to you at our
expense promptly after the
expiration or termination of
the exchange offer. |
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Conditions to the Exchange Offer
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The exchange offer is subject to customary conditions,
some of which we may waive. |
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We intend to conduct the exchange offer in accordance
with the provisions of the Registration Rights Agreement
and the applicable requirements of the Securities Act,
the Securities Exchange Act of 1934, as amended (the
Exchange Act), and the rules and regulations of the
SEC. |
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For more information, see The Exchange OfferConditions
to the Exchange Offer. |
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Procedures for Tendering Old Notes
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Since the Old Notes are represented by global book-entry notes, the |
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Through Brokers and Banks
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Depositary Trust Company (DTC), as
depositary, or its nominee is treated as the registered
holder of the Old Notes and will be the only entity that
can tender your Old Notes for Exchange Notes. |
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To tender your outstanding Old Notes, you must instruct
the institution where you keep your Old Notes to tender
your Old Notes on your behalf so that they are received
on or prior to the expiration of this exchange offer. By
tendering your Old Notes you will be deemed to have
acknowledged and agreed to be bound by the terms set
forth under The Exchange Offer. Your outstanding Old
Notes must be tendered in denominations of $2,000 of
principal amount and any integral multiple of $1,000 in
excess thereof. |
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In order for your tender to be considered valid, the
exchange agent must receive a confirmation of book-entry
transfer of your outstanding Old Notes into the exchange
agents account at DTC, under the procedure described in
this prospectus under the heading The Exchange Offer,
on or before 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
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See The Exchange Offer for more information regarding
the procedures for tendering Old Notes. |
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Effect of Not Tendering Old Notes
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If you do not tender your Old Notes or if you do tender
them but they are not accepted by us, your Old Notes will
continue to be subject to the existing restrictions upon
transfer. Except for our obligation to file a shelf
registration statement under the circumstances described
below, we will have no further obligation to provide for
the registration under the Securities Act of Old Notes.
If your outstanding Old Notes are not tendered and
accepted in the exchange offer, it may become more
difficult for you to sell or transfer your outstanding
Old Notes. |
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Resale of the Exchange Notes |
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Under existing interpretations by the staff of the SEC as
set forth in no-action letters issued to unrelated third
parties and referenced below, we believe that the
Exchange Notes issued in the exchange offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act, if you: |
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are not an affiliate of ours within
the meaning of Rule 405 of the Securities Act; |
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are acquiring the Exchange Notes in the
ordinary course of business; and |
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have no arrangement or understanding
with any person to participate in a distribution of the
Exchange Notes. |
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In addition, each participating broker-dealer that
receives Exchange Notes for its own account pursuant to
the exchange offer in exchange for Old Notes that were
acquired as a result of market-making or other trading
activity must also acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange
Notes. For more information, see Plan of Distribution.
Any holder of Old Notes, including any broker-dealer, who: |
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is our affiliate, |
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does not acquire the Exchange Notes in
the ordinary course of its business, or |
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tenders in the exchange offer with the
intention to participate, or for the purpose of
participating, in a distribution of Exchange Notes, |
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cannot rely on the position of the staff of the SEC
expressed in Exxon Capital Holdings Corporation, Morgan
Stanley & Co., Incorporated or similar no-action letters
and, in the absence of an applicable exemption, must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the
resale of the Exchange Notes or it may incur liability
under the Securities Act. We will not be responsible for,
or indemnify against, any such liability. |
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Minimum Condition
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The exchange offer is not conditioned on any minimum
aggregate principal amount of Old Notes being tendered
for exchange. |
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Appraisal or Dissenters Rights
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Holders of the Old Notes do not have any appraisal or
dissenters rights in connection with the exchange offer. |
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Material United States Federal
Income Tax Considerations
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Your exchange of Old Notes for Exchange Notes to be
issued in the exchange offer will not be a taxable event
for U.S. federal income tax purposes. See Material
United States Federal Income Tax Considerations for a
summary of U.S. federal tax consequences associated with
the exchange of Old Notes for Exchange Notes and the
ownership and disposition of those Exchange Notes. |
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Use of Proceeds
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We will not receive any proceeds from the issuance of
Exchange Notes pursuant to the exchange offer. |
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Exchange Agent
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Wilmington Trust Company is serving as the exchange agent
in connection with the exchange offer. The address and
telephone number of the exchange agent are set forth
under the heading The Exchange OfferExchange Agent. |
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Shelf Registration Statement
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The Registration Rights Agreement requires that we file a
shelf registration statement, in addition to or in lieu
of conducting the exchange offer, in the event that: |
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(a) we are not permitted to file the exchange offer
registration statement or to consummate the exchange
offer due to a change in law or SEC policy; |
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(b) for any reason, we do not consummate the exchange
offer within 270 days following the date on which we
issued the Old Notes; or |
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(c) any of the initial purchasers party to the
Registration Rights Agreement notifies us that it holds
Old Notes that are or were ineligible to be exchanged in
the exchange offer. |
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The Exchange Notes
The summary below describes the principal terms of the Exchange Notes. Certain of the terms
and conditions described below are subject to important limitations and exceptions. The terms of
the Exchange Notes are identical to the terms of the Old Notes, except that the transfer
restrictions, registration rights and provisions for additional interest relating to the Old Notes
do not apply to the Exchange Notes. The Description of Exchange Notes section of this prospectus
contains a more detailed description of the terms and conditions of the Exchange Notes. References
to we, us and our refer only to MPT Operating Partnership, L.P. and MPT Finance Corporation
and not to their subsidiaries or any other entity.
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Issuers
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MPT Operating Partnership, L.P. and MPT Finance Corporation, as
co-issuers. |
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Securities Offered
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$450,000,000 principal amount of 6.875% Senior Notes due 2021. |
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Maturity
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May 1, 2021. |
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Interest
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Interest on the Exchange Notes will accrue from the date of the
original issuance of the Old Notes or from the date of the last
payment of interest on the Old Notes, whichever is later.
Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. We will not pay interest on
Old Notes tendered and accepted for exchange. |
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Interest Rate
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Interest will accrue at a rate of 6.875% per annum. |
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Interest Payment Dates
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Each May 1 and November 1,
beginning on May 1, 2012. |
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Ranking
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The Exchange Notes will be our and the guarantors general senior
unsecured obligations, will rank equal in right of payment with
all of such entities existing and future senior indebtedness,
including the Old Notes and borrowings under our credit facility,
and will rank senior in right of payment to all of such entities
existing and future subordinated indebtedness; however, the
Exchange Notes will be effectively subordinated to all of our and
the guarantors secured indebtedness to the extent of the value
of the collateral securing such indebtedness. The Exchange Notes
will also be structurally subordinated to the indebtedness and
other obligations of our subsidiaries that do not guarantee the
Exchange Notes with respect to the assets of such entities. As
of December 31, 2010 and June 30, 2011, our subsidiaries that do
not guarantee the Old Notes and will not guarantee the Exchange
Notes had $15.3 million and $59.8 million, respectively, of
indebtedness and other liabilities and had assets of $165.8
million and $210.0 million, respectively (or, in each case, less
than 13% of our companys consolidated total assets). For the
year ended December 31, 2010 and the six months ended June 30,
2011, our subsidiaries that do not guarantee the Old Notes and
will not guarantee the Exchange Notes had revenues of $27.1
million (or 22% of our companys consolidated revenues) and $11.3
million (or 16% of our companys consolidated revenues),
respectively. |
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Guarantees
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The Exchange Notes will be unconditionally guaranteed, jointly
and severally, on a senior unsecured basis by our parent company
and by each of our subsidiaries that guarantees our credit
facility. The subsidiary guarantees may be released under
certain circumstances. See Description of Exchange
NotesGuarantees. |
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Optional Redemption
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We may redeem some or all of the notes at any time after May 1,
2016 at the redemption prices set forth in Description of
Exchange NotesOptional Redemption. We may also redeem up to
35% of the aggregate principal amount of the notes using the
proceeds from certain equity offerings completed before May 1,
2014. In addition, we may redeem some or all the notes on or
prior to May 1, 2016 at a redemption price |
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equal to 100% of the
principal amount thereof plus accrued and unpaid interest up to,
but excluding, the applicable redemption date and a make-whole
premium. See Description of Exchange NotesOptional
Redemption. |
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Change of Control;
Certain Asset Sales
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If the Operating Partnership or our parent company, Medical
Properties Trust, Inc., experiences a change of control, we will
be required to make an offer to purchase the notes at a price
equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the purchase date under certain
circumstances. See Description of Exchange NotesRepurchase of
notes upon a change of control. If the Operating Partnership or
any of its restricted subsidiaries sell assets, we will be
required to make an offer to purchase the notes at their face
amount, plus accrued and unpaid interest to the purchase date
under certain circumstances. See Description of Exchange
NotesAsset Sales. |
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Certain Covenants
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The indenture governing the notes (including the Exchange Notes)
contains covenants that, among other things, limit our ability
and the ability of our restricted subsidiaries to, among other
things: |
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incur debt |
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pay dividends and make distributions; |
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create liens |
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enter into transactions with affiliates; and |
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merge, consolidate or transfer all or substantially all of our assets. |
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In addition, we are required to maintain Total Unencumbered
Assets (as defined in Description of Exchange Notes) of at
least 150% of our unsecured indebtedness. These covenants are
subject to a number of important limitations and exceptions. See
Description of Exchange NotesCovenants. |
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Absence of a Public
Market for the
Exchange Notes
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The Exchange Notes are a new issue of securities with no
established public market. We do not intend to apply for listing
of the Exchange Notes on any securities exchange. |
You should refer to the section titled Risk Factors on page 8 of this prospectus for a
description of some of the risks you should consider before tendering your Old Notes for
Exchange Notes.
7
RISK FACTORS
Before you decide to participate in the exchange offer, you should be aware that an
investment in the Exchange Notes involves various risks and uncertainties, including those
described below. You should carefully consider the risks and uncertainties described below with all
of the other information that is included in this prospectus. If any of these risks actually occur,
our business, financial position or results of operations could be materially adversely affected,
and you could lose all or part of your investment.
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 and financial condition and the ability of
Medical Properties to pay distributions to its stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes.
Our business may be affected by market and economic challenges experienced by the U.S.
economy or real estate industry as a whole or by the local economic conditions in the markets in
which our properties are located, including the continuing impact of high unemployment and
constrained credit. These conditions, or similar conditions that may exist in the future, may
adversely affect our results of operations and financial condition and the ability of Medical
Properties to pay distributions to its stockholders required to maintain its REIT status, and could
have a material adverse effect on our ability to meet our debt service obligations, including
payments on the notes. Among other potential consequences, such conditions 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. |
Limited access to capital may restrict our growth.
Our business plan contemplates growth through acquisitions and development of facilities. As a
REIT, Medical Properties is required to make cash distributions, which reduce our ability to fund
acquisitions and developments with retained earnings. We are dependent on acquisition financing and
access to the capital markets for cash to make investments in new facilities. Due to market or
other conditions, we may have limited access to capital from the equity and debt markets. 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 financial
condition and the ability of Medical Properties to pay distributions to its stockholders required
to maintain its REIT status, and our ability to meet our debt service obligations, including
payments on the notes.
Our use of debt financing will subject us to significant risks, including refinancing risk and the
risk of insufficient cash available for distribution to Medical Properties 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.
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Failure to hedge effectively against interest rate changes may adversely affect our results of
operations, Medical Properties ability to make distributions to its stockholders required to
maintain its REIT status and our ability to meet our debt service obligations, including payments
on the notes.
As of December 31, 2010 and June 30, 2011, we had $147.9 million and $39.6 million,
respectively, in variable interest rate debt, which constituted 40.0% and 5.5% of our overall
indebtedness as of such dates, and subjects us to interest rate volatility. We may seek to manage
our exposure to interest rate volatility by using interest rate hedging arrangements, such as the
$125 million of interest rate swaps entered into in 2010 on our senior unsecured notes. However,
these hedging arrangements 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 Medical
Properties ability to make distributions to its stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes.
Dependence on our tenants for payments of rent and interest may adversely impact Medical
Properties ability to make distributions to its stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes.
We expect Medical Properties to continue to qualify as a REIT and, accordingly, as a REIT
operating in the healthcare industry, we are severely limited by current tax law with respect to
our ability 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 or other loans for cash. We have no control over
the success or failure of these tenants businesses. Significant adverse changes in the operations
of our facilities (as was the case with the previous tenant of our River Oaks facility), 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 Medical Properties
ability to make distributions to its stockholders required to maintain its REIT status and our
ability to meet our debt service obligations, including payments on the notes. 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.
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 would be required to find another tenant-operator. The
transfer of most types of healthcare facilities is highly regulated, which may result in delays and
increased costs in locating a suitable replacement tenant. The sale or lease of these properties to
entities other than healthcare operators may be difficult due to the added cost and time of
refitting the properties. If we are unable to re-let the properties to healthcare operators, we may
be forced to sell the properties at a loss due to the repositioning expenses likely to be incurred
by non-healthcare purchasers. Alternatively, we may be required to spend substantial amounts to
adapt the facility to other uses. There can be no assurance that we would be able to find another
tenant in a timely fashion, or at all, or that, if another tenant were found, we would be able to
enter into a new lease on favorable terms. Defaults by our tenants (such as with the former tenant
of our River Oaks facility and the costs we have incurred to maintain and re-develop the facility)
under our leases may adversely affect our results of operations, financial condition, and Medical
Properties ability to make distributions to its stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes.
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Our revenues are dependent upon our relationship with, and success of, Prime Healthcare Services,
Inc., or Prime, and Vibra Healthcare, LLC, or Vibra.
As of June 30, 2011, our real estate portfolio included 58 healthcare properties in 22 states
of which 54 facilities are leased to 19 hospital operating companies; two of the investments are in
the form of mortgage loans. Affiliates of Prime leased or mortgaged 13 facilities, representing
30.0% of the original total cost of our operating facilities and mortgage loans as of June 30,
2011, and Vibra leased six of our facilities, representing 9.3% of the original total cost of our
operating facilities and loans as of June 30, 2011. Total revenue from Prime and Vibra, including
rent, percentage rent and interest, was $22.5 million and $9.1 million, respectively, or 31.2% and
12.6%, respectively, of total revenue from continuing operations for the six months ended June 30,
2011.
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 could have a material adverse effect on our financial
condition and results of operations and Medical Properties ability to make distributions to its
stockholders required to maintain its REIT status and our ability to meet our debt service
obligations, including payments on the notes.
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 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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healthcare providers, including physicians; |
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real estate developers; |
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financial institutions; and |
Many of these competitors may 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
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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 or interest income.
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 turnover of our facilities could materially adversely
affect our ability to execute our business plan and our results of operations.
We have 45 leased properties that are subject to purchase options as of June 30, 2011. For 31
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 (1) fair market value or (2) our purchase price (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 11 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 three leases, the purchase options approximate fair
value. As of June 30, 2011, 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 the Federal Anti-Kickback Statute, or the Anti-Kickback Statute, and the Federal
Physical Self-Referral Statute, or the Stark Law, which are described in BusinessApplicable
Laws. 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 Medical Properties ability
to make distributions to its stockholders required to maintain its REIT status and our ability to
meet our debt service obligations, including payments on the notes.
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, and Emmett E. McLean 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.
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Risks Related 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, Medical Properties
ability to make distributions to its stockholders required to maintain its REIT status and our
ability to meet our debt service obligations, including payments on the notes. 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.
Primarily all of the facilities in our current portfolio are and primarily 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 Medical Properties ability to make
distributions to its stockholders required to maintain its REIT status and our ability to meet our
debt service obligations, including payments on the notes.
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 and Medical Properties ability to make distributions to its stockholders
required to maintain its REIT status and our ability to meet our debt service obligations,
including payments on the notes.
Development and construction risks could adversely affect Medical Properties ability to make
distributions to its stockholders required to maintain its REIT status and our ability to meet our
debt service obligations, including payments on the notes.
We have developed and constructed facilities in the past and are currently developing one facility,
while redeveloping another. 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. |
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. Finally, 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 Medical Properties ability to
make, distributions to its stockholders required to maintain its REIT status and our ability to
meet our debt service obligations, including payments on the notes.
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. |
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.
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, Medical
Properties ability to make distributions to its stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes.
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
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capital gain, each year to maintain Medical Properties 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 Medical Properties status as a REIT, and adversely affecting our ability
to meet our debt service obligations, including payments on the notes.
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 Medical Properties ability to make distributions to its
stockholders required to maintain its REIT status and our ability to meet our debt service
obligations, including payments on the notes.
Facilities, particularly those that consist of older structures, have an ongoing need for
renovations and other capital improvements, including periodic replacement of fixtures and fixed
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 and Medical
Properties ability to make distributions to its stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes.
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
and mortgage loans generally provide that the property taxes are charged to our tenants and
borrowers 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 tenants and borrowers 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 meet
our debt service obligations, including payments on the notes, 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 laws and regulations. Various environmental laws may impose liability on the
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
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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 Medical Properties stockholders required to maintain its REIT status
and our ability to meet our debt service obligations, including payments on the notes, 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 them 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 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 two 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.
Risks Related 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.
For 2010 and the six months ended June 30, 2011, approximately 39% and 34%, respectively, of
our revenues were derived from our hospitals located in California, which are leased to Prime and
Vibra. The sources of revenue for Prime and Vibra maybe adversely affected by changes in
Californias healthcare laws and regulations, which could negatively affect their ability to make
lease payments to us and Medical Properties ability to make distributions to its stockholders
required to maintain its REIT status and our ability to meet our debt service obligations,
including payments on the notes.
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
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revenues attributable to managed care payors, government payors and general industry trends
that include pressures to control healthcare costs. Pressures to control healthcare costs and a
shift away from traditional health insurance reimbursement have resulted in an increase in the
number of patients whose healthcare coverage is provided under managed care plans, such as health
maintenance organizations and preferred provider organizations. In addition, due to the aging of
the population and the expansion of governmental payor programs, we anticipate that there will be a
marked increase in the number of patients relying on healthcare coverage provided by governmental
payors. These changes could have a material adverse effect on the financial condition of some or
all of our tenants, which could have a material adverse effect on our financial condition and
results of operations and could negatively affect Medical Properties ability to make distributions
to its stockholders required to maintain its REIT status and our ability to meet our debt service
obligations, including payments on the notes. In instances where we own a minority interest in our
tenants operations, 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, Centers for Medicare and Medicaid Services, or CMS, has increased
its attention on reimbursement for long-term acute care hospitals, or LTACHs, and inpatient
rehabilitation facilities, or IRFs, with CMS imposing 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 Medical Properties ability to make distributions to its stockholders
required to maintain its REIT status and our ability to meet our debt service obligations,
including payments on the notes. In instances where we own a minority interest in our tenants
operations, 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.
Licensed health care facilities must comply with minimum health and safety standards and are
subject to survey and inspection by state and federal agencies and their agents or affiliates,
including the CMS, the Joint Commission, and state departments of health. CMS develops Conditions
of Participation and Conditions for Coverage that health care organizations must meet in order to
begin and continue participating in the Medicare and Medicaid programs. These minimum health and
safety standards are aimed at improving quality and protecting the health and safety of
beneficiaries. There are several common criteria that exist across health entities. Examples of
common conditions include: a governing body responsible for effectively governing affairs of the
organization, a quality assurance program to evaluate entity-wide patient care, medical record
service responsible for medical records, a utilization review that reviews the services furnished
by the organization and its staff, a facility constructed, arranged and maintained according to a
life safety code that ensures patient safety and the deliverance of services appropriate to the
needs of the community.
For example, the Medicare program contains specific requirements with respect to the
maintenance of medical records. Medical records must be maintained for every individual who is
evaluated or treated at a hospital. Medical records must be accurately written, promptly completed,
properly filed and retained, and accessible. Medicare surveyors may conduct on site visits for a
variety of reasons, including to investigate a patient complaint or to survey the hospital for
compliance with Medicare requirements. In such instances, Medicare surveyors generally review a
large sampling of patient charts. If a pattern of incomplete medical records is identified, the
hospitals Medicare certification could be jeopardized if a plan of correction is not completed. In
order for a health care organization to continue receiving payment from the Medicare and Medicaid
programs, it must comply with conditions of participation, or standards, as set forth in federal
regulations. Further, many hospitals and other institutional providers are accredited by
accrediting agencies such as the Joint Commission, a national health care accrediting organization.
The Joint Commission was created to accredit healthcare organizations that meet its
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minimum health and safety standards. A national accrediting organization, such as the Joint
Commission, enforces standards that meet or exceed such requirements.
Surveyors for the Joint Commission, prior to the opening of a facility and approximately every
three years thereafter, conduct on site surveys of facilities for compliance with a multitude of
patient safety, treatment, and administrative requirements. Facilities may lose accreditation for
failure to meet such requirements, which in turn may result in the loss of license or
certification. For example, a facility may lose accreditation for failing to maintain proper
medication in the operating room to treat potentially fatal reactions to anesthesia, or for failure
to maintain safe and sanitary medical equipment. Finally, health care facility reimbursement
practices and quality of care issues may result in loss of license or certification. For instance,
the practice of upcoding, whereby services are billed for higher procedure codes than were
actually performed, may lead to the revocation of a hospitals license. An event involving poor
quality of care, such as that which leads to the serious injury or death of a patient, may also
result in loss of license or certification. The Services Employees International Union (SEIU) has
alleged that our tenant, Prime, may have upcoded for certain procedures and may be providing poor
quality of care. Prime has addressed these allegations publicly and has provided clinical and other
data to us refuting these allegations. Prime has also informed us that the SEIU is attempting to
organize certain Prime employees.
The failure of any tenant to comply with such laws, requirements, and regulations resulting in
a loss of its license would affect its ability to continue its operation of the facility and would
adversely effect the tenants ability to make lease and principal and interest payments to us.
This, in turn, 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 shareholders. In
instances where we own a minority interest in our tenants operations, in addition to the effects
on these tenants ability to meet their financial obligations to us, our ownership and investment
interests would also be negatively impacted.
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. 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
tenants operations, 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 and mortgagors are subject to fraud and abuse laws, the violation of which by a tenant
or mortgagor may jeopardize the tenants or mortgagors 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. In
addition, 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. 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
or mortgagors could jeopardize any tenants or mortgagors 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 in our tenants or mortgagors operations, in addition to the effect on these
tenants or mortgagors ability to meet their financial obligations to us, our ownership and
investment interests may also be negatively impacted.
Some of our tenants 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
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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 or
mortgagors 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 tenants or mortgagors operations, in
addition to the effect on these tenants or mortgagors 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.
Although no such investment exists today, 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 tenants operations, 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 change.
Tax Risks Associated with Medical Properties Status as a REIT
Loss of Medical Properties tax status as a REIT would have significant adverse consequences to us
and could have significant adverse consequences to the trading price of the notes.
We believe that Medical Properties qualifies as a REIT for federal income tax purposes and has
qualified as a REIT under the federal income tax laws commencing with its 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 Medical Properties has qualified or will continue
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 Medical Properties board of directors to revoke the REIT election, which it may do without
approval of our stockholders or holders of the notes.
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If Medical Properties loses or revokes its REIT status for any taxable year for which the
statue of limitations remains open, we will face serious tax consequences that could substantially
reduce the funds available for our debt service obligations, including payments on the notes,
because:
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we would not be allowed a deduction for distributions to our 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. |
As a result of all these factors, a failure to achieve or a loss or revocation of Medical
Properties REIT status for any taxable year for which the statue of limitations remains open could
have a material adverse effect on our financial condition and results of operations and could
adversely affect the trading price of the notes.
Failure to make required distributions would subject us to tax.
In order for Medical Properties to qualify as a REIT, each year it must distribute to its
stockholders at least 90% of its REIT taxable income, excluding net capital gain. To the extent
that it satisfies the distribution requirement, but distributes less than 100% of its taxable
income, Medical Properties will be subject to federal corporate income tax on its undistributed
taxable income. In addition, it will incur a 4% nondeductible excise tax on the amount, if any, by
which its distributions in any year are less than the sum of (1) 85% of its ordinary income for
that year; (2) 95% of its capital gain net income for that year; and (3) 100% of its undistributed
taxable income from prior years.
Medical Properties may be required to make distributions to its 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 Medical
Properties stockholders required to maintain its REIT status and the limited partners of the
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.
For Medical Properties to qualify as a REIT for federal income tax purposes, it 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 Medical Properties stockholders and
the ownership of its stock. In order to meet these tests, we may be required to forego attractive
business or investment opportunities. Overall, no more than 25% of the value of our assets may
consist of securities of one or more taxable REIT subsidiaries and no more than 25% of the value of
our assets may consist of securities that are not qualifying assets under the test requiring that
75% of a REITs assets consist of real estate and other related assets. Further, a taxable REIT
subsidiary may not directly or indirectly operate or manage a healthcare facility. For purposes of
this definition a healthcare facility means a hospital, nursing facility, assisted living
facility, congregate care facility, qualified continuing care facility, or other licensed facility
which extends medical or nursing or ancillary services to patients and which is operated by a
service provider that is eligible for participation in the Medicare program under Title XVIII of
the Social Security Act with respect to the facility. Thus, compliance with the REIT requirements
may limit our flexibility in executing our business plan.
Loans to our tenants could be recharacterized as equity, in which case our interest income from
that tenant might not be qualifying income under the REIT rules and Medical Properties could lose
its REIT status.
In connection with the acquisition in 2004 of certain Vibra facilities, one of our taxable
REIT subsidiaries made a loan to Vibra in an aggregate amount of $41.4 million to acquire the
operations at those Vibra facilities. As
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of June 30, 2011, that loan had been reduced to $19.1 million. The acquisition loan bears
interest at an annual rate of 10.25%. The Operating Partnership loaned the funds to our taxable
REIT subsidiary to make these loans. The loan from the Operating Partnership to our taxable REIT
subsidiary bears interest at an annual rate of 9.25%.
Our taxable REIT subsidiaries have 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. 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, Medical
Properties could lose its REIT status. In addition, if the IRS were to successfully treat a
particular loan as interests held by the Operating Partnership rather than by our taxable REIT
subsidiaries, 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, Medical Properties could lose its REIT status for any taxable
year for which the statute of limitations remains open, which would subject it to corporate level
income tax and adversely affect its ability to meet our debt service obligations, including
payments on the notes.
Risks Relating to the Exchange Offer
You may not be able to sell your Old Notes if you do not exchange them for Exchange Notes in the
exchange offer.
If you do not exchange your Old Notes for Exchange Notes in the exchange offer, your Old Notes
will continue to be subject to restrictions on transfer. In general, you may not offer, sell or
otherwise transfer the Old Notes in the United States unless they are:
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registered under the Securities Act; |
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offered or sold pursuant to an exemption from the Securities Act and applicable
state securities laws; or |
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offered or sold in a transaction not subject to the Securities Act and
applicable state securities laws. |
The Issuers and the guarantors do not currently anticipate that they will register the Old
Notes under the Securities Act and, except for limited instances, they will not be under any
obligation to do so under the Registration Rights Agreement or otherwise.
Your ability to sell your Old Notes may be significantly more limited and the price at which you
may be able to sell your Old Notes may be significantly lower if you do not exchange them for
Exchange Notes in the exchange offer.
To the extent that the Old Notes are tendered and accepted for exchange in the exchange offer,
the trading market for the Old Notes that remain outstanding may be significantly more limited. As
a result, the liquidity of the Old Notes not tendered and accepted for exchange could be adversely
affected. The extent of the market for Old Notes and the availability of price quotations would
depend on a number of factors, including the number of holders of Old Notes remaining outstanding
and the interest of securities firms in maintaining a market in the Old Notes. An issue of
securities with a similar outstanding market value available for trading, which is called the
float, may command a lower price than would be comparable to an issue of securities with a
greater float. As a result, the market price for the Old Notes that are not exchanged in the
exchange offer may be affected adversely to the extent that the Old Notes exchanged in the exchange
offer reduce the float. The reduced float also may make the trading price of the Old Notes that are
not exchanged more volatile.
You must comply with the exchange offer procedures in order to receive new, freely tradable
Exchange Notes.
Delivery of Exchange Notes in exchange for Old Notes tendered and accepted for exchange
pursuant to the exchange offer will be made only after timely receipt by the exchange agent of
book-entry transfer of Old Notes into the exchange agents account at DTC, as depositary, including
an Agents Message (as defined in The Exchange OfferProcedures for Tendering Old Notes Through
Brokers and Banks). We are not required to notify you of defects or irregularities in tenders of
Old Notes for exchange. Old Notes that are not tendered or that are tendered but we do not accept
for exchange will, following consummation of the exchange offer, continue to be subject to the
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existing transfer restrictions under the Securities Act and, upon consummation of the exchange
offer, certain registration and other rights under the Registration Rights Agreement will
terminate. See The Exchange OfferProcedures for Tendering Old Notes Through Brokers and Banks
and The Exchange OfferConsequences of Failure to Exchange.
Some holders who exchange their Old Notes may be deemed to be underwriters, and these holders will
be required to comply with the registration and prospectus delivery requirements in connection with
any resale transaction.
If you exchange your Old Notes in the exchange offer for the purpose of participating in a
distribution of the Exchange Notes, you may be deemed to have received restricted securities and,
if so, will be required to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
Risks Relating to the Exchange Notes
Our indebtedness may affect our ability to operate our business, and may have a material adverse
effect on our financial condition and results of operations. We and our subsidiaries may incur
additional indebtedness, including secured indebtedness.
As of June 30, 2011 we and the guarantors had $664.2 million of indebtedness (none of which
was secured indebtedness), and our subsidiaries that do not guarantee the Old Notes and will not
guarantee the Exchange Notes had $54.1 million of indebtedness and other liabilities of $5.7
million, all of which was structurally senior to the notes. In addition, $220.3 million was
available for us (net of $8.9 million of letters of credit outstanding) to borrow under our credit
facility. For the year ended December 31, 2010 and the six months ended June 30, 2011, our
subsidiaries that do not guarantee the Old Notes and will not guarantee the Exchange Notes had
revenues of $27.1 million (or 22% of consolidated revenues) and $11.3 million (or 16% of
consolidated revenues), respectively.
Our indebtedness could have significant adverse consequences to us and the holders of the
notes, such as:
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limiting our ability to obtain additional financing to fund our working capital
needs, acquisitions, capital expenditures or other debt service requirements or for other
purposes; |
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limiting our ability to use operating cash flow in other areas of our business
because we must dedicate a substantial portion of these funds to service debt; |
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limiting our ability to compete with other companies who are not as highly
leveraged, as we may be less capable of responding to adverse economic and industry
conditions; |
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restricting us from making strategic acquisitions, developing properties or
exploiting business opportunities; |
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restricting the way in which we conduct our business because of financial and
operating covenants in the agreements governing our and our subsidiaries existing and
future indebtedness, including, in the case of certain indebtedness of subsidiaries,
certain covenants that restrict the ability of subsidiaries to pay dividends or make other
distributions to us; |
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exposing us to potential events of default (if not cured or waived) under
financial and operating covenants contained in our or our subsidiaries debt instruments
that could have a material adverse effect on our business, financial condition and
operating results; |
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increasing our vulnerability to a downturn in general economic conditions; and |
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limiting our ability to react to changing market conditions in our industry and
in our tenants and borrowers industries. |
Furthermore, as of June 30, 2011 we had $39.6 million of indebtedness that bore interest at
variable rates.
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In addition, our future borrowings may bear interest at variable rates. If interest rates
increase significantly, our ability to borrow additional funds may be reduced and the risk related
to our indebtedness would intensify.
In addition to our debt service obligations, our operations may require substantial
investments on a continuing basis. Our ability to make scheduled debt payments, to refinance our
obligations with respect to our indebtedness and to fund capital and non-capital expenditures
necessary to maintain the condition of our operating assets and properties, as well as to provide
capacity for the growth of our business, depends on our financial and operating performance, which,
in turn, is subject to prevailing economic conditions and financial, business, competitive, legal
and other factors.
Subject to the restrictions contained in the credit agreement governing our credit facility
and the indenture governing the notes, we and our subsidiaries may incur significant additional
indebtedness, including additional secured indebtedness. Although the terms of the credit agreement
and indenture contain restrictions on the incurrence of additional indebtedness, these restrictions
are subject to a number of qualifications and exceptions, and additional indebtedness incurred in
compliance with these restrictions could be significant. If new debt is added to our and our
subsidiaries current debt levels, the risks described above could increase.
We may not be able to generate sufficient cash to service all of our indebtedness, including the
notes, and may be forced to take other actions to satisfy our obligations under our indebtedness
that may not be successful.
Our ability to satisfy our debt obligations will depend upon, among other things:
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our future financial and operating performance, which will be affected by
prevailing economic conditions and financial, business, regulatory and other factors, many
of which are beyond our control; and |
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our future ability to borrow under our credit facility, the availability of
which depends on, among other things, our complying with the covenants in the indenture
that governs the notes. |
We cannot assure you that our business will generate sufficient cash flow from operations, or
that we will be able to draw under our credit facility or otherwise, in an amount sufficient to
fund our liquidity needs.
If our cash flows and capital resources are insufficient to service our indebtedness, we may
be forced to reduce or delay capital expenditures, sell assets, seek additional capital or
restructure or refinance our indebtedness, including the notes. These alternative measures may not
be successful and may not permit us to meet our scheduled debt service obligations. Our ability to
restructure or refinance our debt will depend on the condition of the capital markets and our
financial condition at such time. Any refinancing of our debt could be at higher interest rates and
may require us to comply with more onerous covenants, which could further restrict our business
operations. In addition, the terms of existing or future debt agreements may restrict us from
adopting some of these alternatives. In the absence of such operating results and resources, we
could face substantial liquidity problems and might be required to dispose of material assets or
operations, sell equity, and/or negotiate with our lenders to restructure the applicable debt, in
order to meet our debt service and other obligations. We may not be able to consummate those
dispositions for fair market value or at all. Our credit facility and the indenture governing the
notes may restrict, or market or business conditions may limit, our ability to avail ourselves to
some or all of these options. Furthermore, any proceeds that we could realize from any such
dispositions may not be adequate to meet our debt service obligations then due.
Our debt agreements contain restrictions that will limit our flexibility in operating our business.
Our credit facility and the indenture governing the notes contain, and any instruments
governing future indebtedness of ours may contain, a number of covenants that will impose
significant operating and financial restrictions on us, including restrictions on our ability to,
among other things:
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incur additional debt or issue certain preferred shares; |
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pay dividends on or make distributions in respect of Medical Properties
capital stock or make other restricted payments;
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make certain payments on debt that is subordinated to the notes; |
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make certain investments; |
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sell or transfer assets; |
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create liens on certain assets; |
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consolidate, merge, sell or otherwise dispose of all or substantially all of
our assets; |
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enter into certain transactions with our affiliates; and |
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designate our subsidiaries as unrestricted subsidiaries. |
Any of these restrictions could limit our ability to plan for or react to market conditions
and could otherwise restrict corporate activities. Any failure to comply with these covenants could
result in a default under our credit facility and the indenture governing the notes. Upon a
default, unless waived, the lenders under our credit facility could elect to terminate their
commitments, cease making further loans and force us into bankruptcy or liquidation. Holders of the
notes would also have the ability ultimately to force us into bankruptcy or liquidation, subject to
the indenture governing the notes. In addition, a default (or an event of default) under either the
credit agreement governing our credit facility or the indenture governing the notes may trigger a
cross default under our other agreements and could trigger a cross-default or cross-acceleration
under the agreements governing our future indebtedness. Our operating results may not be sufficient
to service our indebtedness or to fund our other expenditures and we may not be able to obtain
financing to meet these requirements. See Description of Other Material Indebtedness and
Description of Exchange Notes.
We will depend on dividends and distributions from our direct and indirect subsidiaries to fulfill
our obligations under the notes. The creditors of these subsidiaries are entitled to amounts
payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions
to us.
Substantially all of our assets are held through our subsidiaries. We depend on these
subsidiaries for substantially all of our cash flow. The creditors of each of our direct and
indirect subsidiaries are entitled to payment of that subsidiarys obligations to them, when due
and payable, before distributions may be made by that subsidiary to us. Thus, our ability to
service our debt obligations, including our ability to pay the interest on and principal of the
notes when due, depends on our subsidiaries ability first to satisfy their obligations to their
creditors and then to make distributions to us. Our subsidiaries are separate and distinct legal
entities and have no obligations, other than under the guarantee of the notes for the majority of
our subsidiaries, to make any funds available to us.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments
on the notes.
Any default under the agreements governing our indebtedness, including a default under our
credit facility, that is not waived by the required holders of such indebtedness, could leave us
unable to pay principal, premium, if any, or interest on the notes and could substantially decrease
the market value of the notes. If we are unable to generate sufficient cash flow and are otherwise
unable to obtain funds necessary to meet required payments of principal, premium, if any, or
interest on such indebtedness, or if we otherwise fail to comply with the various covenants,
including financial and operating covenants, in the instruments governing our indebtedness,
including our credit facility, we could be in default under the terms of the agreements governing
such indebtedness. In the event of such default, the holders of such indebtedness could elect to
declare all the funds borrowed thereunder to be due and payable, together with any accrued and
unpaid interest, the lenders under our credit facility could elect to terminate their commitments,
cease making further loans and we could be forced into bankruptcy or liquidation. If our operating
performance declines, we may in the future need to seek waivers from the required lenders under our
credit facility to avoid being in default. If we breach our covenants under our credit facility and
seek waivers, we may not be able to obtain waivers from the required lenders thereunder.
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Your right to receive payments on the notes is effectively subordinated to the right of lenders who
have a security interest in our assets to the extent of the value of those assets.
Our obligations under the credit agreement governing our credit facility and the notes and the
guarantors obligations under their guarantees of borrowings under our credit facility and the
notes will be unsecured, but our obligations under certain other financing arrangements with
lenders are secured by mortgages and security interests in certain of our properties and the
ownership interests of certain of our subsidiaries. If we are declared bankrupt or insolvent, or if
we default under our secured financing arrangements, the funds borrowed thereunder, together with
accrued interest, could become immediately due and payable. If we were unable to repay such
indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the
notes, even if an event of default exists under the indenture governing the notes at such time. In
any such event, because the notes are not secured by any of such assets, it is possible that there
would not be sufficient assets from which your claims could be satisfied.
Claims of noteholders will be structurally subordinated to claims of creditors of any of our
subsidiaries that do not guarantee the notes.
We conduct all of our operations through our subsidiaries. Subject to certain limitations, the
indenture governing the notes permits us to form or acquire subsidiaries that are not guarantors of
the notes and permits such non-guarantor subsidiaries to acquire assets and incur indebtedness,
and, as a result, noteholders would not have any claim as a creditor against any such subsidiaries.
The claims of the creditors of those subsidiaries, including their trade creditors, banks and other
lenders, would have priority over any of our claims or those of our other subsidiaries as equity
holders of the non-guarantor subsidiaries. Consequently, in any insolvency, liquidation,
reorganization, dissolution or other winding-up of any of the non-guarantor subsidiaries, creditors
of those subsidiaries would be paid before any amounts would be distributed to us or to any of our
other subsidiaries as equity holders, and thus be available to satisfy our and the guarantors
obligations under the notes and guarantees of the notes.
As of December 31, 2010 and June 30, 2011, our subsidiaries that do not guarantee the Old
Notes and will not guarantee the Exchange Notes had $15.3 million and $59.8 million, respectively,
of indebtedness and other liabilities and had assets of $165.8 million and $210.0 million,
respectively (or, in each case, less than 13% of our companys consolidated total assets). For the
year ended December 31, 2010 and the six months ended June 30, 2011, our subsidiaries that do not
guarantee the Old Notes and will not guarantee the Exchange Notes had revenues of $27.1 million (or
22% of our companys consolidated revenues) and $11.3 million (or 16% of our companys consolidated
revenues), respectively.
We may not be able to satisfy our obligations to holders of the notes upon a change of control.
Upon the occurrence of a change of control, as defined in the indenture, with certain
exceptions, each holder of the notes will have the right to require us to purchase the notes at a
price equal to 101% of the principal amount thereof. Our failure to purchase, or to give notice of
purchase of, the notes would be a default under the indenture and any such default could result in
a default under certain of our other indebtedness, including our credit facility. In addition, a
change of control may constitute an event of default under our credit facility.
U.S. federal and state statutes allow courts, under specific circumstances, to avoid the
guarantees, subordinate claims in respect of the guarantees and require note holders to return
payments received from the guarantors.
Medical Properties and certain of the Operating Partnerships subsidiaries guarantee the
obligations under the notes. The issuance of the guarantees by the guarantors may be subject to
review under federal and state laws if a bankruptcy, liquidation or reorganization case or a
lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some
future date by, or on behalf of, the unpaid creditors of a guarantor. Under the federal bankruptcy
laws and comparable provisions of state fraudulent transfer, insolvency, fictitious indebtedness
and similar laws, a court may avoid or otherwise decline to enforce a guarantors guarantee or may
subordinate the notes or such guarantee to the applicable guarantors existing and future
indebtedness. While the relevant laws may vary from state to state, a court might do so if it found
that when the applicable guarantor entered into its guarantee, or, in some states, when payments
became due under such guarantee, the applicable guarantor received less than reasonably equivalent
value or fair consideration in exchange for its issuance of the guarantee and:
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was insolvent or rendered insolvent by reason of such incurrence; |
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was engaged in a business or transaction, or was about to engage in a business
or transaction, for which its remaining assets constituted unreasonably small capital; or |
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intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured. |
Under the fictitious indebtedness laws of some states, the presence of the above-listed
factors is not required for a guarantee to be invalidated. A court would likely find that a
guarantor did not receive reasonably equivalent value or fair consideration in exchange for such
guarantee if such guarantor did not substantially benefit directly or indirectly from the issuance
of such guarantee. The measures of insolvency for purposes of these fraudulent transfer, insolvency
and similar laws vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor, as applicable, would be
considered insolvent if:
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the sum of its debts, including contingent and unliquidated liabilities, was
greater than the fair saleable value of its assets; |
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the present fair saleable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts, including contingent
and unliquidated liabilities, as they become absolute and mature; or |
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it could not pay its debts as they become due. |
A court might also avoid a guarantee, without regard to the above factors, if the court found
that the applicable guarantor entered into its guarantee with the actual intent to hinder, delay or
defraud its creditors. In addition, any payment by a guarantor pursuant to its guarantee could be
avoided and required to be returned to such guarantor or to a fund for the benefit of such
guarantors overall creditor body, and accordingly the court might direct you to repay any amounts
that you had already received from such guarantor.
To the extent a court avoids any of the guarantees as fraudulent transfers or holds any of the
guarantees unenforceable or avoidable for any other reason, holders of notes would cease to have
any direct claim against the applicable guarantor. If a court were to take this action, the
applicable guarantors assets would be applied first to satisfy the applicable guarantors direct
liabilities, if any, and might not be applied to the payment of the guarantee. Sufficient funds to
repay the notes may not be available from other sources, including the remaining guarantors, if
any.
Each guarantee will contain a provision intended to limit the guarantors liability to the
maximum amount that it could incur without causing the incurrence of obligations under its
guarantee to be a fraudulent transfer. This provision may not be effective to protect the
guarantees from being avoided under applicable fraudulent transfer laws or may reduce the
guarantors obligation to an amount that effectively makes the guarantee worthless. In a recent
Florida bankruptcy case, such a provision was found to be ineffective to protect the guarantee.
MPT Finance Corporation has no material assets or operations and provides no credit support for the
notes.
MPT Finance Corporation is a wholly owned subsidiary of the Operating Partnership and was
formed for the sole purpose of being a co-issuer of some of the Operating Partnerships
indebtedness. It has no material assets or operations. You should not rely upon MPT Finance
Corporation to make payments on the notes.
An active trading market may not develop for the notes, which may hinder your ability to liquidate
your investment.
The Exchange Notes are a new issue of securities and there is no established trading market
for them, or for the Old Notes. We do not intend to apply for listing of the notes on any national
securities exchange or seek the admission of the notes for quotation through any automated
inter-dealer quotation system. As a result, an active
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trading market for the notes may not develop or be sustained. If an active trading market for
the notes fails to develop or be sustained, the trading price of the notes could be adversely
affected.
We also cannot assure you that you will be able to sell your notes at a particular time or at
all, or that the prices that you receive when you sell them will be favorable. If no active trading
market develops, you may not be able to resell your notes at their fair market value, or at all.
The liquidity of, and trading market for, the notes may also be adversely affected by, among other
things:
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prevailing interest rates; |
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our operating performance and financial condition; |
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the interest of securities dealers in making a market; |
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the market for similar securities. |
Historically, the market of non-investment grade debt like the notes has been subject to
disruptions that have caused substantial market price fluctuations in the price of securities that
are similar to the notes. Therefore, even if a trading market for the notes develops, it may be
subject to disruptions and price volatility.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Old Notes were originally issued and sold on April 26, 2011. In connection with the
original issuance and sale of the Old Notes, we entered into the Registration Rights Agreement
pursuant to which we agreed, for the benefit of the holders of the Old Notes, at our cost, to use
our commercially reasonable efforts:
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to file with the SEC an exchange offer registration statement pursuant to which we and
the guarantors will offer, in exchange for the Old Notes, new notes identical in all
material respects to, and evidencing the same indebtedness as, the Old Notes (but will not
contain terms with respect to transfer restrictions or provide for the additional interest
described below); and |
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to cause the exchange offer registration statement to be declared effective under the
Securities Act and exchange offer to be consummated by the 270th day following
the date on which we issued the Old Notes (the Consummation Deadline). |
Under existing interpretations by the staff of the SEC as set forth in no-action letters
issued to unrelated third parties and referenced below, we believe that the Exchange Notes issued
in the exchange offer in exchange for the Old Notes may be offered for resale, resold and otherwise
transferred by any exchange noteholder without compliance with the registration and prospectus
delivery provisions of the Securities Act, if:
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such holder is not an affiliate of ours within the meaning of Rule 405 of the
Securities Act; |
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such Exchange Notes are acquired in the ordinary course of the holders business; and |
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such holder has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of the Exchange Notes. |
Any holder who tenders in the exchange offer with the intention of participating in any manner
in a distribution of the Exchange Notes:
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cannot rely on the position of the staff of the SEC set forth in Exxon Capital Holdings
Corporation, Morgan Stanley & Co., Incorporated or similar no-action letters; and |
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in the absence of an applicable exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a resale of the
Exchange Notes or it may incur liability under the Securities Act. We will not be
responsible for, or indemnify against, any such liability. |
If, as stated above, a holder cannot rely on the position of the staff of the SEC set forth in
Exxon Capital Holdings Corporation, Morgan Stanley & Co., Incorporated or similar no-action
letters, any effective registration statement used in connection with a secondary resale
transaction must contain the selling security holder information required by Item 507 of Regulation
S-K under the Securities Act.
We do not intend to seek our own interpretation regarding the exchange offer, and we cannot
assure you that the staff of the SEC would make a similar determination with respect to the
Exchange Notes as it has in other interpretations to third parties.
This prospectus may be used for an offer to resell, for the resale or for other retransfer of
Exchange Notes only as specifically set forth in this prospectus. With regard to broker-dealers,
only broker-dealers that acquired the Old Notes for its own account as a result of market-making
activities or other trading activities may participate in the exchange offer. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection with any resale of the
Exchange Notes. Please read the section entitled Plan of Distribution for more details regarding
these procedures for the transfer of Exchange Notes. We have agreed, for a period of 180 days after
the registration statement (of which this prospectus
27
is a part) is declared effective, to make this prospectus available to any broker-dealer for
use in connection with any resale of the Exchange Notes.
In order to participate in the exchange offer, each holder of Old Notes that wishes to
exchange Old Notes for Exchange Notes in the exchange offer will be required to make the
representations described below under Representations.
Shelf Registration Statement
In the event that:
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we determine that consummation of the exchange offer would violate any applicable law or
applicable interpretations of the SEC; or |
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for any reason, we do not consummate the exchange offer by the Consummation Deadline; or |
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we received a written request (a Shelf Request) from any initial purchaser of the
Old Notes representing that it holds Old Notes that are or were ineligible to be exchanged
in the exchange offer, |
then we will use our commercially reasonable efforts to cause to be filed as promptly as
practicable after such determination, date or Shelf Request, as the case may be, a shelf
registration statement providing for the sale of all Old Notes by the holders thereof and to have
such shelf registration statement become effective. We have agreed to use our commercially
reasonable efforts to keep any such shelf registration statement continuously effective until the
securities cease to be Registrable Securities (as defined in the Registration Rights Agreement).
Additional Interest
If (1) the exchange offer is not completed on or prior to the Consummation Deadline, (2) the
shelf registration statement, if required, has not become effective on or prior to the dates
specified in the Registration Rights Agreement, or (3) the Shelf Registration Statement, if
required, has become effective but thereafter, subject to certain exceptions, ceases to be
effective or usable in connection with resales of any notes registered under the shelf registration
statement during the periods specified in the Registration Rights Agreement, then we will be in
default under the Registration Rights Agreement (a Registration Default). If a Registration
Default occurs, the interest rate on the Registrable Securities will be increased by (1) 0.25% per
annum for the first 90-day period beginning on the day immediately following such Registration
Default and (2) an additional 0.25% per annum with respect to each subsequent 90-day period, in
each case until and including the date such Registration Default ends, up to a maximum increase of
1.00% per annum. If at any time more than one Registration Default has occurred and is continuing,
then, until the next date that there is no Registration Default, the increase in interest rate will
apply as if there occurred a single Registration Default that begins on the date that the earliest
such Registration Default occurred and ends on such next date that there is no Registration
Default. When we have cured all of the Registration Defaults, the interest rate on the Registrable
Securities will revert immediately to the original level.
The exchange offer is intended to satisfy our exchange offer obligations under the
Registration Rights Agreement. The notes will not have rights to additional interest as set forth
above upon the consummation of the exchange offer.
Terms of the Exchange Offer
We are offering to exchange up to $450 million aggregate principal amount of the Exchange
Notes, the issuance of which has been registered under the Securities Act, for an equal principal
amount of the Old Notes. Upon the terms and subject to the conditions set forth in this prospectus,
we will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer. We will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of Exchange Notes accepted in the
exchange offer. Holders may tender some or all of their Old Notes pursuant to the exchange offer.
However, Old Notes may be tendered only in denominations of $2,000 of principal amount and any
integral multiple of $1,000 in excess thereof.
The form and terms of the Exchange Notes are the same as the form and terms of the Old Notes
except that the Old Notes have been registered under the Securities Act and will not have transfer
restrictions or contain the
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additional interest provisions of the Old Notes. The Exchange Notes
will evidence the same debt as the Old Notes and will be issued under and entitled to the benefits
of the indenture. Consequently, the Old Notes and the Exchange Notes will be treated as a single
class of debt securities under the indenture.
As of the date of this prospectus, Old Notes representing $450 million in aggregate principal
amount were outstanding, and there was one registered holder, CEDE & Co., as nominee of DTC. This
prospectus is being sent to all registered holders of the Old Notes.
The exchange offer is not conditioned on any minimum aggregate principal amount of Old Notes
being tendered for exchange.
We intend to conduct the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the SEC. We will be deemed to have accepted for
exchange properly tendered Old Notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes
of receiving the Exchange Notes from us and delivering the Exchange Notes to such holders.
Old Notes that are not tendered for exchange in the exchange offer or that are tendered but we
do not accept for exchange will remain outstanding and continue to accrue interest and will
continue to be entitled to the rights and benefits such holders have under the indenture relating
to the Old Notes. The Old Notes that are not exchanged will continue to be subject to the existing
transfer restrictions under the Securities Act and, upon consummation of the exchange offer,
certain registration and other rights under the Registration Rights Agreement will terminate.
Holders of the Old Notes do not have any appraisal or dissenters rights in connection with the
exchange offer.
Holders who tender Old Notes in the exchange offer will not be required to pay brokerage
commissions or fees or transfer taxes with respect to the exchange of Old Notes pursuant to the
exchange offer. We will pay all charges and expenses, other than transfer taxes in certain
circumstances, in connection with the exchange offer. See Fees and Expenses and Transfer
Taxes below.
Expiration Date; Extensions; Amendments
The exchange offer will remain open for at least 20 business days. The term expiration date
will mean 5:00 p.m., New York City time, on November 16, 2011, unless we, in our sole
discretion, extend the exchange offer, in which case the term expiration date will mean the
latest date and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent orally or in writing
of any extension. We will notify in writing by press release or other public announcement the
registered holders of Old Notes of the extension no later than 9:00 a.m., New York City time, on
the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
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to delay accepting any Old Notes, to extend the exchange offer or, if any of the
conditions to the exchange offer set forth below under Conditions to the Exchange Offer
have not been satisfied, to terminate the exchange offer, by giving oral or written notice
of such delay, extension or termination to the exchange agent; or |
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to amend the terms of the exchange offer in any manner. |
Any delay in acceptance, extension, termination or amendment will be followed as promptly as
practicable by written notice to the registered holders by a press release or other public
announcement. If we amend the exchange offer in a manner that we determine to constitute a material
change in the exchange offer, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Old Notes of such
amendment, and we will extend the exchange offer period, if necessary, so that at least five
business days remain in the exchange offer following notice of the material change. If we terminate
an exchange offer as provided in this prospectus before accepting any Old Notes for exchange or if
we amend the terms of the exchange offer in a manner
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that constitutes a fundamental change in the
information set forth in the registration statement of which this prospectus forms a part, we will
promptly file a post-effective amendment to the registration statement of which this prospectus
forms a part. In addition, we will in all event comply with our obligation to exchange promptly all
Old Notes properly tendered and accepted for exchange in the exchange offer.
Procedures for Tendering Old Notes Through Brokers and Banks
Since the Old Notes are represented by global book-entry notes, DTC, as depositary, or its
nominee is treated as the registered holder of the Old Notes and will be the only entity that can
tender your Old Notes for Exchange Notes. Therefore, to tender Old Notes subject to this exchange
offer and to obtain Exchange Notes, you must instruct the institution where you keep your Old Notes
to tender your Old Notes on your behalf so that they are received on or prior to the expiration of
this exchange offer.
To tender your Old Notes in the exchange offer, you must:
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comply with DTCs Automated Tender Offer Program (ATOP) procedures described below;
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the exchange agent must receive a timely confirmation of a book-entry transfer of the
Old Notes into its account at DTC through ATOP pursuant to the procedure for book-entry
transfer described below, along with a properly transmitted Agents Message (defined
below), before the expiration date. |
IF YOU WISH TO ACCEPT THIS EXCHANGE OFFER, PLEASE INSTRUCT YOUR BROKER OR ACCOUNT
REPRESENTATIVE IN TIME FOR YOUR OLD NOTES TO BE TENDERED BEFORE THE 5:00 P.M. (NEW YORK CITY TIME)
DEADLINE ON NOVEMBER 16, 2011.
In order to accept this exchange offer on behalf of a holder of Old Notes you must submit or
cause your DTC participant to submit an Agents Message as described below.
The exchange agent, on our behalf, will seek to establish an ATOP account with respect to the
outstanding Old Notes at DTC promptly after the delivery of this prospectus. Any financial
institution that is a DTC participant, including your broker or bank, may make book-entry tender of
outstanding Old Notes by causing the book-entry transfer of such Old Notes into our ATOP account in
accordance with DTCs procedures for such transfers. Concurrently with the delivery of Old Notes,
an Agents Message in connection with such book-entry transfer must be transmitted by DTC to, and
received by, the exchange agent on or prior to 5:00 p.m., New York City Time on the expiration
date. The confirmation of a book entry transfer into the ATOP account as described above is
referred to herein as a Book-Entry Confirmation.
The term Agents Message means a message transmitted by the DTC participants to DTC, and
thereafter transmitted by DTC to the exchange agent, forming a part of the Book-Entry Confirmation
which states that DTC has received an express acknowledgment from the participant in DTC described
in such Agents Message stating that such participant and beneficial holder agree to be bound by
the terms of this exchange offer, including the letter of transmittal, and that the agreement may
be enforced against such participant.
Each Agents Message must include the following information:
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Name of the beneficial owner tendering such Old Notes; |
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Account number of the beneficial owner tendering such Old Notes; |
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Principal amount of Old Notes tendered by such beneficial owner; and |
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A confirmation that the beneficial holder of the Old Notes tendered has made the
representations for our benefit set forth under Representations below. |
BY SENDING AN AGENTS MESSAGE THE DTC PARTICIPANT IS DEEMED TO HAVE CERTIFIED THAT THE
BENEFICIAL HOLDER FOR WHOM NOTES ARE BEING TENDERED HAS BEEN PROVIDED WITH A COPY OF THIS
PROSPECTUS AND AGREES TO BE BOUND BY THE TERMS OF THIS EXCHANGE OFFER, INCLUDING THE LETTER OF
TRANSMITTAL.
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The delivery of Old Notes through DTC, and any transmission of an Agents Message through
ATOP, is at the election and risk of the person tendering Old Notes. We will ask the exchange agent
to instruct DTC to promptly return those Old Notes, if any, that were tendered through ATOP but
were not accepted by us, to the DTC participant that tendered such Old Notes on behalf of holders
of the Old Notes.
When you tender your outstanding Old Notes and we accept them, the tender will be a binding
agreement between you and us as described in this prospectus. By using the ATOP procedures to
exchange Old Notes, you will not be required to deliver a letter of transmittal to the exchange
agent. However, you will be bound by its terms, and you will be deemed to have made the
acknowledgements and the representations and warranties it contains, just as if you had signed it.
We will decide all questions about the validity, form, eligibility, time of receipt,
acceptance and withdrawal of tendered Old Notes, and our reasonable determination will be final and
binding on you. We reserve the absolute right to: (1) reject any and all tenders of any particular
Old Note not properly tendered; (2) refuse to accept any Old Note if, in our reasonable judgment or
the judgment of our counsel, the acceptance would be unlawful; and (3) waive any defects or
irregularities or conditions of the exchange offer as to any particular Old Notes before the
expiration of the offer. Our interpretation of the terms and conditions of the exchange offer will
be final and binding on all parties. You must cure any defects or irregularities in connection with
tenders of Old Notes as we will reasonably determine. Neither us, the exchange agent nor any other
person will incur any liability for failure to notify you of any defect or irregularity with
respect to your tender of Old Notes. If we waive any terms or conditions pursuant to (3) above with
respect to a noteholder, we will extend the same waiver to all noteholders with respect to that
term or condition being waived.
Representations
To participate in the exchange offer, each holder of Old Notes that wishes to exchange Old
Notes for Exchange Notes in the exchange offer will be required to make the following
representations:
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it has full corporate (or similar) power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire the Exchange Notes; |
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when the Old Notes are accepted for exchange, the Issuers will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim; and |
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if such holder is a broker dealer that will receive Exchange Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making or other trading
activities, then such holder will comply with the applicable provisions of the Securities
Act with respect to any resale of the Exchange Notes. See Plan of Distribution. |
Broker-dealers who cannot make the representations in item (3) of the paragraph above cannot
use this exchange offer prospectus in connection with resales of the Exchange Notes issued in the
exchange offer.
Each holder of Old Notes that wishes to exchange Old Notes for Exchange Notes in the exchange
offer and any beneficial owner of those Old Notes also will be required to make the following
representations:
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neither the holder nor any beneficial owner of the Old Notes is an affiliate (as
defined in Rule 405 under the Securities Act) of the Issuers; |
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neither the holder nor any beneficial owner of the Old Notes is engaged in or intends to
engage in, and has no arrangement or understanding with any person to participate in, a
distribution (within the meaning of the Securities Act) of the Exchange Notes; |
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any Exchange Notes to be acquired by the holder and any beneficial owner of the Old
Notes pursuant to the exchange offer will be acquired in the ordinary course of business of
the person receiving such Exchange Notes; and |
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the holder is not acting on behalf of any person who could not truthfully make the
foregoing representations. |
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BY TENDERING YOUR OLD NOTES YOU ARE DEEMED TO HAVE MADE THESE REPRESENTATIONS.
If you are our affiliate, as defined under Rule 405 of the Securities Act, if you are a
broker-dealer who acquired your Old Notes in the initial offering and not as a result of
market-making or trading activities, or if you are engaged in or intend to engage in or have an
arrangement or understanding with any person to participate in a distribution of Exchange Notes
acquired in the exchange offer, you or that person:
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cannot rely on the position of the staff of the SEC set forth in Exxon Capital Holdings
Corporation, Morgan Stanley & Co., Incorporated or similar no-action letters; and |
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in the absence of an applicable exemption, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a resale of the
Exchange Notes. |
Acceptance of Outstanding Old Notes for Exchange; Delivery of Exchange Notes
We will accept validly tendered Old Notes when the conditions to the exchange offer have been
satisfied or we have waived them. We will have accepted your validly tendered Old Notes when we
have given oral or written notice to the exchange agent. The exchange agent will act as agent for
the tendering holders for the purpose of receiving the Exchange Notes from us. If we do not accept
any tendered Old Notes for exchange by book-entry transfer because of an invalid tender or other
valid reason, we will credit the Old Notes to an account maintained with DTC promptly after the
exchange offer terminates or expires.
THE AGENTS MESSAGE MUST BE TRANSMITTED TO THE EXCHANGE AGENT ON OR BEFORE 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
No Guaranteed Delivery
There are no guaranteed delivery procedures provided for by us in conjunction with the
exchange offer. Holders of Old Notes must timely tender their Old Notes in accordance with the
procedures set forth herein.
Withdrawal Rights
You may withdraw your tender of outstanding notes at any time before 5:00 p.m., New York City
time, on the expiration date.
For a withdrawal to be effective, you should contact your bank or broker where your Old Notes
are held and have them send an ATOP notice of withdrawal so that it is received by the exchange
agent before 5:00 p.m., New York City time, on the expiration date. Such notice of withdrawal must:
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specify the name of the person that tendered the Old Notes to be withdrawn; |
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identify the Old Notes to be withdrawn, including the CUSIP number and
principal amount at maturity of the Old Notes; specify the name and number of an
account at the DTC to which your withdrawn Old Notes can be credited. |
We will decide all questions as to the validity, form and eligibility of the notices and our
determination will be final and binding on all parties. Any tendered Old Notes that you withdraw
will not be considered to have been validly tendered. We will promptly return any outstanding Old
Notes that have been tendered but not exchanged, or credit them to the DTC account. You may
re-tender properly withdrawn Old Notes by following one of the procedures described above before
the expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not required to accept for
exchange, or to issue Exchange Notes in exchange for, any Old Notes and may terminate or amend the
exchange offer if, at any time before the acceptance of Old Notes for exchange, (1) we determine
that the exchange offer violates applicable law, any applicable interpretation of the staff of the
SEC or any order of any governmental agency or court of competent jurisdiction, (2) any action or
proceeding has been instituted or threatened in any court or before any
32
governmental agency with respect to the exchange offer which,
in our judgment, might impair our ability to proceed with the exchange offer or have a material
adverse effect on us, or (3) we determine that there has been a material change in our business or
financial affairs which, in our judgment, would materially impair our ability to consummate the
exchange offer.
The foregoing conditions are for our sole benefit and may be asserted by us regardless of the
circumstances giving rise to any such condition or may be waived by us in whole or in part at any
time and from time to time in our sole discretion. Our failure to exercise any of the foregoing
rights at any time will not be deemed a waiver of any such right and each such right will be deemed
an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no Exchange Notes
will be issued in exchange for any Old Notes, if at such time any stop order will be threatened or
in effect with respect to the registration statement of which this prospectus constitutes a part or
the qualification of the indenture governing the notes under the Trust Indenture Act of 1939, as
amended. In any such event we are required to use our commercially reasonable efforts to promptly
obtain the withdrawal of any stop order.
Exchange Agent
We have appointed Wilmington Trust Company as the exchange agent for the exchange offer. You
should direct questions, requests for assistance, and requests for additional copies of this
prospectus and the letter of transmittal to the exchange agent addressed as follows:
|
|
|
|
|
|
|
Wilmington Trust Company |
|
|
|
|
|
|
|
|
|
By Regular, Registered or Certified Mail,
By Overnight Courier or By Hand: |
|
|
|
|
|
|
|
By Facsimile:
|
|
Corporate Capital Markets
|
|
Confirm by Telephone: |
(302) 636-4139
Attention: Sam Hamed
|
|
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-1626
Attention: Sam Hamed
|
|
(302) 636-6181 |
Delivery to an address other than set forth above will not constitute a valid delivery.
Fees and Expenses
The principal solicitation is being made through DTC by Wilmington Trust Company, as exchange
agent. We will pay the exchange agent customary fees for its services, reimburse the exchange agent
for its reasonable out-of-pocket expenses incurred in connection with the provisions of these
services and pay other registration expenses, including registration and filing fees and expenses,
fees and expenses of compliance with federal securities and state securities or blue sky securities
laws, printing expenses, messenger and delivery services and telephone, fees and disbursements to
our counsel, application and filing fees and any fees and disbursements to our independent
certified public accountants. We will not make any payment to brokers, dealers, or others
soliciting acceptances of the exchange offer except for reimbursement of mailing expenses.
Additional solicitations may be made by telephone, facsimile or in person by our and our
affiliates officers employees and by persons so engaged by the exchange agent.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the existing Old Notes, as
reflected in our accounting records on the date of exchange. Accordingly, we will recognize no gain
or loss for accounting purposes. The expenses of the exchange offer will be capitalized and
expensed over the term of the Exchange Notes.
33
Transfer Taxes
If you tender outstanding Old Notes for exchange you will not be obligated to pay any transfer
taxes. However, if you instruct us to register Exchange Notes in the name of, or request that your
Old Notes not tendered or not accepted in the exchange offer be returned to, a person other than
the registered tendering holder, you will be responsible for paying any transfer tax owed.
Consequences of Failure to Exchange
If you do not tender your outstanding Old Notes, you will not have any further registration
rights, except for the rights described in the Registration Rights Agreement and described above,
and your Old Notes will continue to be subject to the provisions of the indenture governing the
notes regarding transfer and exchange of the Old Notes and the restrictions on transfer of the Old
Notes imposed by the Securities Act and states securities law when we complete the exchange offer.
These transfer restrictions are required because the Old Notes were issued under an exemption from,
or in a transaction not subject to, the registration requirements of the Securities Act and
applicable state securities laws. Accordingly, if you do not tender your Old Notes in the exchange
offer, your ability to sell your Old Notes could be adversely affected. Once we have completed the
exchange offer, holders who have not tendered notes will not continue to be entitled to any
additional interest that the indenture governing the notes provides for if we do not complete the
exchange offer.
Other
Participation in the exchange offer is voluntary, and you should carefully consider whether to
accept. You are urged to consult your financial, tax, legal and other advisors in making your own
decision on what action to take.
We may in the future seek to acquire untendered Old Notes in the open market or in privately
negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans
to acquire any Old Notes that are not tendered in the exchange offer or to file a shelf
registration statement to permit resales of any untendered Old Notes.
34
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the Registration Rights Agreement.
We will not receive any proceeds from the issuance of the Exchange Notes. In consideration for
issuing the Exchange Notes, we will receive, in exchange, an equal number of Old Notes in like
principal amount. The form and terms of the Exchange Notes are identical to the form and terms of
the Old Notes, except as otherwise described under the heading The Exchange OfferTerms of the
Exchange Offer. The Old Notes properly tendered and exchanged for Exchange Notes will be retired
and cancelled. Accordingly, issuance of the Exchange Notes will not result in any change in our
capitalization. We have agreed to bear the expense of the exchange offer.
35
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of MPT Operating
Partnership, L.P. for each of the periods indicated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2011 |
|
|
2010 |
|
Ratio of Earnings
to Fixed Charges(1) |
|
|
1.34x |
|
|
|
1.91x |
|
|
|
1.44x |
|
|
|
1.72x |
|
|
|
1.97x |
|
|
|
1.54x |
|
|
|
0.87x |
|
|
|
|
(1) |
|
The Operating Partnerships ratios of earnings to fixed charges are computed by dividing
earnings by fixed charges. Earnings is the amount resulting from adding together income
(loss) from continuing operations, fixed charges, and amortization of capitalized interest and
subtracting interest capitalized. Fixed charges is the amount resulting from adding together
interest expensed and capitalized, amortized premiums, discounts and capitalized expenses
related to indebtedness, and the interest portion of rent. |
36
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected consolidated financial and operating data for Medical
Properties Trust, Inc. and MPT Operating Partnership, L.P. and their respective subsidiaries
(including MPT Finance Corporation, which has no separate operating or financial activity). You
should read the following selected financial data in conjunction with the consolidated historical
financial statements and notes thereto of each of Medical Properties Trust, Inc. and MPT Operating
Partnership, L.P. and their respective subsidiaries and Managements Discussion and Analysis of
Financial Condition and Results of Operations, included elsewhere in this prospectus.
MPT Operating Partnership, L.P.
The consolidated balance sheet data presented below as of December 31, 2009 and 2010 and the
consolidated operating and other data presented below for each of the years in the three-year
period ended December 31, 2010 have been derived from the Operating Partnerships audited
consolidated financial statements and accompanying notes included elsewhere in this prospectus.
The consolidated balance sheet data presented below as of December 31, 2006, 2007 and 2008 and the
consolidated operating and other data presented below for each of the years ended in the two-year
period ended December 31, 2007 have been derived from the Operating Partnerships consolidated
financial statements and related notes, which have not been audited and are not included in this prospectus. The consolidated balance
sheet data presented below as of June 30, 2011 and the consolidated operating and other data
presented below for the six month periods ended June 30, 2010 and 2011 have been derived from the
Operating Partnerships unaudited financial statements and accompanying notes included elsewhere in
this prospectus. The Operating Partnerships results for the six month period ended June 30, 2011
are not necessarily indicative of Operating Partnerships results to be expected for the full
fiscal year.
During the periods presented below, for those properties that have been sold, the Operating
Partnership reclassified the properties as held for sale and reported revenue and expenses from
these properties as discontinued operations for each period presented. This reclassification had no
effect on the Operating Partnerships reported net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
2006(1) |
|
|
2007(1) |
|
|
2008(1) |
|
|
2009(1) |
|
|
2010(1) |
|
|
2010(1) |
|
|
2011(1) |
|
|
|
(in thousands) |
|
Operating Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
35,521 |
|
|
$ |
77,887 |
|
|
$ |
107,070 |
|
|
$ |
118,809 |
|
|
$ |
121,847 |
|
|
$ |
61,451 |
|
|
$ |
72,147 |
|
Depreciation and amortization |
|
|
(4,226 |
) |
|
|
(9,314 |
) |
|
|
(22,385 |
) |
|
|
(22,628 |
) |
|
|
(24,486 |
) |
|
|
(11,891 |
) |
|
|
(16,248 |
) |
Property-related and general and administrative
expenses |
|
|
(10,079 |
) |
|
|
(15,678 |
) |
|
|
(23,757 |
) |
|
|
(24,835 |
) |
|
|
(32,867 |
) |
|
|
(17,005 |
) |
|
|
(17,622 |
) |
Impairment charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,000 |
) |
|
|
(12,000 |
) |
|
|
(564 |
) |
Interest and other income |
|
|
515 |
|
|
|
364 |
|
|
|
86 |
|
|
|
43 |
|
|
|
1,518 |
|
|
|
13 |
|
|
|
6 |
|
Debt refinancing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,716 |
) |
|
|
(6,214 |
) |
|
|
(3,789 |
) |
Interest expense |
|
|
(4,580 |
) |
|
|
(29,527 |
) |
|
|
(42,424 |
) |
|
|
(37,656 |
) |
|
|
(33,993 |
) |
|
|
(18,014 |
) |
|
|
(20,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
17,151 |
|
|
|
23,732 |
|
|
|
18,590 |
|
|
|
33,733 |
|
|
|
13,303 |
|
|
|
(3,660 |
) |
|
|
13,404 |
|
Income from discontinued operations |
|
|
12,983 |
|
|
|
16,518 |
|
|
|
14,143 |
|
|
|
2,697 |
|
|
|
9,784 |
|
|
|
7,162 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
30,134 |
|
|
|
40,250 |
|
|
|
32,733 |
|
|
|
36,430 |
|
|
|
23,087 |
|
|
|
3,502 |
|
|
|
13,551 |
|
Net income attributable to non-controlling interests |
|
|
(136 |
) |
|
|
(304 |
) |
|
|
(33 |
) |
|
|
(37 |
) |
|
|
(99 |
) |
|
|
(17 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to MPT Operating
Partnership, L.P. partners |
|
$ |
29,998 |
|
|
$ |
39,946 |
|
|
$ |
32,700 |
|
|
$ |
36,393 |
|
|
$ |
22,988 |
|
|
$ |
3,485 |
|
|
$ |
13,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions paid |
|
$ |
36,106 |
|
|
$ |
53,079 |
|
|
$ |
65,098 |
|
|
$ |
61,649 |
|
|
$ |
77,087 |
|
|
$ |
32,435 |
|
|
$ |
44,784 |
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
As of June 30, |
|
|
|
2006(1) |
|
|
2007(1) |
|
|
2008(1) |
|
|
2009(1) |
|
|
2010(1) |
|
|
2011(1) |
|
|
|
(in thousands) |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets at cost |
|
$ |
557,913 |
|
|
$ |
648,723 |
|
|
$ |
992,549 |
|
|
$ |
976,271 |
|
|
$ |
1,032,369 |
|
|
$ |
1,227,251 |
|
Other loans and investments |
|
|
150,173 |
|
|
|
265,758 |
|
|
|
293,523 |
|
|
|
311,006 |
|
|
|
215,985 |
|
|
|
219,978 |
|
Cash and equivalents |
|
|
4,077 |
|
|
|
94,189 |
|
|
|
11,743 |
|
|
|
15,307 |
|
|
|
98,408 |
|
|
|
227,906 |
|
Total assets |
|
|
744,721 |
|
|
|
1,051,627 |
|
|
|
1,310,991 |
|
|
|
1,309,898 |
|
|
|
1,348,814 |
|
|
|
1,678,639 |
|
Debt, net |
|
|
297,530 |
|
|
|
474,388 |
|
|
|
630,557 |
|
|
|
576,678 |
|
|
|
369,970 |
|
|
|
718,309 |
|
Other liabilities |
|
|
95,022 |
|
|
|
57,677 |
|
|
|
53,856 |
|
|
|
61,348 |
|
|
|
78,895 |
|
|
|
91,211 |
|
Total partners capital |
|
|
351,117 |
|
|
|
519,485 |
|
|
|
626,335 |
|
|
|
671,742 |
|
|
|
899,835 |
|
|
|
869,014 |
|
Non-controlling interests |
|
|
1,052 |
|
|
|
77 |
|
|
|
243 |
|
|
|
130 |
|
|
|
114 |
|
|
|
105 |
|
Total capital |
|
|
352,169 |
|
|
|
519,562 |
|
|
|
626,578 |
|
|
|
671,872 |
|
|
|
899,949 |
|
|
|
869,119 |
|
Total liabilities and capital |
|
$ |
744,721 |
|
|
$ |
1,051,627 |
|
|
$ |
1,310,991 |
|
|
$ |
1,309,898 |
|
|
$ |
1,348,814 |
|
|
$ |
1,678,639 |
|
|
|
|
(1) |
|
The Operating Partnership invested $303.4 million, $342.0 million, $469.5 million, $15.6
million, and $158.4 million in real estate in 2006, 2007, 2008, 2009, and 2010, respectively,
and $82.2 million and $178.9 million in real estate during the six months ended June 30, 2010
and 2011, respectively. The results of operations resulting from these investments are
reflected in the Operating Partnerships consolidated financial statements from the dates
invested. See Note 3 to Operating Partnerships audited consolidated financial statements and
Note 3 to the Operating Partnerships unaudited interim consolidated financial statements
included in this prospectus for further information on acquisitions of real estate, new loans,
and other investments. We funded these investments generally from issuing equity, utilizing
additional amounts of our revolving facility, incurring additional debt, or from the sale of
facilities. See Notes 4, 9, and 12 to the Operating Partnerships audited consolidated
financial statements and Notes 4, 5 and 9 to the Operating Partnerships unaudited interim
consolidated financial statements included in this prospectus for further information
regarding our debt, common stock and discontinued operations, respectively. |
Medical Properties Trust, Inc.
The consolidated balance sheet data presented below as of December 31, 2009 and 2010 and the
consolidated operating and other data presented below for each of the years in the three-year
period ended December 31, 2010 have been derived from Medical Properties audited consolidated
financial statements and accompanying notes incorporated by reference into this prospectus. The
consolidated balance sheet data presented below as of December 31, 2006, 2007 and 2008 and the
consolidated operating and other data presented below for each of the years ended in the two-year
period ended December 31, 2007 have been derived from Medical Properties audited consolidated
financial statements and related notes, which are not included or incorporated by reference herein.
The consolidated balance sheet data presented below as of June 30, 2011 and the consolidated
operating and other data presented below for the six month periods ended June 30, 2010 and 2011
have been derived from Medical Properties unaudited interim financial statements and accompanying
notes included elsewhere in this prospectus. Medical Properties results for the six month period
ended June 30, 2011 are not necessarily indicative of Medical Properties results to be expected
for the full fiscal year. As of June 30, 2011, Medical Properties had a 99.9% equity ownership
interest in the Operating Partnership. Medical Properties has no significant operations other than
as the sole member of its wholly owned subsidiary, Medical Properties Trust, LLC, which is the sole
general partner of the Operating Partnership, and no material assets, other than its direct and
indirect investment in the Operating Partnership.
During the periods presented below, for those properties that have been sold, Medical
Properties reclassified the properties as held for sale and reported revenue and expenses from
these properties as discontinued operations for each period presented. This reclassification had no
effect on Medical Properties reported net income.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
2006(1) |
|
|
2007(1) |
|
|
2008(1) |
|
|
2009(1) |
|
|
2010(1) |
|
|
2010(1) |
|
|
2011(1) |
|
|
|
(in thousands) |
|
Operating Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
35,521 |
|
|
$ |
77,887 |
|
|
$ |
107,070 |
|
|
$ |
118,809 |
|
|
$ |
121,847 |
|
|
$ |
61,451 |
|
|
$ |
72,147 |
|
Depreciation and amortization |
|
|
(4,226 |
) |
|
|
(9,314 |
) |
|
|
(22,385 |
) |
|
|
(22,628 |
) |
|
|
(24,486 |
) |
|
|
(11,891 |
) |
|
|
(16,248 |
) |
Property-related and general and administrative
expenses |
|
|
(10,079 |
) |
|
|
(15,678 |
) |
|
|
(23,757 |
) |
|
|
(24,898 |
) |
|
|
(32,942 |
) |
|
|
(17,089 |
) |
|
|
(17,666 |
) |
Impairment charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,000 |
) |
|
|
(12,000 |
) |
|
|
(564 |
) |
Interest and other income |
|
|
515 |
|
|
|
364 |
|
|
|
86 |
|
|
|
43 |
|
|
|
1,518 |
|
|
|
13 |
|
|
|
6 |
|
Debt refinancing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,716 |
) |
|
|
(6,214 |
) |
|
|
(3,789 |
) |
Interest expense |
|
|
(4,580 |
) |
|
|
(29,527 |
) |
|
|
(42,424 |
) |
|
|
(37,656 |
) |
|
|
(33,993 |
) |
|
|
(18,014 |
) |
|
|
(20,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
17,151 |
|
|
|
23,732 |
|
|
|
18,590 |
|
|
|
33,670 |
|
|
|
13,228 |
|
|
|
(3,744 |
) |
|
|
13,360 |
|
Income from discontinued operations |
|
|
12,983 |
|
|
|
16,518 |
|
|
|
14,143 |
|
|
|
2,697 |
|
|
|
9,784 |
|
|
|
7,162 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
30,134 |
|
|
|
40,250 |
|
|
|
32,733 |
|
|
|
36,367 |
|
|
|
23,012 |
|
|
|
3,418 |
|
|
|
13,507 |
|
Net income attributable to non-controlling interests |
|
|
(136 |
) |
|
|
(304 |
) |
|
|
(33 |
) |
|
|
(37 |
) |
|
|
(99 |
) |
|
|
(17 |
) |
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Medical Properties
common stockholders |
|
$ |
29,998 |
|
|
$ |
39,946 |
|
|
$ |
32,700 |
|
|
$ |
36,330 |
|
|
$ |
22,913 |
|
|
$ |
3,401 |
|
|
$ |
13,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends paid |
|
$ |
36,106 |
|
|
$ |
53,079 |
|
|
$ |
65,098 |
|
|
$ |
61,649 |
|
|
$ |
77,087 |
|
|
$ |
32,435 |
|
|
$ |
44,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
As of June 30, |
|
|
|
2006(1) |
|
|
2007(1) |
|
|
2008(1) |
|
|
2009(1) |
|
|
2010(1) |
|
|
2011(1) |
|
|
|
(in thousands) |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets at cost |
|
$ |
557,913 |
|
|
$ |
648,723 |
|
|
$ |
992,549 |
|
|
$ |
976,271 |
|
|
$ |
1,032,369 |
|
|
$ |
1,227,251 |
|
Other loans and investments |
|
|
150,173 |
|
|
|
265,758 |
|
|
|
293,523 |
|
|
|
311,006 |
|
|
|
215,985 |
|
|
|
219,978 |
|
Cash and equivalents |
|
|
4,103 |
|
|
|
94,215 |
|
|
|
11,748 |
|
|
|
15,307 |
|
|
|
98,408 |
|
|
|
227,906 |
|
Total assets |
|
|
744,747 |
|
|
|
1,051,652 |
|
|
|
1,311,373 |
|
|
|
1,309,898 |
|
|
|
1,348,814 |
|
|
|
1,678,720 |
|
Debt, net |
|
|
297,530 |
|
|
|
474,388 |
|
|
|
630,557 |
|
|
|
576,678 |
|
|
|
369,970 |
|
|
|
718,309 |
|
Other liabilities |
|
|
95,022 |
|
|
|
57,937 |
|
|
|
54,473 |
|
|
|
61,645 |
|
|
|
79,268 |
|
|
|
91,709 |
|
Total Medical Properties stockholders equity |
|
|
351,144 |
|
|
|
519,250 |
|
|
|
626,100 |
|
|
|
671,445 |
|
|
|
899,462 |
|
|
|
868,597 |
|
Non-controlling interests |
|
|
1,052 |
|
|
|
77 |
|
|
|
243 |
|
|
|
130 |
|
|
|
114 |
|
|
|
105 |
|
Total equity |
|
|
352,196 |
|
|
|
519,327 |
|
|
|
626,343 |
|
|
|
671,575 |
|
|
|
899,576 |
|
|
|
868,702 |
|
Total liabilities and equity |
|
$ |
744,747 |
|
|
$ |
1,051,652 |
|
|
$ |
1,311,373 |
|
|
$ |
1,309,898 |
|
|
$ |
1,348,814 |
|
|
$ |
1,678,720 |
|
|
|
|
(1) |
|
Medical Properties invested $303.4 million, $342.0 million, $469.5 million, $15.6 million,
and $158.4 million in real estate in 2006, 2007, 2008, 2009, and 2010, respectively, and $82.2
million and $178.9 million in real estate during the six months ended June 30, 2010 and 2011,
respectively. The results of operations resulting from these investments are reflected in
Medical Properties consolidated financial statements from the dates invested. See Note 3 to
Medical Properties audited consolidated financial statements and Note 3 to Medical
Properties unaudited interim consolidated financial statements incorporated by reference in
this prospectus for further information on acquisitions of real estate, new loans, and other
investments. We funded these investments generally from issuing equity, utilizing additional
amounts of our revolving facility, incurring additional debt, or from the sale of facilities.
See Notes 4, 9, and 11 to Medical Properties audited consolidated financial statements
incorporated by reference in this prospectus and Notes 4, 5 and 8 to Medical Properties
unaudited interim consolidated financial statements incorporated by reference in this
prospectus for further information regarding our debt, common stock and discontinued
operations. |
39
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, references to our, we and us in this managements discussion
and analysis of financial condition and results of operations refer to Medical Properties Trust,
Inc. and its consolidated subsidiaries, including MPT Operating Partnership, L.P.
Overview
Medical Properties is a self-advised real estate investment trust (REIT) that was
incorporated under Maryland law on August 27, 2003 primarily for the purpose of investing in and
owning net-leased healthcare facilities across the United States. We acquire and develop healthcare
facilities and lease the facilities to healthcare operating companies under long-term net leases,
which require the tenants to bear most of the costs associated with the properties. We also
occasionally make mortgage loans to healthcare operators collateralized by their real estate
assets. In addition, we selectively make loans to, and other investments in, certain of our
operators through our taxable REIT subsidiaries, the proceeds of which have historically been used
for acquisitions and working capital. Finally, from time to time, we acquire a profit or other
equity interest in certain of our tenants that gives us a limited right to share in such tenants
positive cash flow.
We selectively make loans to certain of our operators through our taxable REIT subsidiaries,
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 June 30, 2011, our portfolio consisted of 58 properties: 54 facilities (of the 56
facilities that we own, of which two are subject to long-term ground leases) are leased to 19
tenants, one is presently not under lease as it is under re-development, one is under development,
and the remaining assets are in the form of first mortgage loans to a single operator. Two of the
leased properties are month-to-month as the fixed terms of their leases have expired. Our owned and
ground leased facilities consisted of 22 general acute care hospitals, 17 long-term acute care
hospitals, nine inpatient rehabilitation hospitals, two medical office buildings, and six wellness
centers. The following is a discussion of our highlights for the years ended December 31, 2010,
2009 and 2008 and the six months ended June 30, 2011 and 2010, which should be read in conjunction
with the audited and unaudited financial statements appearing elsewhere in this prospectus.
2010 Highlights
In 2010, our primary business goals were to recapitalize our balance sheet with longer term
debt and lower leverage, increase our access to liquidity and accelerate our acquisitions of
healthcare real estate. We took the following actions to achieve these goals among others:
|
|
|
Replaced old $220 million credit facility with a new $480 million credit
facility and completed a $279 million stock offering, establishing a low leverage platform
with more than $500 million of available capital for acquisition growth; |
|
|
|
|
Purchased $128.8 million of our 6.125% Senior Notes, leaving only $9.2 million
of the 2006 Exchangeable Notes remaining to be paid by November 2011; paid $30 million term
loan maturing in 2010; completely paid down $40 million revolver; |
|
|
|
|
Committed to more than $200 million in healthcare real estate investments: |
|
|
|
Acquired three inpatient rehabilitation hospitals in Texas with a new
tenant for $74 million; |
|
|
|
|
Commenced $17 million redevelopment of the River Oaks hospital in Houston; |
40
|
|
|
Entered into $30 million agreement to develop Phoenix area general acute
care hospital; |
|
|
|
|
Acquired two free standing long term acute care hospitals in 2010 and a third
property in the second quarter 2011, all leased to and operated by Kindred for $83.4 million. |
|
|
|
Sold our Inglewood property for $75 million in cash realizing a $6.2 million
gain, received $40 million in early payment of loans, and received $12 million in early
receipt of rent related to transactions with Prime, lowering Prime concentration to 26.7%
of our total assets; |
|
|
|
|
Sold our Montclair Hospital for $20 million in cash realizing a gain of $2.2
million; |
|
|
|
|
Sold our Sharpstown facility in Houston, Texas for $3 million in cash realizing
a $0.7 million gain; |
|
|
|
|
Received prepayment of our Marina mortgage loan of $43 million; |
|
|
|
|
Entered into interest rate swaps to fix $60 million of our senior notes
starting October 30, 2011 (date on which the interest rate is scheduled to turn variable)
through the maturity date at a rate of 5.675% and to fix $65 million of our senior notes,
starting July 30, 2011 (date on which the interest rate is scheduled to turn variable)
through maturity date, at a rate of 5.507%, which will result in a $2.5 million annual
savings on interest expense based on current fixed rate; and |
|
|
|
|
Recorded a $12 million charge to recognize the estimated impairment of our
Monroe working capital loan. |
2009 Highlights
In 2009, our primary business goal was to preserve capital during the 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, realizing 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 two months of the prior lease termination; |
|
|
|
|
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; and |
|
|
|
|
Settled the Stealth litigation. |
41
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 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., a multi-hospital operating company) defaults. Within a few months of lease
termination, we released 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 additional rent
and profit participation based on the expected future profitability of the new lessees
operations. |
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 our 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: We receive income from operating leases based on the fixed, minimum
required rents (base rents) per the lease agreements. 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 rent 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 rent
revenue. We record the
42
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.
Certain leases provide for additional rents contingent upon a percentage of the tenant revenue
in excess of specified base amounts/thresholds (percentage rents). 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 or other equity 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.
We receive interest income from our tenants/borrowers on mortgage loans, working capital
loans, and other long-term loans. Interest income from these loans is recognized as earned based
upon the principal outstanding and terms of the loans.
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.
Investments in Real Estate. We record investments in real estate at cost, and we capitalize
improvements and replacements when they extend the useful life or improve the efficiency of the
asset. While our tenants are generally responsible for all operating costs at a facility, to the
extent that we incur costs of repairs and maintenance, we expense those costs as incurred. We
compute depreciation using the straight-line method over the weighted-average useful life of 37.2
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, 2010 or 2009 or at
June 30, 2011, except for the Denham Springs facility which we recorded a $0.6 million charge in
June 2011; however, given the highly specialized aspects of our properties no assurance can be
given that future impairment charges will not be taken.
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 of acquired real estate,
we utilize a number of sources, including internal
and external market data and independent appraisals that may be obtained in connection
with the acquisition or financing of the respective property. We also
consider information obtained about each property as a result of our preacquisition due diligence,
marketing and leasing activities in estimating the fair value of the tangible and intangible assets
acquired.
43
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 (1) the contractual amounts to be
paid pursuant to the in-place leases and (2) managements estimate of fair market lease rates for
the corresponding in-place leases, measured over a period equal to the remaining noncancelable 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 lease intangible assets to be acquired based on the
difference between (1) the property valued with existing leases adjusted to market rental rates and
(2) the property valued as if vacant when acquired. Managements estimates of value are made using
methods similar to those used by independent appraisers (e.g., discounted cash flow analysis).
Factors considered by management in our analysis include an estimate of carrying costs during
hypothetical expected lease-up periods considering current market conditions, and costs to execute
similar leases. We also consider information obtained about each targeted facility as a result of
our pre-acquisition due diligence, marketing, and leasing activities in estimating the fair value
of the tangible and intangible assets acquired. In estimating carrying costs, management 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 be about six 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.
Other intangible assets acquired may include customer relationship intangible values, which
are 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 14.0 years at June 30, 2011. 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 is
charged to expense. At June 30, 2011, we have assigned no value to customer relationship
intangibles.
Loans: Loans consist of mortgage loans, working capital loans and other long-term loans.
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, 2010, 2009, and 2008 we recorded
$6.6 million, $5.5 million, and $6.4 million, respectively, of expense for share-based compensation
related to grants of
44
restricted common stock, deferred stock units and other stock-based awards. For the six months
ended June 30, 2011 and 2010, we recorded $3.7 million and $3.9 million, respectively, of expenses
for share-based compensation related to grants of restricted common stock. In 2011, 2010 and 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. Only
one third of the SPRE awards were earned as of December 31, 2010 (with the remainder being
forfeited); however, these awards require additional service after being earned in order to vest.
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 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 recorded 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.
Through June 2011 and for the full year of 2010, 229,938 and 182,600 of performance-based
awards, respectively, were awarded to our management team and certain employees. These awards vest
ratably over a three-year period based on the achievement of certain performance measures, with a
carry-back and carryforward provision through December 31, 2014 (for the 2010 awards) and December
31, 2015 (for the 2011 awards). In addition, we awarded 500,000 shares of multi-year
performance-based awards to management. These shares are subject to three-year cumulative
performance hurdles based on total shareholder return. At the end of the three-year performance
period, any earned shares will be subject to an additional two years of ratable time-based vesting
on an annual basis. Dividends are paid on these performance awards only upon achievement of the
performance hurdles.
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 intercompany 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 control 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 continually 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 then evaluate if we are the primary beneficiary of the variable
interest entity. The evaluation is a qualitative assessment as to whether we have the ability to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance. 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. At
December 31, 2010 and 2009 and June 30, 2011, we determined that we were not the primary
beneficiary of any of our variable interest entities because we do not control the activities that
most significantly impact the economic performance of these entities.
45
Disclosure of Contractual Obligations
The following table summarizes known material contractual obligations as of June 30, 2011
(amounts in thousands), adjusted for our tender offer of our 2008 Exchangeable Notes (as defined
below) consummated in July 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
Less Than 1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
After 5 Years |
|
|
Total |
|
Senior unsecured notes (1) |
|
$ |
4,429 |
|
|
$ |
13,969 |
|
|
$ |
13,969 |
|
|
$ |
131,063 |
|
|
$ |
163,430 |
|
Old Notes |
|
|
15,813 |
|
|
|
61,875 |
|
|
|
61,875 |
|
|
|
620,156 |
|
|
|
759,719 |
|
Exchangeable senior notes |
|
|
10,034 |
|
|
|
13,935 |
|
|
|
|
|
|
|
|
|
|
|
23,969 |
|
Revolving credit facilities (2) |
|
|
1,166 |
|
|
|
43,230 |
|
|
|
3,025 |
|
|
|
|
|
|
|
47,421 |
|
Term loans |
|
|
567 |
|
|
|
2,270 |
|
|
|
2,269 |
|
|
|
15,119 |
|
|
|
20,225 |
|
Operating lease commitments (3) |
|
|
1,313 |
|
|
|
4,505 |
|
|
|
3,665 |
|
|
|
44,516 |
|
|
|
53,999 |
|
Purchase obligations (4) |
|
|
31,687 |
|
|
|
10,980 |
|
|
|
|
|
|
|
|
|
|
|
42,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
65,009 |
|
|
$ |
150,764 |
|
|
$ |
84,803 |
|
|
$ |
810,854 |
|
|
$ |
1,111,430 |
|
|
|
|
(1) |
|
We entered into interest rate swaps to fix $65 million of our $125 million senior
notes, starting on July 31, 2011 through maturity date (or July 2016), at a rate of 5.507%.
We also entered into an interest rate swap to fix $60 million of our senior notes starting
October 31, 2011 through the maturity date (or October 2016) at a rate of 5.675%. See
Description of Other Material Indebtedness for more information. |
|
(2) |
|
Refers to our revolving credit facility and MPT of North Cypress, L.P. revolving
credit facility. Amount reflects outstanding amounts on our revolving credit facilities
and unused credit facility fees on our $330 million revolving credit facility as this
assumes balance in effect at June 30, 2011 ($39.6 million as of June 30, 2011) remains in
effect through maturity. |
|
(3) |
|
Most of our contractual obligations to make operating lease payments are related to
ground leases for which we are reimbursed by our tenants along with corporate office and
equipment leases. |
|
(4) |
|
Includes $6.2 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 BusinessCalifornia Seismic Standards 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. In
addition, this includes approximately $36 million of future development expenditures
related to Florence, River Oaks and other expenditures. |
Liquidity and Capital Resources of the Parent Company
In this Liquidity and Capital Resources of the Parent Company section and in the Liquidity
and Capital Resources of the Operating Partnership section below, the term, Parent Company,
refers to Medical Properties Trust, Inc. on an unconsolidated basis, excluding its direct and
indirect subsidiaries, including the Operating Partnership.
Our Parent Companys business is operated primarily through our Operating Partnership of which
it is the sole equity owner of the general partner and which it consolidates for financial
reporting purposes. Because our Parent Company operates on a consolidated basis with the Operating
Partnership, the section entitled Liquidity and Capital Resources of the Operating Partnership
should be read in conjunction with this section to understand the liquidity and capital resources
of our Parent Company on a consolidated basis and how our company is operated as a whole.
Our Parent Company issues public equity from time to time, including pursuant to its at the
market offering, but does not otherwise generate any capital itself or conduct any business itself,
other than incurring certain expenses in operating as a public company which are fully reimbursed
by the Operating Partnership. Our Parent Company itself does not hold any indebtedness other than
guarantees of indebtedness of our Operating Partnership, and its only material asset is its
ownership of partnership interests of our Operating Partnership and the membership
46
interests of the sole general partner of our Operating Partnership. Therefore, the assets and
liabilities and the revenues and expenses of our Parent Company and our Operating Partnership are
the same on their respective financial statements, except for immaterial differences related to
cash, other assets and accrued liabilities that arise from public company expenses paid by our
Parent Company. However, all debt is held directly or indirectly at the Operating Partnership
level. Our Parent Companys principal funding requirement is the payment of dividends on its common
stock. Our Parent Companys principal source of funding for its dividend payments is distributions
it receives from our Operating Partnership.
As the sole equity owner of the general partner of our Operating Partnership, our Parent
Company has the full, exclusive and complete responsibility for our Operating Partnerships
day-to-day management and control. Our Parent Company causes our Operating Partnership to
distribute such portion of its available cash as our Parent Company may in its discretion
determine, in the manner provided in our Operating Partnerships limited partnership agreement. Our
Parent Company receives proceeds from its equity issuances from time to time, but is required by
our Operating Partnerships limited partnership agreement to contribute the proceeds from its
equity issuances to our Operating Partnership in exchange for partnership units of our Operating
Partnership.
The liquidity of our Parent Company is dependent on our Operating Partnerships ability to
make sufficient distributions to our Parent Company. The primary cash requirement of our Parent
Company is its payment of dividends to its stockholders. Our Parent Company also guarantees some of
our Operating Partnerships debt. If our Operating Partnership fails to fulfill its debt
requirements, which trigger Parent Company guarantee obligations, then our Parent Company will be
required to fulfill its cash payment commitments under such guarantees. However, our Parent
Companys only significant asset is its investment in our Operating Partnership and its ownership
of the membership interests of our Operating Partnerships sold general partner.
We believe our Operating Partnerships sources of working capital, specifically its cash flow
from operations, and borrowings available under its revolving credit facility, are adequate for it
to make its distribution payments to our Parent Company and, in turn, for our Parent Company to
make its dividend payments to its stockholders. However, we cannot assure you that our Operating
Partnerships sources of capital will continue to be available at all or in amounts sufficient to
meet its needs, including its ability to make distribution payments to our Parent Company. The
unavailability of capital could adversely affect our Operating Partnerships ability to pay its
distributions to our Parent Company, which would in turn, adversely affect our Parent Companys
ability to pay cash dividends to its stockholders.
In order to fund dividend requirements or fund activities of our Operating Partnership, our
Parent Company will from time to time raise equity. For instance, in April 2010, our Parent
Company completed a public offering (the Equity Offering) of 26 million shares of common stock at
$9.75 per share. Including the underwriters purchase of 3.9 million additional shares to cover
over-allotments, net proceeds from this Equity Offering, after underwriters discounts and
commissions, were $279.1 million. The Operating Partnership used the net proceeds from the Equity
Offering to pay off our $30 million term loan that was due in
2010, to fund our purchase of 93% of
the outstanding 6.125% exchangeable senior notes due 2011 at a price of 103% of the principal
amount plus accrued and unpaid interest (or $136.3 million) pursuant to a cash tender offer, and
for other general corporate purposes.
Liquidity and Capital Resources of the Operating Partnership
In this Liquidity and Capital Resources of the Operating Partnership section, the terms
we, our and us refer to our Operating Partnership or our Operating Partnership and our Parent
Company together, as the text requires.
Our Parent Company is our sole general partner and consolidates our results of operations for
financial reporting purposes. Because we operate on a consolidated basis with our Parent Company,
the section entitled Liquidity and Capital Resources of the Parent Company should be read in
conjunction with this section to understand our liquidity and capital resources on a consolidated
basis.
During the first half of 2011, operating cash flows, which primarily consisted of rent and
interest from mortgage and working capital loans, approximated $39.7 million, which, along with
cash on-hand and draws on our revolvers, were principally used to fund our dividends of $44.8
million and investing activities of $186.7 million. As
47
of June 30, 2011, we had approximately $220.3 million of available borrowing capacity under
our credit facility (net of $8.9 million of letters and credit outstanding) and cash of $227.9
million.
In April 2011, our Operating Partnership and a wholly owned subsidiary of our Operating
Partnership (together, the Issuers) issued $450 million of the Old Notes. Contemporaneously with
the closing of the Old Notes, we repaid and terminated our $150 million term loan facility and our
$9 million collateralized term loan facility. In connection with the notes offering, we amended our
existing credit agreement, which now provides for a $330 million unsecured revolving credit
facility that matures in October 2015. We paid down in full this revolving credit facilitys
outstanding balance with the proceeds from the offering of the Old Notes. We used the remaining
proceeds from the offering (approximately $210 million) for general business purposes, which
includes investment opportunities and debt reduction (such as the cash tender offer on 85% of the
2008 Exchangeable Notes made in July 2011 and the repurchase of an additional 1% of the 2008
Exchangeable Notes made in August 2011).
We generated cash of $60.6 million from operating activities during 2010, which primarily
consists of rent and interest from mortgage and working capital loans, which, along with cash
on-hand, proceeds from the sale of our Parent Companys stock and our Inglewood and Montclair
properties and early loan prepayments by Prime and Marina, were principally used to fund our
dividends of $77.1 million, real estate acquisitions of $138 million and our debt refinancing
activities. As of December 31, 2010, we had approximately
$363 million available borrowing capacity under our credit facilities and cash of $98.4 million.
In April 2010, our Parent Company completed the Equity Offering of 26 million shares of common
stock at $9.75 per share. Including the underwriters purchase of 3.9 million additional shares to
cover over-allotments, net proceeds from this Equity Offering, after underwriters discounts and
commissions, were $279.1 million. We have used the net proceeds from the Equity Offering to pay off
our $30 million term loan that was due in 2010 and to fund our purchase of 84% of the outstanding
6.125% exchangeable senior notes due 2011 at a price of 103% of the principal amount plus accrued
and unpaid interest (or $123.2 million) pursuant to a cash tender offer.
In May 2010, our Operating Partnership entered into our credit facility with a syndicate of
banks and others, the proceeds of which, along with the Equity Offering proceeds, were used to
repay in full all outstanding obligations under our former $220 million credit facility. This newer
credit facility included a $300 million three year term revolving facility (which was increased to
$330 million in September 2010) and a term loan. The new credit facility included an accordion
feature that pursuant to which the revolving credit facility could be increased up to $375 million
through November 2011.
During the second quarter 2010, we entered into an interest rate swap to fix $65 million of
$125 million of our notes due 2016, starting July 31, 2011 (date on which the interest rate is
scheduled to turn variable) through maturity date (or July 2016), at a rate of 5.507%. We also
entered into an interest rate swap to fix the remaining $60 million of our notes due 2016 starting
October 31, 2011 (date on which the related interest rate is scheduled to turn variable) through
the maturity date at a rate of 5.675%. Prior to July 31, 2011, we were paying a weighted average
rate of 7.70% on these notes, so we expect to save $2.5 million annually on interest expense once
the swaps become effective in July and October 2011. In 2010, we sold the real estate of our
Inglewood Hospital and Montclair Hospital to Prime for $75 million and $20 million, respectively,
and received prepayment of our Marina mortgage loan of $43 million. Separately, Prime also repaid
$40 million in outstanding loans plus accrued interest in April 2010. In addition, Prime paid us
$12 million in additional rent related to our Shasta property.
We generated cash of $62.8 million from operating activities during 2009, which, along with
borrowings from our credit facility, were used to fund our distributions to our Parent Company 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.
48
Our revolving credit facility, the indenture governing the Old Notes and the Exchange Notes
and other debt instruments impose certain restrictions on us, including restrictions on our ability
to: incur additional debt; 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; dispose of real estate;
and change our business. In addition, these agreements limit the amount of dividends we can pay.
In addition to these restrictions, the indenture governing the Old Notes and the New Notes
includes a covenant that requires us to maintain Total Unencumbered Assets (as defined in the
indenture) of not less than 150% of our aggregate outstanding principal amount of Unsecured
Indebtedness (as defined in the indenture) at all times and our credit facility contains customary
financial and operating covenants, including covenants relating to total leverage ratio, fixed
charge coverage ratio, mortgage secured leverage ratio, recourse mortgage secured indebtedness,
consolidated adjusted net worth, unsecured leverage ratio, unsecured interest coverage ratio and
covenants restricting the incurrence of debt, imposition of liens, the payment of dividends, and
entering into affiliate transactions. This facility also contains 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 the
facility, the entire outstanding balance may become immediately due and payable. The indenture
governing the Old Notes and Exchange Notes contains customary operating covenants and events of
default, including, but not limited to, the failure to make payments of interest or premium, if
any, on, or principal of, the notes, the failure to comply with certain covenants and agreements
specified in the indenture for a period of time after notice has been provided, the acceleration of
other indebtedness resulting from the failure to pay principal on such other indebtedness prior to
its maturity, and certain events of insolvency. At June 30, 2011 and April 26, 2011, we were in
compliance with all such financial and operating covenants. See Description of Other Material
IndebtednessCredit Facility for a more detailed description of the terms of our revolving credit
facility.
In order for our Parent Company 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 Distribution Policy for further
information on our dividend policy along with the historical dividends paid on a per share basis.
Short-term Liquidity Requirements: As of September 16, 2011, our availability under our
amended revolving credit facility plus cash on-hand approximated $350 million. We have only nominal
principal payments due and no remaining significant maturities in 2011. We believe that the
liquidity available to us, along with our current monthly cash receipts from rent and loan
interest, is sufficient to provide the resources necessary for operations, debt and interest
obligations (including the repurchase of 86% of our 2008 Exchangeable Notes in July and August
2011), our firm commitments (including capital expenditures, if any), dividends in order for our
Parent Company to comply with REIT requirements during 2011 and to fund our current investment
strategies for the next 12 months. In addition, our Parent Company has an at-the-market offering in
place under which we may sell up to $50 million in shares (of which $10 million has been sold
to-date) which may be used for general corporate purposes as needed.
Long-term Liquidity Requirements: With the proceeds from the offering of the Old Notes and the
availability from our revolving credit facility discussed above along with our current monthly cash
receipts from rent and loan interest and availability under our at-the-market offering, we believe
we have the liquidity available to us to fund our operations, debt and interest obligations,
dividends in order for our Parent Company to comply with REIT requirements, firm commitments
(including capital expenditures, if any) and investment strategies for the foreseeable future. As
of June 30, 2011, adjusted for the tender offer on our 2008 Exchangeable Notes completed in July,
principal payments due for our debt (which exclude the effects of any discounts recorded) are as
follows (in thousands):
|
|
|
|
|
2011 |
|
$ |
9,285 |
|
2012 |
|
|
39,832 |
|
2013 |
|
|
12,749 |
|
2014 |
|
|
266 |
|
2015 |
|
|
283 |
|
Thereafter |
|
|
588,400 |
|
Total |
|
$ |
650,815 |
|
49
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 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 offering memorandum. Accordingly, we expect that future results of
operations will vary from our historical results.
Six Months Ended June 30, 2011 Compared to June 30, 2010
Net income for the six months ended June 30, 2011, was $13.4 million compared to net income of
$3.4 million for the six months ended June 30, 2010. Funds from operations (FFO), after adjusting
for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was
$37.9 million, or $0.34 per diluted share for the first six months in 2011 as compared to $31.5
million, or $0.35 per diluted share for 2010.
A comparison of revenues for the six month periods ended June 30, 2011 and 2010, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Year |
|
|
|
2011 |
|
|
Total |
|
|
2010 |
|
|
Total |
|
|
Change |
|
Base rents |
|
$ |
56,113 |
|
|
|
77.8 |
% |
|
$ |
43,946 |
|
|
|
71.5 |
% |
|
|
27.7 |
% |
Straight-line rents |
|
|
3,805 |
|
|
|
5.2 |
% |
|
|
1,593 |
|
|
|
2.6 |
% |
|
|
138.8 |
% |
Percentage rents |
|
|
1,668 |
|
|
|
2.3 |
% |
|
|
1,614 |
|
|
|
2.6 |
% |
|
|
3.3 |
% |
Fee income |
|
|
111 |
|
|
|
0.2 |
% |
|
|
237 |
|
|
|
0.4 |
% |
|
|
-53.2 |
% |
Interest from loans |
|
|
10,450 |
|
|
|
14.5 |
% |
|
|
14,061 |
|
|
|
22.9 |
% |
|
|
-25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
72,147 |
|
|
|
100.0 |
% |
|
$ |
61,451 |
|
|
|
100.0 |
% |
|
|
17.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base rents for the 2011 first and second quarters increased 27.7% versus the prior year as a
result of the additional rent generated from annual escalation provisions in our leases, and
incremental revenue from the properties acquired in 2010 and in the first quarter of 2011. This
more than offset the $1.5 million adjustment to reserve for outstanding receivables on our Denham
Springs facility. Interest from loans is lower than the prior year due to the repayment of $82
million in loans in 2010.
Straight line rent for the 2011 first and second quarters increased 138.8% versus the prior
year due to approximately $1.7 million of unbilled rent being reclassed to billed rent in the
second quarter of 2010, partially offset by the $0.2 million write-off/reserve of straight-line
rent receivables associated with the Denham Springs facility in the second quarter 2011.
Real estate depreciation and amortization during the first half of 2011 was $16.2 million,
compared to $11.9 million during the same period of 2010, a 36.1% increase, due to the incremental
depreciation from the properties acquired since June 2010.
Property-related expenses during the first six months decreased from $1.5 million in 2010 to
$0.3 million in 2011 due to the utility costs, repair and maintenance expense, legal, and property
taxes associated with vacant
facilities in 2010. No similar costs were incurred in 2011 as all of our facilities are
currently fully operating with the exception of two facilities that are under development.
50
In the 2011 second quarter, we recognized a $0.6 million real estate impairment charge related
to our Denham Springs facility. In the 2010 first quarter, we recognized a $12 million loan
impairment charge related to our Monroe facility.
General and administrative expenses in the first two quarters of 2011 and 2010 totaled $14.7
million and $14.7 million, respectively. We incurred higher travel costs and office expenses in
2011, which was offset by a $2.8 million charge recognized during the second quarter of 2010 as a
result of the resignation of an executive officer.
Acquisition expenses increased from $0.9 million in the first half of 2010 to $2.7 million in
the same period in 2011 due to increased acquisition activity and consummated deals.
Interest and other expense for the first half of 2011 and 2010 totaled $24.3 million and $24.2
million, respectively. In 2011, we recorded a charge of $3.8 million related to our debt
refinancing activities, while in 2010, we recorded a charge of $6.2 million for other refinancing
activities. Excluding the debt refinancing charges, interest increased 13.9% for the first six
months of 2011 due to an increase in debt from the $450 million senior unsecured notes that we
entered into in April 2011.
In addition to the items noted above, net income for the six month periods was impacted by
discontinued operations.
Year ended December 31, 2010 Compared to the Year Ended December 31, 2009
Net income for the year ended December 31, 2010 was $22.9 million compared to net income of
$36.3 million for the year ended December 31, 2009.
A comparison of revenues for the years ended December 31, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
Change |
|
|
|
(in thousands) |
|
Base rents |
|
$ |
90,230 |
|
|
|
74.0 |
% |
|
$ |
79,880 |
|
|
|
67.2 |
% |
|
$ |
10,350 |
|
Straight-line rents |
|
|
2,074 |
|
|
|
1.7 |
% |
|
|
8,221 |
|
|
|
6.9 |
% |
|
|
(6,147 |
) |
Percentage rents |
|
|
2,555 |
|
|
|
2.1 |
% |
|
|
1,985 |
|
|
|
1.7 |
% |
|
|
570 |
|
Interest from loans |
|
|
26,390 |
|
|
|
21.7 |
% |
|
|
28,286 |
|
|
|
23.8 |
% |
|
|
(1,896 |
) |
Fee income |
|
|
598 |
|
|
|
0.5 |
% |
|
|
437 |
|
|
|
0.4 |
% |
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
121,847 |
|
|
|
100.0 |
% |
|
$ |
118,809 |
|
|
|
100.0 |
% |
|
$ |
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2010, was comprised of rents (77.8%) and interest and
fee income from loans (22.2%). The increase in base rents and percentage rent is primarily due to
incremental revenue from acquisitions made in 2010 and other new investments along with the
re-leasing of our Bucks and Covington properties.
Straight-line rents were significantly less compared to the prior year due to the $2.5 million
write off of straight-line rent receivables in third quarter 2010 associated with our Monroe
facility; $0.2 million related to the Cleveland transaction in the third quarter 2010; $1.7 million
of straight-line rent was reclassified as base rent in the 2010 second quarter upon the payment of
$12 million by Prime pursuant to the additional rent provisions of the lease related to our Shasta
property; partially offset by reserve/write off of $1.1 million 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.
Interest income decreased from the prior year by 6.7% due to the prepayment of $40 million in
loans in the second quarter of 2010.
Prime (including rent and interest from mortgage and working capital loans) accounted for
32.7% and 33.7% of our total revenues in 2010 and 2009, respectively. At December 31, 2010, assets
leased and loaned to
51
Prime comprised 26.7% of total assets and 29.0% of our total real estate
portfolio. Vibra (including rents and interest from working capital loans) accounted for 14.5% and
15.1% of our gross revenues in 2010 and 2009, respectively. At December 31, 2010, assets leased and
loaned to Vibra comprised 10.0% of our total assets and 10.8% of our total real estate portfolio.
Real estate depreciation and amortization during the year ended December 31, 2010 was $24.5
million, compared to $22.6 million in 2009, an 8.2% increase. Depreciation increased due to the
incremental depreciation from the acquisitions in 2010.
Property-related expenses during the years ended December 31, 2010 and 2009, totaled $4.4
million and $3.8 million, respectively, which represents an increase of 15.9%. This increase is
primarily related to the write off of $2.4 million in receivables related to a former tenant in the
fourth quarter 2010. Of the property-related expenses in 2010 and 2009, $1.3 million and $3.3
million, respectively, represented utility costs, repair and maintenance expense, legal, and
property taxes associated with vacant or previously vacant properties.
In the 2010 second quarter, we recognized a $12 million loan impairment charge related to our
Monroe facility. No such charge was recorded in 2009.
General and administrative expenses during the years ended December 31, 2010 and 2009, totaled
$28.5 million and $21.1 million, respectively, which represents an increase of 35.3%. The majority
of this increase relates to executive severance of $2.8 million recorded during the second quarter
of 2010 as a result of the resignation of an executive officer and $2.7 million in legal and other
costs related to acquisition due diligence and closing costs in 2010.
Interest and other income is higher than prior year due to the $1.5 million gain on the
property exchange in 2010.
Interest expense for the years ended December 31, 2010 and 2009 totaled $34.0 million and
$37.7 million, respectively. This decrease is primarily due to lower debt balances in 2010 as a
result of the debt refinancing during the second quarter. In regards to the debt refinancing, we
recorded a charge of $6.7 million related to the write off of previously deferred financing costs
and the premiums we paid associated with our repurchase of additional outstanding exchangeable
notes.
In addition to the items noted above, net income for the year was impacted by discontinued
operations.
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Net income for the year ended December 31, 2009 was $36.3 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 |
|
|
|
( in thousands) |
|
Base rents |
|
$ |
79,880 |
|
|
|
67.2 |
% |
|
$ |
72,692 |
|
|
|
67.9 |
% |
|
$ |
7,188 |
|
Straight-line rents |
|
|
8,221 |
|
|
|
6.9 |
% |
|
|
3,742 |
|
|
|
3.5 |
% |
|
|
4,479 |
|
Percentage rents |
|
|
1,985 |
|
|
|
1.7 |
% |
|
|
1,454 |
|
|
|
1.4 |
% |
|
|
531 |
|
Interest from loans |
|
|
28,286 |
|
|
|
23.8 |
% |
|
|
27,900 |
|
|
|
26.1 |
% |
|
|
386 |
|
Fee income |
|
|
437 |
|
|
|
0.4 |
% |
|
|
1,282 |
|
|
|
1.1 |
% |
|
|
(845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
118,809 |
|
|
|
100.0 |
% |
|
$ |
107,070 |
|
|
|
100.0 |
% |
|
$ |
11,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2009, was comprised of rents (75.8%) and interest and
fee income from loans (24.2%). The increase in base rents, percentage rents, and interest is
primarily due to incremental revenue from acquisitions made in 2008 and other new investments.
52
Straight-line rents more than doubled compared to the prior year due to the $4.5 million
writeoff 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
33.7% and 26.9% of our gross revenues in 2009 and 2008, respectively. At December 31, 2009, assets
leased and loaned to Prime comprised 37.4% of total assets and 37.8% of our total real estate
portfolio. Vibra (including rent and interest from working capital loans) accounted for 15.1% and
17.4% 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.
Depreciation and amortization during the year ended December 31, 2009 was $22.6 million, in
line with 2008.
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%, 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.
Property related expenses decreased slightly in 2009 versus 2008 to $3.8 million. In 2009, we
incurred $3.3 million in maintenance, utility costs, property taxes, and legal expenses with our
vacant River Oaks facility and previously vacant Bucks facility, while in 2008 we expensed $1.3
million related to the insurance deductible associated with Hurricane Ike damage to the River Oaks
facilities and $1.7 million of bad debt expense recorded in 2008 related to the termination of the
Bucks County lease.
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
$3.2 million charge for the write-off of costs associated with the short-term bridge facility that
was terminated in June 2008. The remainder of the decrease from prior year is a result of lower
LIBOR rates in 2009 compared to 2008.
In addition to the items noted above, net income for the year was impacted by discontinued
operations.
Reconciliation of Non-GAAP Financial Measures
Investors and analysts following the real estate industry utilize funds from operations, or
FFO, as a supplemental performance measure. While we believe net income available to common
stockholders, as defined by generally accepted accounting principles (GAAP), is the most
appropriate measure, our management considers FFO an appropriate supplemental measure given its
wide use by and relevance to investors and analysts. FFO, reflecting the assumption that real
estate asset values rise or fall with market conditions, principally adjusts for the effects of
GAAP depreciation and amortization of real estate assets, which assumes that the value of real
estate diminishes predictably over time.
As defined by the National Association of Real Estate Investment Trusts, or NAREIT, FFO
represents net income (loss) (computed in accordance with GAAP), excluding gains (losses) on sales
of real estate, plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. We compute FFO in accordance with the NAREIT
definition. FFO should not be viewed as a substitute measure of our operating performance since it
does not reflect either depreciation and amortization costs or the level of capital expenditures
and leasing costs necessary to maintain the operating performance of our properties, which are
significant economic costs that could materially impact our results of operations.
The following table presents a reconciliation of FFO to net income attributable to MPT common
stockholders for the six months ended June 30, 2011 and 2010 ($ amounts in thousands except per
share data):
53
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
FFO information: |
|
|
|
|
|
|
|
|
Net income attributable to MPT common
stockholders |
|
$ |
13,419 |
|
|
$ |
3,401 |
|
Participating securities share in earnings |
|
|
(597 |
) |
|
|
(679 |
) |
|
|
|
|
|
|
|
Net income, less
participating securities share
in earnings |
|
$ |
12,822 |
|
|
$ |
2,722 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
16,248 |
|
|
|
11,891 |
|
Discontinued operations |
|
|
|
|
|
|
1,086 |
|
Loss (gain) on sale of real estate |
|
|
(5 |
) |
|
|
(6,178 |
) |
|
|
|
|
|
|
|
Funds from operations |
|
$ |
29,065 |
|
|
$ |
9,521 |
|
|
|
|
|
|
|
|
|
|
Acquisition costs |
|
|
2,656 |
|
|
|
949 |
|
Debt refinancing costs |
|
|
3,789 |
|
|
|
6,214 |
|
Executive severance |
|
|
|
|
|
|
2,830 |
|
Real estate impairment charge |
|
|
564 |
|
|
|
|
|
Loan impairment charge |
|
|
|
|
|
|
12,000 |
|
Write-off of other receivables |
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
|
Normalized funds from operations |
|
$ |
37,920 |
|
|
$ |
31,514 |
|
|
|
|
|
|
|
|
|
|
Per diluted share data: |
|
|
|
|
|
|
|
|
Net income, less participating
securities share in earnings |
|
$ |
0.12 |
|
|
$ |
0.03 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
0.14 |
|
|
|
0.13 |
|
Discontinued operations |
|
|
|
|
|
|
0.01 |
|
Loss (gain) on sale of real estate |
|
|
|
|
|
|
(0.07 |
) |
|
|
|
|
|
|
|
Funds from operations |
|
$ |
0.26 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
Acquisition costs |
|
|
0.03 |
|
|
|
0.01 |
|
Debt refinancing costs |
|
|
0.03 |
|
|
|
0.07 |
|
Executive severance |
|
|
|
|
|
|
0.03 |
|
Real estate impairment charge |
|
|
|
|
|
|
|
|
Loan impairment charge |
|
|
|
|
|
|
0.14 |
|
Write-off of other receivables |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
Normalized funds from operations |
|
$ |
0.34 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
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
September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date |
|
Record Date |
|
Date of Distribution |
|
Distribution per Share |
|
August 18, 2011 |
|
September 15, 2011 |
|
October 13, 2011 |
|
|
$0.20 |
|
May 19, 2011 |
|
June 16, 2011 |
|
July 14, 2011 |
|
|
$0.20 |
|
February 17, 2011 |
|
March 17, 2011 |
|
April 14, 2011 |
|
|
$0.20 |
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date |
|
Record Date |
|
Date of Distribution |
|
Distribution per Share |
|
November 11, 2010 |
|
December 9, 2010 |
|
January 6, 2011 |
|
|
$0.20 |
|
August 19, 2010 |
|
September 14, 2010 |
|
October 14, 2010 |
|
|
$0.20 |
|
May 20, 2010 |
|
June 17, 2010 |
|
July 15, 2010 |
|
|
$0.20 |
|
February 18, 2010 |
|
March 18, 2010 |
|
April 14, 2010 |
|
|
$0.20 |
|
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 |
|
We intend to pay to our stockholders, within the time periods prescribed by the Code, all or
substantially all of our annual taxable income, including taxable gains from the sale of real
estate and recognized gains on the sale of securities. It is our policy to make sufficient cash
distributions to stockholders in order for us to maintain our status as a REIT under the Code and
to avoid corporate income and excise taxes on undistributed income. However, our credit facility
and the indenture governing the Old Notes and Exchange Notes limit the amounts of dividends we can
paysee Note 4 to Medical Properties unaudited financial statements included elsewhere in this
prospectus for further information.
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 affected also by changes in cap
rates, which is measured by the current annual 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 June 30, 2011, our
outstanding debt totaled $718.3 million, which consisted of fixed-rate debt of $678.7 million
(including $125.0 million of floating debt swapped to fixed) and variable rate debt of $39.6
million.
If market interest rates increase by one-percentage point, the fair value of our fixed rate
debt at June 30, 2011, after considering the effects of the interest rate swaps entered into in
2010, would decrease by $36.8 million.
Changes in the fair value of our fixed rate debt will not have any impact on us unless we
decided to repurchase the debt 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 $0.4
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 $0.4 million per year. This assumes that the average amount outstanding under our variable
rate debt for a year is $39.6 million, the balance at June 30, 2011.
55
Share Price Sensitivity
During
2010, we funded a cash tender offer for 93% of the outstanding
6.125% exchangeable senior notes due 2011 at a price of 103% of the principal amount plus accrued
and unpaid interest (or approximately $136.3 million). At June 30, 2011, only $9.2 million of these
notes remain outstanding.
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. Based on the remainder of the notes still outstanding at June 30, 2011 and 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 0.1
million shares. At $25 per share, we would be required to issue an additional 0.2 million shares.
In July 2011, we funded a cash tender offer for 85% of the outstanding 9.25% exchangeable
senior notes due 2013 at a price of 118.5% of the principal amount plus accrued and unpaid interest
(or approximately $84.2 million). In August, we repurchased another $1.5 million of exchangeable
notes leaving only $11.0 million of these notes outstanding.
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 June 30, 2011. 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.
Using the outstanding notes post the cash tender offer in July and, assuming a price of $20 per
share, we would be required to issue an additional 0.4 million shares. At $25 per share, we would
be required to issue an additional 0.5 million shares.
56
BUSINESS
Overview
Medical Properties is a self-advised real estate investment trust (REIT) that was
incorporated under Maryland law on August 27, 2003 primarily for the purpose of investing in and
owning net-leased healthcare facilities across the United States. We acquire and develop healthcare
facilities and lease the facilities to healthcare operating companies under long-term net leases,
which require the tenants to bear most of the costs associated with the properties. We also
occasionally make mortgage loans to healthcare operators collateralized by their real estate
assets. In addition, we selectively make loans to, and other investments in, certain of our
operators through our taxable REIT subsidiaries, the proceeds of which have historically been used
for acquisitions and working capital. Finally, from time to time, we acquire a profit or other
equity interest in certain of our tenants that gives us a limited right to share in such tenants
positive cash flow.
All of our investments are currently located in the United States. The following is our
revenue by operating type for the year ended December 31 and six months ended June 30 for each of
the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
|
Revenue |
|
|
% of Revenue |
|
|
Revenue |
|
|
% of Revenue |
|
|
Revenue |
|
|
% of Revenue |
|
|
Revenue |
|
|
% of Revenue |
|
General Acute Care Hospitals |
|
$ |
71,946 |
|
|
|
67.3 |
% |
|
$ |
80,637 |
|
|
|
67.9 |
% |
|
$ |
77,773 |
|
|
|
63.8 |
% |
|
$ |
44,237 |
|
|
|
61.3 |
% |
Long-term Acute Care Hospitals |
|
|
25,200 |
|
|
|
23.5 |
% |
|
|
25,031 |
|
|
|
21.1 |
% |
|
|
26,605 |
|
|
|
21.8 |
% |
|
|
17,057 |
|
|
|
23.6 |
% |
Rehabilitation Hospitals |
|
|
7,418 |
|
|
|
6.9 |
% |
|
|
10,032 |
|
|
|
8.4 |
% |
|
|
14,448 |
|
|
|
11.9 |
% |
|
|
9,157 |
|
|
|
12.7 |
% |
Wellness Centers |
|
|
1,612 |
|
|
|
1.5 |
% |
|
|
1,449 |
|
|
|
1.2 |
% |
|
|
1,315 |
|
|
|
1.1 |
% |
|
|
865 |
|
|
|
1.2 |
% |
Medical Office Buildings |
|
|
894 |
|
|
|
0.8 |
% |
|
|
1,660 |
|
|
|
1.4 |
% |
|
|
1,706 |
|
|
|
1.4 |
% |
|
|
831 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
107,070 |
|
|
|
100.0 |
% |
|
$ |
118,809 |
|
|
|
100.0 |
% |
|
$ |
121,847 |
|
|
|
100.0 |
% |
|
$ |
72,147 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Managements Discussion and Analysis of Financial Condition and Results of
OperationsOverview for details of transaction activity for 2011, 2010, 2009 and 2008.
Portfolio of Properties
As of June 30, 2011, our portfolio consisted of 58 properties: 54 facilities (of the 56
facilities that we own, of which two are subject to long-term ground leases) are leased to 19
tenants, one is presently not under lease, one is under development, and the remainder are in the
form of mortgage loans. Our owned and ground leased facilities consist of 22 general acute care
hospitals, 17 long-term acute care hospitals, nine inpatient rehabilitation hospitals, two medical
office buildings, and six wellness centers. The non-owned facilities on which we have made mortgage
loans consist of general acute care facilities. As of June 30, 2011, our weighted average in-place
remaining lease term across our portfolio was approximately 10 years. In addition, our two mortgage
loans as of June 30, 2011 mature in 2022.
Competitive Strengths
Differentiated Strategy. We are the only publicly traded healthcare REIT with a focus on
hospitals. Our investment strategy is to (1) acquire and develop net-leased facilities and (2)
selectively make loans to certain of our tenants through our taxable REIT subsidiaries, the
proceeds of which have been historically used for acquisitions and working capital. With the
passage in 2008 of certain changes in REIT legislation, we also have made, and expect to continue
making, investments in the operations of certain of our tenants.
The highly complex nature of the delivery of healthcare services requires hospital operators
to make significant investments in real estate and facilities. We believe that a large portion of
these healthcare providers have operating and financial characteristics that make sale/leaseback
financing attractive. Since we commenced operations in 2004, we have grown rapidly and successfully
due in part to the opportunities inherent in the healthcare real estate business, including:
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compelling demographics driving the demand for healthcare services; |
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increasing capital expenditure requirements to address physical obsolescence of aging
healthcare facilities; |
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rapidly advancing technologies that result in successful treatment of more conditions
and diseases; |
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continuing pressures on providers to operate efficiently, including efficient use of
capital; |
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specialized nature of healthcare real estate investing; and |
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consolidation of the fragmented healthcare real estate sector. |
Virtually all of our management team has significant experience in the hospital industry,
having worked as hospital management consultants, financial officers and analysts, program
directors, strategic planning officers, facility planners and developers and investment bankers. We
believe that this unique and specialized expertise creates a strong competitive advantage over
other healthcare REITs and investors.
Financially Secure Tenants. As of June 30, 2011, we had leases or mortgage loans with 19 different
hospital operating companies covering 56 facilities, with one facility under development and
another not currently under lease.
Our largest tenant, Prime, which accounted for 32.7% of our 2010 total revenues and 31.2% of
our total revenues during the six month period ended June 30, 2011, leased 11 of our facilities as
of June 30, 2011, and we have made mortgage loans on two other properties to Prime. Prime is among
the 10 largest for-profit hospital systems in the United States and was listed in 2009 as one of
the Top 10 health systems in the United States by Thomson Reuters, as measured by clinical quality
and efficiency. The following condensed, consolidated financial data concerning Prime is derived
from Primes 2010 consolidated audited financial statements included elsewhere in this prospectus.
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2010 |
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Revenue |
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1,589,082 |
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Net income |
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106,577 |
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Total assets |
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796,253 |
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Our second largest tenant, Vibra, leases six of our facilities as of June 30, 2011 and
accounted for 14.5% of our 2010 total revenues and 12.6% of our total revenues during the six month
period ended June 30, 2011. Vibra is the third largest long term acute care hospital operator in
the United States, and has grown to that position since its 2004 commencement of operations. Vibra
has a management team with more than a century of combined experience and it is our longest-running
tenant with leases that began in 2004. As of June 30, 2011, more than 55% of our total assets are
leased to high profile industry leaders such as Prime and Vibra. Other well-known hospital
operators that are our tenants include Community Health, HealthSouth, RehabCare, HMA and IASIS.
Scaleable Business Model. Our absolute-net lease business model provides us with low operating
leverage and a scaleable platform. We lease our facilities to healthcare operators pursuant to
long-term net-lease agreements that require the tenant to bear most of the costs associated with
the property, including property taxes, utilities, insurance, maintenance and in most cases,
capital improvements. Our current net-leases generally are for initial terms of at least 10 years,
provide for annual base rental increases and, in the case of certain facilities, some level of
operator profit participation. Due to recent changes to the tax code as it relates to healthcare
REITs, we also make strategic investments in certain operators that lease our facilities, which
provides us with opportunities to further increase our profit participation. The weighted average
remaining tenor of our leases is approximately 10 years. As of June 30, 2011, as a percentage of
revenue, approximately 20% of our leases expire before 2016 and approximately 80% of our leases
expire thereafter. Our two mortgage loans, which are structured to provide us returns and credit
risks similar to our leases, mature in 2022. In the future, we anticipate that our leases will
generally provide for base rent
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with annual escalators, tenant payment of substantially all real estate costs and, when feasible
and in compliance with applicable healthcare laws and regulations and requirements for Medical
Properties qualification as a REIT, operator profit participation.
Our operating leverage (general and administrative costs as a percentage of revenue) has
continued to improve since our inception. General and administrative costs (excluding any
nonrecurring charges and non-cash stock compensation expenses) represented 20.3% of total revenues
(including revenues that are reported in discontinued operations) in 2005 compared to 14.0% in 2010
and 15.2% for the six months ended June 30, 2011.
We believe our network of relationships in both the real estate and healthcare industries
provides us access to a large volume of potential acquisition and development opportunities.
Comprehensive Underwriting and Monitoring Process. Our underwriting and diligence processes focus
on both real estate investment and healthcare operations. Our acquisition and development selection
process includes a comprehensive analysis of any targeted healthcare facility. 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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patient admission levels and surgery and procedure volumes by type; |
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the current, 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 sources of our tenants or borrowers revenue, including the relative mix
of Medicare, Medicaid and other state-based healthcare programs, managed care, commercial
insurance and private pay patients; |
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the effect of evolving healthcare legislation 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 our tenants
and borrowers operate. |
We also actively monitor the operating results of our tenants by reviewing periodic financial
reports and operating data, as well as visiting each facility and meeting with the management of
our tenants on a regular basis.
Through our detailed underwriting of healthcare acquisitions and ongoing diligent monitoring
of our investments, we believe that we will be able to continue successfully investing in hospital
real estate, including responding to unplanned financial stress of our tenants so as to protect the
value of our anticipated revenue streams with minimal disruption.
Strong Financial Profile. As of June 30, 2011, we had approximately $450 million in liquidity
consisting of unrestricted cash and cash equivalents and available borrowings under our credit
facility, our debt maturities through June 30, 2012 are less than $50 million and only two of our
properties served as loan collateral, representing approximately 5% of our total assets.
Furthermore, as of June 30, 2011, we had an unencumbered asset base representing total investments
of $1.5 billion. We have a demonstrated and successful track record of access to the capital
markets, having raised secured and unsecured term notes, unsecured exchangeable notes, syndicated
bank facilities and public equity of approximately $1.7 billion since inception.
Experienced Management Team. Our management teams unique and specialized expertise enables us to
offer innovative acquisition and net-lease structures that we believe will appeal to a variety of
healthcare operators. Our executive officers have an average of more than 25 years of experience in
healthcare services, healthcare real estate markets and capital markets with expertise in a wide
breadth of areas including hospital acquisitions, hospital
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development and construction, hospital operations, physician practice management, hospital leasing
and real estate management. Edward K. Aldag, Jr., our Chief Executive Officer, has more than 20
years experience, specializing in hospital and other types of real estate. R. Steven Hamner, our
Chief Financial Officer, is a finance professional with more than 30 years of experience including
real estate capital markets and healthcare real estate transaction structuring. Emmett E. McLean,
our Chief Operating Officer, has a background in investment banking, corporate finance and
operations and healthcare mergers and acquisitions, with more than 30 years of experience.
We believe that our managements depth of experience in both traditional real estate
investment and healthcare operations positions us favorably to take advantage of the available
opportunities in the healthcare real estate market.
Strategy
Our strategy is to lease our facilities to tenants that are managed by experienced 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 or other equity
interests in certain of our tenants operations 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 and investors. We focus on acquiring and developing those net-leased facilities that are
specifically designed to address the evolving needs and delivery processes of the nations leading
healthcare providers. These facilities include but are not limited to:
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General Acute Care Hospitals: Acute care hospitals typically provide short-term
medical treatments for acute illness or injury, including emergency care. These
hospitals are the primary referral source to sub-acute providers. In a national
healthcare environment wherein bundling is a key component, the acute care operators
receive payment from Medicare and other reimbursement sources for a patients complete
treatment program. In addition, acute care operators negotiate services and payments
with sub-acute providers to the extent a patient undergoing a complete treatment
program is expected to require sub-acute hospitalization. We believe this will result
in increasing influence of the acute care hospitals, which comprised approximately 64%
of our 2010 revenue and 61.3% of our revenue generated during the six months ended June
30, 2011. |
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Long-Term Acute Care Hospitals: Long-term acute care hospitals focus on extended
hospital care, generally at least 25 days, for the medically-complex patient. Long-term
acute care hospitals have arisen from a need to provide care to patients in acute care
settings, including daily physician observation and treatment, before they are able to
move to a rehabilitation hospital, skilled nursing facility or return home. These
facilities are reimbursed in a manner more appropriate for a longer length of stay than
is typical for a general acute care hospital. Approximately 22% of our 2010 revenue and
23.6% of our revenue generated during the six months ended June 30, 2011 was received
from this category of tenant. |
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Physical Rehabilitation Hospitals: Physical rehabilitation hospitals provide
inpatient and outpatient rehabilitation services for patients recovering from multiple
traumatic injuries, organ transplants, amputations, cardiovascular surgery, strokes and
complex neurological, orthopedic and other conditions. In addition to Medicare
certified rehabilitation beds, rehabilitation hospitals may also operate Medicare
certified skilled nursing, psychiatric, long-term or acute care beds. These hospitals
are often the best medical alternative to traditional acute care hospitals where under
the Medicare prospective payment system there is pressure to discharge patients after
relatively short stays. Physical rehabilitation hospital tenants accounted for
approximately 12% of our revenue in 2010 and 12.7% of our revenue generated during the
six months ended June 30, 2011. |
We expect the sources of our revenue for the foreseeable future to be similar to the sources
of our 2010 revenue and revenue generated during the first six months of 2011 described in the
above paragraphs and the tables in this section. Other sources presently include, or may include in
the future, rents from medical office building
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tenants, wellness centers, ambulatory surgery centers, other single discipline licensed
hospitals and smaller facilities such as emergency and other clinics.
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 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 and borrowers 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, which we believe may provide early
indications of conditions that may affect the level of risk in our lease and loan portfolio.
Industry Overview
General Market Trends
Healthcare is the single largest industry in the United States based on U.S. Gross Domestic
Product (GDP). According to the National Health Expenditures report dated September 2010 by the
Centers for Medicare and Medicaid Services (CMS): (1) national health expenditures are projected
to grow 4.2% in 2011; (2) the average compound annual growth rate for national health expenditures,
over the projection period of 2009 through 2019, is anticipated to be 6.3%; and (3) the healthcare
industry is projected to represent 17.4% of GDP in 2011.
As a result, by 2019, national health spending is expected to reach $4.6 trillion and comprise
19.6% of GDP as compared to an estimated $2.6 trillion of healthcare spending in 2010 or $8,389 per
person.
The industry is expected to continue its growth to meet the demands of advances in medical
technology, treatments, increase in life expectancy and the aging U.S. population. The medical
landscape is changing rapidly as new treatments, drugs and devices become available.
From 2010 to 2030, the senior population, which is defined as the population aged 65 years and
over, is expected to increase 79% from 40.2 million to 72.0 million. By 2030, the senior population
is expected to comprise roughly 20% of the total U.S. population.
Our Leases and Loans
The leases for our facilities are net leases with terms generally requiring the tenant to
pay all ongoing operating and maintenance expenses of the facility, including property, casualty,
general liability and other insurance coverages, utilities and other charges incurred in the
operation of the facilities, as well as real estate 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 and mortgagors will indemnify us for
environmental liabilities. Our leases and loans as of June 30, 2011 have remaining terms of 1 to 23
years 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 June 30, 2011, we had leases with 19 hospital operating companies covering 54 facilities
and we had two mortgage loans with one hospital operating company.
Affiliates of Prime leased 11 of these facilities as of June 30, 2011. Each of our leases with
Prime contains annual escalation provisions that are generally tied to the U.S. Consumer Price
Index, limited in certain instances to minimum and maximum increases. As of June 31, 2010, these
facilities had an average remaining initial lease term
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of approximately nine 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, if no default has occurred, at prices generally at least equal to our purchase price of
the facility. In addition to leases, as of June 30, 2011 we held a mortgage loan on two facilities
owned by affiliates of Prime that will mature in 2022. The terms and provisions of this loan 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) generated from Prime
affiliates in 2010 and during the six months ended June 30, 2011 was $39.8 million, or 32.7% of
total revenue and $22.5 million, or 31.2% of total revenue, respectively, down from 33.7% in 2009.
As of June 30, 2011, 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 between 2.5% and 2.65%. Two facility leases provide for 2.65% annual escalations.
These facilities have an average remaining initial term of approximately 12 years, but under
certain conditions may be extended for three additional periods of five years each, at the tenants
option. Three 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) generated from Vibra
in 2010 and during the six months ended June 30, 2011 was $17.6 million, or 14.5% of total revenue,
and $9.1 million, or 12.6% of total revenue, respectively, down from 15.1% in the prior year.
No other tenant accounted for more than 8% of our total revenues in 2010 or during the six
months ended June 30, 2011.
Environmental Matters
Under various federal, state and local environmental laws and regulations, a current or
previous owner, operator or tenant of real estate may be required to investigate and remediate
hazardous or toxic substances or petroleum product releases or threats of releases. Such laws also
impose certain obligations and liabilities on property owners with respect to asbestos containing
materials. These laws may impose remediation responsibility and liability without regard to fault,
or whether or not the owner, operator or tenant knew of or caused the presence of the
contamination. Investigation, remediation and monitoring costs may be substantial and can exceed
the value of the property. The presence of contamination or the failure to properly remediate
contamination on a property may adversely affect our ability to sell or rent that property or to
borrow funds using such property as collateral and may adversely impact our investment in that
property.
Generally, prior to completing any acquisition or closing any mortgage loan, we obtain Phase I
environmental assessments in order to attempt to identify potential environmental concerns at the
facilities. These assessments are carried out in accordance with an appropriate level of due
diligence and generally include a physical site inspection, a review of relevant federal, state and
local environmental and health agency database records, one or more interviews with appropriate
site-related personnel, review of the propertys chain of title and review of historic aerial
photographs and other information on past uses of the property. We may also conduct limited
subsurface investigations and test for substances of concern where the results of the Phase I
environmental assessments or other information indicates possible contamination or where our
consultants recommend such procedures.
California Seismic Standards
Californias Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1973, or 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
certain 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:
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Hospitals in California must conduct seismic evaluations and submit these evaluations to
the Office of Statewide Health Planning and Development, or OSHPD, Facilities Development
Division for its review and approval; |
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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 |
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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 seismic safety standards and deadlines for compliance. 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, 2013, 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.
Exclusive of some minor repairs totaling less than $0.5 million to be made at two facilities,
all but one of our California tenants (and building structures) are seismically compliant through
2030 as determined by OSHPD. Based on early estimates, the potential capital expenditure outlay on
this one facility has been estimated to be between $5.9 million and $6.2 million. Under our current
leases, our tenants are fully responsible for any capital expenditures in connection with seismic
laws. However, we expect to fund any required upgrades due to the seismic standards on this one
facility; and, this 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.
Healthcare 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 a couple of instances we own a minority
interest in our tenants operations 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 by such laws and regulations. Moreover, the discussion relating to
reimbursement for healthcare services addresses matters that are subject to frequent review and
revision by Congress and the agencies responsible for administering federal payment programs.
Consequently, predicting future reimbursement trends or changes is inherently difficult.
Ownership and operation of hospitals and other healthcare facilities are subject, directly and
indirectly, to substantial federal, state and local government healthcare laws and regulations. Our
tenants failure to comply with these laws and regulations could adversely affect their ability to
meet their lease obligations. Physician investment in
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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 engages
in transactions with out tenants, such as sublease or other financial arrangements, 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 (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.
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. 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.
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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 recoveryan 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.
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. Liability for violations of EMTALA includes, among other
things, civil monetary penalties and exclusion from participation in the Medicare program. Our
lease agreements require lessees to comply with EMTALA, and we believe our tenants conduct business
in substantial compliance with EMTALA.
Regulatory and Legislative Developments
Healthcare continues to attract intense legislative and public interest. 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. More importantly, restrictions on admissions to
inpatient rehabilitation facilities and long-term acute care hospitals may continue. We cannot
predict whether any such initiatives will impact the business of our tenants, or whether 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.
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Health Reform Measures
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care
Act (PPACA). Seven days later, on March 30, 2010, President Obama approved the Health Care and
Education Affordability Reconciliation Act (the Reconciliation Act). A detailed discussion of the
Acts is not provided herein. However, generally, this legislation seeks to provide universal health
insurance coverage through tax subsidies, expanded federal health insurance programs, individual
and employer mandates for health insurance coverage, and health insurance exchanges. The
legislation also includes cuts to federal health care program funding, as well as heightened
regulations on insurers and pharmaceutical companies. Various cost containment initiatives were
adopted, including quality control and payment system refinements for federal programs, such as
expansion of pay-for-performance criteria and value-based purchasing programs, bundled provider
payments, accountable care organizations, geographic payment variations, comparative effectiveness
research, and lower payments for hospital readmissions. Finally, heightened health information
technology standards will be required for healthcare providers.
With respect to long term acute care hospitals (LTACHs), and inpatient rehabilitation
facilities (IRFs), which account for a significant percentage of our tenants, the law also
requires that LTACHs and IRFs report quality data to be set forth by the Secretary of Health and
Human Services or face payment reductions beginning in rate year/fiscal year 2014.
This legislation will ultimately lead to significant changes in the healthcare system. We
cannot predict the possible impact on our business of this legislation, as some aspects could
benefit the operations of our tenants, while other aspects could present challenges.
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; |
|
|
|
|
many of our competitors have greater financial and operational resources than we have; |
|
|
|
|
our competitors or other entities may pursue a strategy similar to ours; and |
|
|
|
|
some of our competitors may have existing relationships with our potential customers. |
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.
Properties Portfolio of Properties
As of June 30, 2011, our portfolio consists of: 58 properties: 54 facilities (of the 56
facilities that we own, of which two are leased pursuant to long-term ground leases) are leased to
19 tenants, one is presently not under lease, one is under development, and the remainder are in
the form of mortgage loans. Our owned and ground leased facilities consist of 22 general acute care
hospitals, 17 long-term acute care hospitals, 9 inpatient rehabilitation hospitals, two medical
office buildings, and six wellness centers. The non-owned facilities on which we have made mortgage
loans consist of general acute care facilities.
The following table sets forth certain information regarding, among other things, the
geographic diversification of our portfolio as of June 30, 2011 (dollar amounts in thousands):
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
Total |
State |
|
Hospital name |
|
interest type |
|
Operation type |
|
Operator name |
|
investment |
|
Arizona |
|
Cornerstone |
|
Owned |
|
Long Term Acute |
|
Cornerstone |
|
$ |
7,057 |
|
|
Hospital of |
|
|
|
Care Hospital |
|
Healthcare Group |
|
|
|
|
|
Southeast Arizona |
|
|
|
|
|
Holding, Inc. |
|
|
|
|
|
Gilbert Hospital |
|
Owned |
|
General Acute Care |
|
Visionary Healthcare |
|
|
17,100 |
|
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,157 |
Arkansas |
|
Healthsouth |
|
Owned |
|
Rehabilitation |
|
HealthSouth |
|
|
19,523 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Corporation |
|
|
|
|
|
Hospital of |
|
|
|
|
|
|
|
|
|
|
|
Fayetteville |
|
|
|
|
|
|
|
|
|
California |
|
Chino Valley |
|
Mortgaged |
|
General Acute Care |
|
Prime Healthcare |
|
|
50,000 |
|
|
Medical Center |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Garden Grove |
|
Owned |
|
Medical Office |
|
Prime Healthcare |
|
|
8,777 |
|
|
Medical Office |
|
|
|
Building |
|
Services, Inc. |
|
|
|
|
|
Building |
|
|
|
|
|
|
|
|
|
|
|
Garden Grove |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
16,301 |
|
|
Medical Center |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Huntington Beach |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
12,503 |
|
|
Hospital |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
La Palma |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
12,503 |
|
|
Intercommunity |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
|
|
Shasta Regional |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
56,616 |
|
|
Medical Center |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Northern California |
|
Owned |
|
Long Term Acute |
|
VIBRA Healthcare, |
|
|
25,110 |
|
|
Rehabilitation |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
|
|
Paradise Valley |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
48,321 |
|
|
Hospital |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
San Dimas Medical |
|
Owned |
|
Medical Office |
|
Prime Healthcare |
|
|
7,018 |
|
|
Office Building |
|
|
|
Building |
|
Services, Inc. |
|
|
|
|
|
San Dimas Community |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
13,033 |
|
|
Hospital |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Sherman Oaks |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
20,031 |
|
|
Hospital |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Desert Valley |
|
Mortgaged |
|
General Acute Care |
|
Prime Healthcare |
|
|
90,000 |
|
|
Hospital |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
West Anaheim |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
25,010 |
|
|
Medical Center |
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
Alvarado Hospital |
|
Owned |
|
General Acute Care |
|
Prime Healthcare |
|
|
70,000 |
|
|
|
|
|
|
Hospital |
|
Services, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455,223 |
Colorado |
|
North Valley |
|
Owned |
|
Long Term Acute |
|
VIBRA Healthcare, |
|
|
10,728 |
|
|
Rehabilitation |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
Connecticut |
|
Healthtrax Wellness |
|
Owned |
|
Wellness Center |
|
Healthtrax, Inc. |
|
|
2,947 |
|
|
Center |
|
|
|
|
|
|
|
|
|
|
|
Healthtrax Wellness |
|
Owned |
|
Wellness Center |
|
Healthtrax, Inc. |
|
|
2,873 |
|
|
Center |
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
Total |
State |
|
Hospital name |
|
interest type |
|
Operation type |
|
Operator name |
|
investment |
|
|
|
Healthtrax Wellness |
|
Owned |
|
Wellness Center |
|
Healthtrax, Inc. |
|
|
2,018 |
|
|
Center |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,838 |
Florida |
|
Sunrise |
|
Owned |
|
Rehabilitation |
|
HealthSouth |
|
|
25,811 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Corporation |
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
Idaho |
|
Mountain View |
|
Owned |
|
General Acute Care |
|
Mountain View |
|
|
46,468 |
|
|
Hospital |
|
|
|
Hospital |
|
Hospital, LLC |
|
|
|
Indiana |
|
Monroe Hospital |
|
Owned |
|
General Acute Care |
|
Monroe Hospital, LLC |
|
|
50,369 |
|
|
|
|
|
|
Hospital |
|
|
|
|
|
Kansas |
|
Wesley |
|
Owned |
|
Rehabilitation |
|
HealthSouth |
|
|
19,720 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Corporation |
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
Louisiana |
|
Cornerstone |
|
Owned |
|
Long Term Acute |
|
Cornerstone |
|
|
19,409 |
|
|
Hospital of Bossier |
|
|
|
Care Hospital |
|
Healthcare Group |
|
|
|
|
|
City |
|
|
|
|
|
|
|
|
|
|
|
North Shore |
|
Owned |
|
Long Term Acute |
|
Post Acute Medical, |
|
|
14,163 |
|
|
Specialty Hospital |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Long-Term Acute |
|
Owned |
|
Long Term Acute |
|
Acadiana Management |
|
|
5,955 |
|
|
Care Hospital of |
|
|
|
Care Hospital |
|
|
|
|
|
|
|
Denham Springs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,527 |
Massachusetts |
|
New Bedford |
|
Owned |
|
Long Term Acute |
|
VIBRA Healthcare, |
|
|
41,402 |
|
|
Rehabilitation |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
|
|
Healthtrax Wellness |
|
Owned |
|
Wellness Center |
|
Healthtrax, Inc. |
|
|
4,050 |
|
|
Center |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,452 |
Michigan |
|
Vibra Hospital of |
|
Owned |
|
Long Term Acute |
|
VIBRA Healthcare, |
|
|
10,743 |
|
|
Southeastern |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Michigan |
|
|
|
|
|
|
|
|
|
Missouri |
|
Poplar Bluff |
|
Owned |
|
General Acute Care |
|
Health Management |
|
|
41,443 |
|
|
Medical |
|
|
|
Hospital |
|
Associates, Inc. |
|
|
|
|
|
CenterNorth |
|
|
|
|
|
|
|
|
|
|
|
Northland LTACH |
|
Owned |
|
Long Term Acute |
|
Triumph Healthcare |
|
|
19,478 |
|
|
|
|
|
|
Care Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,921 |
New Jersey |
|
Bayonne Medical |
|
Owned |
|
General Acute Care |
|
IJKG, LLC |
|
|
58,000 |
|
|
Center |
|
|
|
Hospital |
|
|
|
|
|
Oregon |
|
Vibra Specialty |
|
Owned |
|
Long Term Acute |
|
VIBRA Healthcare, |
|
|
26,161 |
|
|
Hospital of |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Portland |
|
|
|
|
|
|
|
|
|
Pennsylvania |
|
Bucks County |
|
Owned |
|
General Acute Care |
|
Neuterra Health |
|
|
45,376 |
|
|
Specialty Hospital |
|
|
|
Hospital |
|
Care, LLC |
|
|
|
Rhode Island |
|
Healthtrax Wellness |
|
Owned |
|
Wellness Center |
|
Healthtrax, Inc. |
|
|
1,572 |
|
|
Center |
|
|
|
|
|
|
|
|
|
|
|
Healthtrax Wellness |
|
Owned |
|
Wellness Center |
|
Healthtrax, Inc. |
|
|
2,165 |
|
|
Center |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,737 |
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
Total |
State |
|
Hospital name |
|
interest type |
|
Operation type |
|
Operator name |
|
investment |
|
South Carolina |
|
Marlboro Park |
|
Owned |
|
General Acute Care |
|
Community Health |
|
|
17,087 |
|
|
Hospital |
|
|
|
Hospital |
|
Systems, Inc. |
|
|
|
|
|
Chesterfield |
|
Owned |
|
General Acute Care |
|
Community Health |
|
|
20,869 |
|
|
General Hospital |
|
|
|
Hospital |
|
Systems, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,956 |
Texas |
|
North Cypress |
|
Owned |
|
General Acute Care |
|
North Cypress |
|
|
67,821 |
|
|
Medical Center |
|
|
|
Hospital |
|
Medical Center |
|
|
|
|
|
|
|
|
|
|
|
Operating Company, |
|
|
|
|
|
|
|
|
|
|
|
Ltd. |
|
|
|
|
|
Vibra Specialty |
|
Owned |
|
Long Term Acute |
|
VIBRA Healthcare, |
|
|
18,773 |
|
|
Hospital of Dallas |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
Warm Springs |
|
Owned |
|
Long Term Acute |
|
Post Acute Medical, |
|
|
10,814 |
|
|
Specialty Hospital |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
of Luling |
|
|
|
|
|
|
|
|
|
|
|
Warm Springs |
|
Owned(1) |
|
Rehabilitation |
|
Post Acute Medical, |
|
|
10,859 |
|
|
Specialty Hospital |
|
|
|
Hospital |
|
LLC |
|
|
|
|
|
of San Antonio |
|
|
|
|
|
|
|
|
|
|
|
River Oaks Medical |
|
Owned(2) |
|
General Acute Care |
|
(2) |
|
|
31,331 |
|
|
Center |
|
|
|
Hospital |
|
|
|
|
|
|
|
Triumph Hospital |
|
Owned |
|
Long Term Acute |
|
Triumph Healthcare |
|
|
36,798 |
|
|
Clear Lake |
|
|
|
Care Hospital |
|
|
|
|
|
|
|
Warm Springs |
|
Owned |
|
Long Term Acute |
|
Post Acute Medical, |
|
|
8,329 |
|
|
Specialty Hospital |
|
|
|
Care Hospital |
|
LLC |
|
|
|
|
|
of Victoria |
|
|
|
|
|
|
|
|
|
|
|
Cornerstone |
|
Owned |
|
Long Term Acute |
|
Cornerstone |
|
|
11,520 |
|
|
Hospital of |
|
|
|
Care Hospital |
|
Healthcare Group |
|
|
|
|
|
HoustonClear Lake |
|
|
|
|
|
Holding, Inc. |
|
|
|
|
|
Hill Regional |
|
Owned |
|
General Acute Care |
|
Community Health |
|
|
20,708 |
|
|
Hospital |
|
|
|
Hospital |
|
Systems, Inc. |
|
|
|
|
|
Reliant |
|
Owned |
|
Rehabilitation |
|
Reliant Hospital |
|
|
25,955 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Partners |
|
|
|
|
|
Hospital North |
|
|
|
|
|
|
|
|
|
|
|
Houston |
|
|
|
|
|
|
|
|
|
|
|
Reliant |
|
Owned |
|
Rehabilitation |
|
Reliant Hospital |
|
|
26,559 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Partners |
|
|
|
|
|
Hospital Central |
|
|
|
|
|
|
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
Triumph Hospital |
|
Owned |
|
Long Term Acute |
|
Triumph Healthcare |
|
|
27,158 |
|
|
Tomball |
|
|
|
Care Hospital |
|
|
|
|
|
|
|
Reliant |
|
Owned |
|
Rehabilitation |
|
Reliant Hospital |
|
|
21,337 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Partners |
|
|
|
|
|
Hospital North |
|
|
|
|
|
|
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
|
|
Total |
State |
|
Hospital name |
|
interest type |
|
Operation type |
|
Operator name |
|
investment |
|
|
|
Atrium Medical |
|
Owned |
|
Long Term Acute |
|
Corinth Investor |
|
|
28,963 |
|
|
Center at Corinth |
|
|
|
Care Hospital |
|
Holdings, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,925 |
Utah |
|
Pioneer Valley |
|
Owned |
|
General Acute Care |
|
IASIS Healthcare |
|
|
66,355 |
|
|
Hospital |
|
|
|
Hospital |
|
Corporation |
|
|
|
Virginia |
|
HealthSouth |
|
Owned |
|
Rehabilitation |
|
HealthSouth |
|
|
10,915 |
|
|
Rehabilitation |
|
|
|
Hospital |
|
Corporation |
|
|
|
|
|
Hospital of |
|
|
|
|
|
|
|
|
|
|
|
Petersburg |
|
|
|
|
|
|
|
|
|
West Virginia |
|
Mountain View |
|
Owned(1) |
|
Rehabilitation |
|
HealthSouth |
|
|
21,790 |
|
|
Regional |
|
|
|
Hospital |
|
Corporation |
|
|
|
|
|
Rehabilitation |
|
|
|
|
|
|
|
|
|
|
|
Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3) |
|
$ |
1,433,695 |
|
|
|
|
(1) |
|
Property is subject to a ground lease. |
|
(2) |
|
Property is under re-development and currently not being operated. |
|
(3) |
|
Excludes construction in progress and other costs of $13.5 million that primarily relate to
our Florence, Arizona development project that is expected to be completed in 2012. |
As of June 30, 2011, our weighted average in-place remaining lease term across our portfolio was
approximately 10 years. In addition, our two mortgage loans as of June 30, 2011 mature in 2022. The
following table sets forth a summary schedule of lease expirations for leases in place as of June
30, 2011, plus available space, for each of the five calendar years beginning with 2011 and
thereafter in our portfolio. The information set forth in the table assumes that tenants exercise
no renewal options and no early termination rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
% of total |
|
|
|
Number of |
|
|
Total square |
|
|
% of total |
|
|
annualized |
|
|
annualized |
|
(dollars in thousands) |
|
leases expiring |
|
|
feet |
|
|
square feet |
|
|
rent1 |
|
|
rent |
|
|
2011 |
|
|
3 |
|
|
|
225,282 |
|
|
|
4.2 |
% |
|
$ |
5,656 |
|
|
|
5.0 |
% |
2012 |
|
|
3 |
|
|
|
215,373 |
|
|
|
4.0 |
% |
|
|
2,850 |
|
|
|
2.5 |
% |
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2 |
|
|
|
241,580 |
|
|
|
4.5 |
% |
|
|
4,731 |
|
|
|
4.3 |
% |
2015 |
|
|
2 |
|
|
|
137,977 |
|
|
|
2.6 |
% |
|
|
3,789 |
|
|
|
3.3 |
% |
Thereafter |
|
|
44 |
|
|
|
4,566,118 |
|
|
|
84.7 |
% |
|
|
96,436 |
|
|
|
84.9 |
% |
|
|
|
Total |
|
|
54 |
|
|
|
5,386,330 |
|
|
|
100.0 |
% |
|
$ |
113,462 |
|
|
|
100.0 |
% |
|
|
|
|
(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). |
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(1) |
|
leases |
|
|
rent(2) |
|
|
base rent |
|
|
footage |
|
|
beds |
|
|
2011 |
|
|
3 |
|
|
$ |
5,656 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
2012 |
|
|
3 |
|
|
$ |
2,850 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2 |
|
|
$ |
4,731 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
2015 |
|
|
2 |
|
|
$ |
3,789 |
|
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Total |
|
|
|
Total |
|
|
Base |
|
|
% of total |
|
|
square |
|
|
licensed |
|
Total portfolio(1) |
|
leases |
|
|
rent(2) |
|
|
base rent |
|
|
footage |
|
|
beds |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
12 |
|
|
$ |
16,939 |
|
|
|
14.9 |
% |
|
|
|
|
|
|
|
|
2019 |
|
|
2 |
|
|
$ |
8,166 |
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
2020 |
|
|
2 |
|
|
$ |
3,208 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
Thereafter |
|
|
28 |
|
|
$ |
68,123 |
|
|
|
60.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
54 |
|
|
$ |
113,462 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes our River Oaks facility, as it is currently under re-development and not subject to
lease and our Florence facility that is under development. |
|
(2) |
|
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) |
Insurance
We have purchased contingent 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 employees as of June 30, 2011. 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.
71
INVESTMENT POLICIES AND POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of our investment policies and our policies with respect to
certain other activities, including financing matters and conflicts of interest. These policies
may be amended or revised from time to time at the discretion of our board of directors, without a
vote of our stockholders. Any change to any of these policies by our board of directors, however,
would be made only after a thorough review and analysis of that change, in light of then-existing
business and other circumstances, and then only if, in the exercise of its business judgment, our
board of directors believes that it is advisable to do so in our and our stockholders best
interests. We cannot assure you that our investment objectives will be attained.
Investments in Real Estate or Interests in Real Estate
We conduct our investment activities through our Operating Partnership and other subsidiaries.
Our policy is to acquire or develop assets primarily for current income generation. In general,
our investment strategy consists of the following elements:
|
|
|
Integral Healthcare Real Estate: We acquire and develop net-leased healthcare
facilities providing state-of-the-art healthcare services. In our experience, healthcare
service providers, including physicians and hospital operating companies, choose to remain
in an established location for relatively long periods since changing the location of their
physical facilities does not assure that other critical components of the healthcare
delivery system, such as laboratory support, access to specialized equipment, patient
referral sources, nursing and other professional support, and patient convenience, will
continue to be available at the same level of quality and efficiency. Consequently, we
believe market conditions will remain favorable for long-term net-leased healthcare
facilities, and we do not presently expect high levels of tenant turnover. Moreover, we
believe that our partnering approach will afford us the opportunity to play an integral
role in the strategic planning process for the financing of replacement facilities and the
development of alternative uses for existing facilities. |
|
|
|
|
Net-lease Strategy: Our healthcare facilities are leased to healthcare operators
pursuant to long-term net-lease agreements under which our tenants are responsible for
virtually all costs of occupancy, including property taxes, utilities, insurance and
maintenance. We believe an important investment consideration is that our leases to
healthcare operators provide a means for us to participate in the anticipated growth of the
healthcare sector of the United States economy. Our leases generally provide for
contractual annual rent increases that are based on increases in inflation or fixed amounts generally between 1.0% and 3.0%. We expect
that such rental rate adjustments will provide us with internal growth. |
|
|
|
|
Diversified Investment Strategy: Our facilities are diversified geographically, by
service type within the healthcare industry and by types of operator. We have two tenants,
Prime and VIBRA, that make up 32.7% and 14.5% of our total revenues in 2010, respectively.
In addition, 39.2% and 18.1% of our 2010 revenues were from tenants in California and Texas,
respectively. No other state represented more than 5.5% of our 2010 revenues. However,
more importantly, no single facility made up more than 7.3% of our 2010 revenues. |
|
|
|
|
We have invested and intend to invest in a portfolio of net-leased healthcare facilities
providing state-of-the-art healthcare services. Our facilities and pending acquisition and
development facilities include new and established facilities, both small and large
facilities, including rehabilitation hospitals, long-term acute care hospitals, regional and
community hospitals and specialized single-discipline facilities.
Our facilities are and we expect will continue to be located across the country. In
addition, our tenants and prospective tenants are diversified across many healthcare service
areas. Because of the expected diversity of our facilities in terms of facility type,
geographic location and tenant, we believe that our financial performance is less likely to
be materially affected by changes in reimbursement or payment rates by private or public
insurers or by changes in local or regional economies. |
72
|
|
|
Financing Strategy: We intend to employ leverage in our capital structure in amounts we
determine from time to time. At present, we intend to limit our debt to approximately 60%
of the aggregate costs of our facilities, although we may temporarily exceed that level
from time to time. We expect our borrowings to be a combination of long-term, fixed-rate,
unsecured notes, variable-rate secured and unsecured term and revolving credit facilities,
and other fixed and variable-rate short to medium-term loans. |
There are no limitations on the amount or percentage of our total assets that may be invested
in any one facility. Additionally, no limits have been set on the concentration of investments in
any one location or facility type or with any one tenant. Our current policy requires the approval
of the investment committee of our board of directors for acquisitions or developments of
facilities which exceed $10.0 million.
We believe that adherence to the investment strategy outlined above will allow us to achieve
the following objectives:
|
|
|
increase in our stock value through increases in the cash flows and values of our
facilities; |
|
|
|
|
achievement of long-term capital appreciation, and preservation and protection of the
value of our interest in our facilities; and |
|
|
|
|
providing regular cash distributions to our stockholders, a portion of which may
constitute a nontaxable return of capital because it will exceed our current and
accumulated earnings and profits, as well as providing growth in distributions over time. |
Investments in Securities of or Interests in Persons Primarily Engaged in Real Estate Activities
and Other Issuers
Generally speaking, we do not expect to engage in any significant investment activities with
other entities, although we may consider joint venture investments with other investors or with
healthcare service providers. We may also invest in the securities of other issuers in connection
with acquisitions of indirect interests in facilities (normally general or limited partnership
interests in special purpose partnerships owning facilities). We may in the future acquire some,
all or substantially all of the securities or assets of other REITs or similar entities where that
investment would be consistent with our investment policies and the REIT qualification
requirements. There are no limitations on the amount or percentage of our total assets that may be
invested in any one issuer, other than those imposed by the gross income and asset tests that we
must satisfy to qualify as a REIT. However, we do not anticipate investing in other issuers of
securities for the purpose of exercising control or acquiring any investments primarily for sale in
the ordinary course of business or holding any investments with a view to making short-term profits
from their sale. In any event, we do not intend that our investments in securities will require us
to register as an investment company under the Investment Company Act, and we intend to divest
securities before any registration would be required.
We do not intend to engage in trading, underwriting, agency distribution or sales of
securities of other issuers.
Dispositions
Although we have no current plans to dispose of any of our facilities (except we do have two
properties that have leases in place on a month-to-month basis that may be purchased by the tenant
in the next twelve months), we will consider doing so, subject to REIT qualification rules and
prohibited transaction tax, if our management determines that a sale of a facility would be in our
best interests based on the price being offered for the facility, the operating performance of the
facility, the tax consequences of the sale and other factors and circumstances surrounding the
proposed sale. In addition, our tenants have, and we expect that some or all of our prospective
tenants will have, the option to acquire the facilities at the end of or, in some cases, during the
lease term.
73
Financing Policies
We intend to employ leverage in our capital structure in amounts we determine from time to
time. At present, we intend to limit our debt to approximately 60% of the aggregate costs of our
facilities, although we may temporarily exceed those levels from time to time. We expect our
borrowings to be a combination of long-term, fixed-rate, unsecured notes, variable-rate
secured and unsecured term and revolving credit facilities, and other fixed and variable-rate short to
medium-term loans. Our board of directors considers a number of factors when evaluating our level
of indebtedness and when making decisions regarding the incurrence of indebtedness, including the
purchase price of facilities to be acquired, the estimated market value of our facilities and the
ability of particular facilities, and our company as a whole, to generate cash flow to cover
expected debt service.
Any of this indebtedness may be unsecured or may be secured by mortgages or other interests in
our facilities, and may be recourse, non-recourse or cross-collateralized and, if recourse, that
recourse may include our general assets and, if non-recourse, may be limited to the particular
facility to which the indebtedness relates. In addition, we may invest in facilities subject to
existing loans secured by mortgages or similar liens on the facilities, or may refinance facilities
acquired on a leveraged basis. We may use the proceeds from any borrowings for working capital, to
purchase additional interests in partnerships or joint ventures in which we participate, to
refinance existing indebtedness or to finance acquisitions, expansion, redevelopment of existing
facilities or development of new facilities. We may also incur indebtedness for other purposes
when, in the opinion of our board of directors, it is advisable to do so. In addition, we may need
to borrow to meet the taxable income distribution requirements under the Code if we do not have
sufficient cash available to meet those distribution requirements.
Lending Policies
We do not have a policy limiting our ability to make loans to persons other than our executive
officers. We may consider offering purchase money financing in connection with the sale of
facilities where the provision of that financing will increase the value to be received by us for
the facility sold. We may make loans to joint ventures in which we may participate in the future.
Although we do not intend to engage in significant lending activities in the future, we have and
may in the future make acquisition and working capital loans to prospective tenants as well as
mortgage loans to other facility owners and other parties. See Summary Loans and Fees
Receivable.
Equity Capital Policies
Subject to applicable law, our board of directors has the authority, without further
stockholder approval, to issue additional shares of authorized common stock and preferred stock or
otherwise raise capital, including through the issuance of senior securities, in any manner and on
the terms and for the consideration it deems appropriate, including in exchange for property.
Existing stockholders will have no preemptive right to additional shares issued in any offering,
and any offering might cause a dilution of investment. We may in the future issue common stock in
connection with acquisitions. We also may issue limited partnership units in our operating
partnership or equity interests in other subsidiaries in connection with acquisitions of facilities
or otherwise.
Our board of directors may authorize the issuance of preferred stock with terms and conditions
that could have the effect of delaying, deterring or preventing a transaction or a change in
control in us that might involve a premium price for holders of our common stock or otherwise might
be in their best interests. Additionally, any shares of preferred stock could have dividend,
voting, liquidation and other rights and preferences that are senior to those of our common stock.
We may, under certain circumstances, purchase our common stock in the open market or in
private transactions with our stockholders, if those purchases are approved by our board of
directors. Our board of directors has no present intention of causing us to repurchase any shares,
and any action would only be taken in conformity with applicable federal and state laws and the
applicable requirements for qualifying as a REIT.
In the future we may institute a dividend reinvestment plan, which would allow our
stockholders to acquire additional common stock by automatically reinvesting their cash dividends.
Shares would be acquired pursuant to the plan at a price equal to the then prevailing market price,
without payment of brokerage commissions or service
74
charges. Stockholders who do not participate in the plan will continue to receive cash
dividends as declared and paid.
Code of Ethics and Conflict of Interest Policy
We have adopted written policies that are intended to minimize actual or potential conflicts
of interest. However, we cannot assure you that these policies will be successful in eliminating
the influence of these conflicts. Our code of ethics and business conduct, or code of ethics,
requires our directors, officers and employees to conduct themselves in a manner that avoids even
the appearance of a conflict of interest, and to discuss any transaction or relationship that
reasonably could be expected to give rise to a conflict of interest with our code of ethics contact
person. Our code of ethics also addresses insider trading, company funds and property, corporate
opportunities and fair dealing.
In addition, we have adopted a policy that requires that all contracts and transactions
between us, our operating partnership or any of our subsidiaries, on the one hand, and any of our
directors or executive officers or any entity in which such director or executive officer is a
director or has a material financial interest, on the other hand, must be approved by the
affirmative vote of a majority of our disinterested directors.
75
MANAGEMENT AND BOARD OF DIRECTORS
This section reflects information with respect to the directors and executive officers of
Medical Properties and MPT Finance Corporation. The Operating Partnership is managed by Medical
Properties through its wholly owned subsidiary, Medical Properties Trust, LLC, the Operating
Partnerships general partner. Consequently, the Operating Partnership does not have its own
separate directors or executive officers.
Medical Properties directors are elected at each annual meeting of stockholders and serve
until the next annual meeting of stockholders and until their respective successors are elected and
qualified, subject to their prior death, resignation, retirement, disqualification or removal from
office.
Medical Properties Trust, Inc.
Set forth below are the names, ages and positions of the persons who serve as the directors
and executive officers of Medical Properties as of October 1, 2011.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
|
Edward K. Aldag, Jr.
|
|
|
47 |
|
|
President, Chief Executive Officer,
Director and Chairman of the Board of
Directors |
G. Steven Dawson
|
|
|
53 |
|
|
Director |
R. Steven Hamner
|
|
|
54 |
|
|
Executive Vice President, Chief Financial
Officer and Director |
Robert E. Holmes, Ph.D.
|
|
|
69 |
|
|
Director |
Sherry A. Kellett
|
|
|
67 |
|
|
Director |
William G. McKenzie
|
|
|
53 |
|
|
Director |
Emmett E. McLean
|
|
|
56 |
|
|
Executive Vice President, Chief Operating
Officer, Treasurer and Secretary |
L. Glenn Orr, Jr.
|
|
|
71 |
|
|
Director |
MPT Finance Corporation
Set forth below are the names, ages and positions of the persons who are the current executive
officers and directors of MPT Finance Corporation as of October 1, 2011.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
R. Steven Hamner
|
|
|
54 |
|
|
President, Secretary, General Manager and Director |
Emmett E. McLean
|
|
|
56 |
|
|
Assistant Secretary and Director |
Edward K. Aldag, Jr.
|
|
|
47 |
|
|
Director |
Directors
It is the policy of Medical Properties Board of Directors that a majority of the directors be
independent as defined in the listing standards of the New York Stock Exchange (the NYSE).
Medical Properties Board of Directors has determined that four directors G. Steven Dawson,
Robert E. Holmes, Ph.D., Sherry A. Kellett, and L. Glenn Orr, Jr. are independent under the
NYSEs listing standards.
The following are biographical summaries for the directors of Medical Properties:
Edward K. Aldag, Jr. Mr. Aldag, age 47, is Medical Properties founder and has served as
Medical Properties Chief Executive Officer and President since August 2003, and as Chairman of the
Board since March 2004. Mr. Aldag served as Medical Properties Vice Chairman of the Board of
Directors from August 2003 until March 2004 and as Medical Properties Secretary from August 2003
until March 2005. Prior to that, Mr. Aldag served as an executive officer and director with Medical
Properties predecessor from its inception in August 2002 until August 2003. From 1986 to 2001, Mr.
Aldag managed two private real estate companies, Guilford Capital Corporation and Guilford Medical
Properties, Inc. Mr. Aldag served as President and a member of the Board of Directors of Guilford
Medical Properties, Inc. Mr. Aldag was the President of Guilford Capital Corporation from 1998 to
2001, served as Executive Vice President and Chief Operating Officer from 1990 to 1998, and was a
member of the Board of Directors from 1990 to 2001. Mr. Aldag received his B.S. in Commerce &
Business from the University of Alabama with a major in corporate finance. Medical Properties
Board believes that Mr. Aldags position as a co-founder of Medical Properties and his extensive
experience in the healthcare and REIT industry make him highly qualified to serve as Chairman of
Medical Properties Board of Directors.
76
G. Steven Dawson. Mr. Dawson, age 53, has served as a member of Medical Properties Board of
Directors and as Chairman of Medical Properties Audit Committee since April 2004. From July 1990
to September 2003, he was Chief Financial Officer and Senior Vice President-Finance of Camden
Property Trust, a real estate investment trust specializing in apartment communities, and its
predecessors. He is currently a private investor. Mr. Dawson serves on the board of directors and
as nominating and corporate governance committee chairman for Institutional Financial Markets,
Inc., an investment firm specializing in credit-related fixed income investments. Mr. Dawson also
serves on the board of directors, as audit committee chairman and on the compensation committee of
American Campus Communities, a developer, owner and manager of student housing communities. Mr.
Dawson holds a degree in business from Texas A&M University and is a member of the Real Estate
Roundtable at the Mays Graduate School of Business at Texas A&M University. Medical Properties
Board believes that Mr. Dawsons substantial experience as a board member and committee chairman at
other public REITs, along with his strong skills in corporate finance, strategic planning, and
public company oversight, make him a valued advisor and highly qualified to serve as a member of
Medical Properties Board of Directors and as chairman of our Audit Committee.
R. Steven Hamner. Mr. Hamner, age 54, is one of Medical Properties founders and has
served as Medical Properties Executive Vice President and Chief Financial Officer since September
2003 and as a director since February 2005. In August and September 2003, Mr. Hamner served as
Medical Properties Executive Vice President and Chief Accounting Officer. From October 2001
through March 2004, he was the Managing Director of Transaction Analysis LLC, a company that
provided interim and project-oriented accounting and consulting services to commercial real estate
owners and their advisors. From June 1998 to September 2001, he was Vice President and Chief
Financial Officer of United Investors Realty Trust, a publicly traded REIT. For the 10 years prior
to becoming an officer of United Investors Realty Trust, he was employed by the accounting and
consulting firm of Ernst & Young LLP and its predecessors. Mr. Hamner received a B.S. in Accounting
from Louisiana State University. Medical Properties Board believes that Mr. Hamners position as a
co-founder of Medical Properties and his extensive experience in the real estate and healthcare
industries and in the corporate finance sector make him highly qualified to serve as a member of
Medical Properties Board of Directors.
Robert E. Holmes, Ph.D. Dr. Holmes, age 69, has served as a member of Medical Properties
Board of Directors since April 2004. Dr. Holmes, Medical Properties lead independent director,
retired in 2009 as Professor of Management, Dean, and Wachovia Chair of Business Administration at
the University of Alabama at Birmingham School of Business, positions he held since 1999. From 1995
to 1999, he was Dean of the Olin Graduate School of Business at Babson College in Wellesley,
Massachusetts. Prior to that, he was Dean of the James Madison University College of Business in
Harrisonburg, Virginia for 12 years. He is the co-author of four management textbooks, numerous
articles, papers, and cases, and has served as a board member or consultant to a variety of
business firms and non-profit organizations. He is past president of the Southern Business
Administration Association, is actively engaged in AACSB International the Association to
Advance Management Education, and serves on the Boards of the Entrepreneurial Center, Tech
Birmingham, the Alabama Council on Economic Education, and other organizations. Dr. Holmes received
a bachelors degree from the University of Texas at Austin, an MBA from University of North Texas,
and his Ph.D. from the University of Arkansas with an emphasis on management strategy. Medical
Properties Board believes that Dr. Holmes position as a well-respected leader in the business
community and his deep understanding of the corporate and economic challenges faced by public
companies today make him a valued advisor and highly qualified to serve as a member of Medical
Properties Board of Directors and as chairman of Medical Properties Ethics, Nominating and
Corporate Governance Committee.
Sherry A. Kellett. Ms. Kellett, age 67, has served as a member of Medical Properties
Board of Directors since February 2007. Ms. Kellett was the former corporate controller and
principal accounting officer at BB&T Corporation, where she was a member of their eight-person
executive management team from 1998 through her retirement in 2003. She is currently a member of
the board of directors of Highwoods Properties, Inc., based in Raleigh, North Carolina, where she
serves on the audit committee, and MidCountry Financial Corp., based in Macon, Georgia, where she
is chair of the audit committee and serves on the compensation committee. Ms. Kellett has also
served on the boards of the North Carolina School of the Arts Foundation, Piedmont Kiwanis Club,
Senior Services, Inc., The Winston-Salem Foundation, the Piedmont Club, and the N.C. Center for
Character Education. Medical Properties Board believes that Ms. Kelletts experience as a board
member and audit committee member at other public companies, along with her extensive experience in
corporate finance and the financial sector generally, make her a valued advisor and highly
qualified to serve as a member of Medical Properties Board of Directors.
77
William G. McKenzie. Mr. McKenzie, age 53, is one of Medical Properties
founders. Mr.
McKenzie has served as a director since Medical Properties formation and served as the Executive
Chairman of Medical Properties Board of Directors in August and September 2003. From May 2003 to
August 2003, he was an executive officer and director of Medical Properties predecessor. From 1998
to the present, Mr. McKenzie has served as President, Chief Executive Officer, and a board member
of Gilliard Health Services, Inc., a privately-held owner and operator of acute care hospitals.
From 1996 to 1998, he was Executive Vice President and Chief Operating Officer of the Mississippi
Hospital Association/Diversified Services, Inc. and the Health Insurance Exchange, a mutual company
and HMO. From 1994 to 1996, Mr. McKenzie was Senior Vice President of Managed Care and Executive
Vice President of Physician Solutions, Inc., a subsidiary of Vaughan HealthCare, a private
healthcare company in Alabama. From 1981 to 1994, Mr. McKenzie was Hospital Administrator and Chief
Financial Officer and held other management positions with Gilliard Health Services, Inc. Mr.
McKenzie received a Masters of Science in Health Administration from the University of Colorado and
a B.S. in Business Administration from Troy University. He has served in numerous capacities with
the Alabama Hospital Association. Medical Properties Board believes that Mr. McKenzies position
as a co-founder of Medical Properties and his extensive experience in the healthcare industry make
him a valued advisor and highly qualified to serve as a member of Medical Properties Board of
Directors.
L. Glenn Orr, Jr. Mr. Orr, age 71, has served as a member of Medical Properties Board of
Directors since February 2005. Mr. Orr is Chairman of Orr Holdings, LLC, previously The Orr Group,
which has provided consulting services for middle-market companies since 1995. Prior to that, he
was Chairman of the Board of Directors, President and Chief Executive Officer of Southern National
Corporation from 1990 until its merger with Branch Banking & Trust in 1995. Mr. Orr is a member of
the Board of Directors, chairman of the governance/compensation committee, and a member of the
executive committee of Highwoods Properties, Inc. He is also a member of the Board of Directors of
Broyhill Management Fund, Inc. and General Parts, Inc., where he also serves on the compensation
committee. Mr. Orr previously served as President and Chief Executive Officer of Forsyth Bank and
Trust Co., President of Community Bank in Greenville, South Carolina, and President of the North
Carolina Bankers Association. He is a member, and the former Chairman, of the Board of Trustees of
Wake Forest University. Medical Properties Board believes that Mr. Orrs substantial experience as
an executive and board member at other public companies, along with his strong skills in corporate
finance, strategic planning, and public company oversight and executive compensation, make him a
valued advisor and highly qualified to serve as a member of Medical Properties Board of Directors
and as chairman of Medical Properties Compensation Committee.
Executive Officers
The biographical information for Edward K. Aldag, Jr. and R. Steven Hamner is included under
Directors above.
Emmett E. McLean. Emmett E. McLean is one of the founders of Medical Properties and has served
as the Executive Vice President, Chief Operating Officer and Treasurer of Medical Properties since
September 2003. Mr. McLean has served as our Secretary since June 2010, and served as our Assistant
Secretary from April 2004 to June 2010. In August and September 2004, Mr. McLean also served as the
Chief Financial Officer of Medical Properties Trust, Inc. Mr. McLean was one of Medical Properties
directors from September 2003 until April 2004. From June to September 2003, Mr. McLean served as
Executive Vice President, Chief Financial Officer and Treasurer, and board member of Medical
Properties predecessor. From 2000 to 2003, Mr. McLean was a private investor and, for part of that
period, served as a consultant to a privately held company. From 1995 to 2000, Mr. McLean served as
Senior Vice PresidentDevelopment, Secretary, Treasurer and a board member of PsychPartners,
L.L.C., a healthcare services and practice management company. Prior to 1992, Mr. McLean worked in
the investment banking field. Mr. McLean received an MBA from the University of Virginia and a B.A.
in economics from The University of North Carolina.
78
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee during 2010 is or was an officer or employee of
Medical Properties. In addition, no executive officer served during 2010 as a director or a member
of the Compensation Committee of any entity that had an executive officer serving as a director or
a member of the Compensation Committee of Medical Properties Board of Directors.
79
DIRECTOR COMPENSATION
The following table summarizes the compensation for 2010 with respect to our non-employee
directors (as defined below). The grant date fair value of the stock awards is based on $10.57 per
share, the average price of Medical Properties common stock on January 6, 2010, when these grants
were made.
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Change in |
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Pension Value |
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and |
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Nonqualified |
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Fees earned or |
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Non-Equity |
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Deferred |
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All Other |
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paid in cash |
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Stock Awards |
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Option |
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Incentive Plan |
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Compensation |
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Compensation |
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Name |
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($) |
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($) |
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Awards ($) |
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Compensation |
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Earnings |
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($) |
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Total ($) |
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Steve Dawson |
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$ |
83,000 |
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$ |
82,901 |
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$ |
165,901 |
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Robert Holmes |
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98,000 |
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82,901 |
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|
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180,901 |
|
Virginia A. Clarke (1) |
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62,000 |
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82,901 |
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144,901 |
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Sherry A. Kellett |
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65,000 |
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82,901 |
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147,901 |
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Glenn Orr |
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83,000 |
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82,901 |
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165,901 |
|
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(1) |
|
Virginia A. Clarke resigned from Medical Properties Board of Directors in March 2011. |
As compensation for serving on Medical Properties Board of Directors during 2010, each
independent director (each, a non-employee director) received an annual fee of $50,000, plus
$1,000 for each Board of Director meeting and each committee meeting attended as a member.
Independent committee chairmen received an additional $15,000 per year, except for the Audit
Committee chairman who received an additional $20,000 per year. In addition, Medical Properties
lead independent director received an additional $20,000 in 2010. Medical Properties also
reimbursed its directors for reasonable expenses incurred in attending these meetings. Medical
Properties Compensation Committee may change the compensation of its independent directors in its
discretion.
Beginning in 2007 and through the date of this prospectus, the Compensation Committee has
engaged FTI SMG to assist it in conducting a competitive review of Medical Properties non-employee
director compensation program. In late 2010, FTI SMG conducted a survey of director compensation
trends within the REIT industry, which survey included 138 publicly-traded REIT filings. More
specifically, FTI SMG reviewed (1) how the use of each component of total compensation (e.g., cash
retainers, meeting fees, and equity awards) compared to market practice, and (2) how the total
compensation for Board of Director and committee members compared to market practice. FTI SMGs
report presented data comparing Medical Properties director compensation to market levels. Taking
into consideration all of FTI SMGs findings and recommendations, the Compensation Committee
approved the following director compensation structure for 2011:
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the Board of Director and committee meeting fees are eliminated; |
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|
the annual cash retainer for non-employee directors is increased to $75,000, which is
primarily attributable to the elimination of meeting fees; |
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no change to the annual equity grant to non-employee directors; and |
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|
no change to the annual cash fees paid to the lead independent director and the
committee chairmen. |
Directors who are also officers or employees of Medical Properties receive no additional
compensation for their service as directors.
Upon joining Medical Properties Board of Directors, each of its current independent
directors, other than Ms. Kellett, who joined the Board of Directors in 2007, received a
non-qualified option to purchase 20,000 shares of
80
Medical Properties common stock with an exercise
price of $10.00 per share. One-third of these options vested upon grant. One-half of the remaining
options vested on each of the first and second anniversaries of the date of the grant. Starting in
2007, each non-employee director has been awarded restricted stock annually including 6,750
shares, 11,628 shares and 7,843 shares in 2008, 2009 and 2010, respectively. The shares
awarded in 2008 vest in equal annual installments over three years, while the 2009 and 2010 awards
vest over three years in equal quarterly amounts.
The following table shows outstanding equity awards at December 31, 2010 for each of Medical
Properties non-employee directors who served during 2010.
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Name |
|
Unvested Stock |
|
|
Stock Options |
|
|
Steve Dawson |
|
|
12,976 |
|
|
|
20,000 |
|
Robert Holmes |
|
|
12,976 |
|
|
|
20,000 |
|
Virginia A. Clarke |
|
|
12,976 |
|
|
|
20,000 |
|
Sherry A. Kellett |
|
|
12,976 |
|
|
|
|
|
Glenn Orr |
|
|
12,976 |
|
|
|
20,000 |
|
81
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This section describes Medical Properties compensation program for Medical Properties
principal executive officer (Edward K. Aldag, Jr.), Medical Properties principal financial officer
(R. Steven Hamner) and Medical Properties other executive officer (Emmett E. McLean) (our current
Named Executive Officers). Michael G. Stewart ceased being a Named Executive Officer on June 15,
2010. We discuss herein Medical Properties overall executive compensation objectives, each element
of compensation that Medical Properties Named Executive Officers are eligible to receive and how
Medical Properties determined their compensation in 2010.
Summary
Medical Properties believes that the experience, abilities and commitment of its Named
Executive Officers are unique in the business of investing in hospital real estate, and are
therefore critical to the long-term achievement of Medical Properties investment goals.
Accordingly, the primary objectives of Medical Properties executive compensation program as
implemented by Medical Properties Compensation Committee are to retain Medical Properties key
leaders, and attract future leaders while aligning Medical Properties executives long-term
interest with the interests of Medical Properties other stockholders.
The Compensation Committee also evaluates Medical Properties executive compensation programs
to ensure that appropriate consideration is given to compensation risks, including:
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|
compensation methods that may incentivize Medical Properties executives to make
decisions that, while creating apparent short term financial and operating success, may in
the longer term result in future losses and other value depreciation; and |
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|
compensation that is not competitive in the market, and does not adequately reward
Medical Properties executive officers for their specialized knowledge, expertise and
historical achievements may impact Medical Properties ability to retain executives with
such knowledge and expertise and adversely affect Medical Properties growth, profitability
and long term value. |
A number of strategic, operational and financial achievements heavily influenced the
Compensation Committees decisions about 2010 compensation, including:
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|
we substantially refinanced our balance sheet in the early part of 2010; in general, we
waited longer than many REITs to do this in order to avoid the historic low equity prices
and high cost of debt during the global financial crisis that started in 2008. These
transactions included refinancing our revolving credit facility and upsizing it by more
than 40%; issuing fixed rate term notes with an attractive yield and six-year term; issuing
approximately $280 million in common equity, having the effect of driving our leverage
ratio down to 23% and positioning us for aggressive growth in high-yielding assets; |
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|
we restarted the acquisition program that we had consciously put on hold during the
worst parts of the financial crisis. In June, we completed the acquisition of three
hospitals for approximately $74 million and leased them to an operator that is new to us,
making further progress on reducing the percentage of assets operated by a single system.
From that time through February 2011, we invested almost $400 million in new assets with
average initial yields in excess of 10%, and we lowered our largest operator concentration
to approximately 29% from approximately 40% three years earlier; |
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|
during the same time, we strategically trimmed certain of our investments, including
accepting prepayment of $40 million in non-real estate loans, and selling certain assets
that left us with better geographic and operator concentration; |
82
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|
we realized a cash $12 million profits participation on our Shasta Regional Hospital
facility. Under certain conditions, this amount was not due for up to 10 years from the
November 2008 commencement of our lease of that facility; and |
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|
as of the end of 2010, we had generated a three-year total return to stockholders
(TRS) of approximately 28% (approximately 10% in 2010), which placed us approximately in
the 75th percentile rank out of the 125 companies that make up the SNL US REIT Equity
Index, and approximately in the 70th percentile of the 17 companies that we use as a peer
comparison group for purposes of executive compensation. |
Primary Components of Executive Compensation
Compensation of the Named Executive Officers is comprised of four primary components: base
salary, annual cash bonus (annual non-equity incentive program), annual grants of restricted stock
and multi-year equity incentive programs. Only the base salary component does not have performance
criteria. Compensation under the other components is fully earned only if predetermined performance
criteria are achieved. These criteria align the Named Executive Officers compensation with
achievement of important goals, including TRS, that benefit all of Medical Properties
stockholders.
Importantly, these criteria are established by the Compensation Committee at levels that
assure that Medical Properties stockholders must earn attractive returns in order for the Named
Executive Officers to earn all of their potential incentive compensation. As an example of our
continuing emphasis on pay for performance, in 2010 Medical Properties Compensation Committee
added a provision to our annual grants of restricted stock that requires us to achieve a TRS of at
least 9.5% in order for the Named Executive Officers to realize one-half of such grants in 2010. In
some prior years, such grants have been conditioned only on continued employment over the vesting
periods. In addition, the Compensation Committee added a separate provision that limits the payment
of dividends on performance-based restricted shares to those that have been earned by the Named
Executive Officers pursuant to achievement of the performance criteria.
Moreover, on December 31, 2010 the measurement period for the superior performance award
portion of our 2007 Multi-year Incentive Plan ended. This program established significant
performance criteria when it was implemented in 2007, and the grant date fair value of the program
was $2.4 million. However, due in part to global economic conditions, we did not generate the
returns for our stockholders necessary for the Named Executive Officers to realize all of this
value, and in fact, they forfeited an aggregate of $1.1 million as of the end of 2010. It is
important to note, however, that accounting rules do not allow U.S. companies to reflect this
substantial reduction of realized executive compensation in their financial statements, even though
the Named Executive Officers will never be paid for the amount forfeited but previously included as
compensation expense in the companys financial statements.
Each of the four primary components of executive compensation is discussed in further detail
elsewhere in this Compensation Discussion and Analysis.
Other Executive Compensation Considerations
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|
|
All of the current Named Executive Officers are also founders of our Company, and we
have multi-year employment agreements with them. The substantive terms of these agreements
are discussed further below. We believe these agreements are appropriate because prior to
the 2004 initial sale of our common stock to non-founder investors, our founders owned 100%
of our stock. The founders gave up the great majority of their stock ownership, and its
related benefits in exchange for the opportunity to create future value and wealth for all
stockholders. Among other considerations, the multi-year nature of the contracts provided a
level of assurance acceptable to the founders that, absent termination for cause, they
would each have an opportunity to continue to create that value and wealth. The
Compensation Committee believes that such agreements, especially with respect to company
founders, are not uncommon. |
|
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|
|
We believe that the total compensation paid to the Named Executive Officers is set at a
level that accommodates prudent personal planning for certain post-retirement costs, including the costs of |
83
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|
|
healthcare. Accordingly, with very limited exceptions related to the
period of time after employment that we will pay for certain insurance coverage, we do not
presently have any programs that provide post-retirement benefits or compensation. |
|
|
|
We provide the Named Executive Officers with certain other compensation that we believe
is customary and is minor in relation to total compensation. This includes the employer
match to a portion of the executives 401(k) contribution (our only retirement program),
reimbursement of certain limited amounts of disability and life insurance premiums,
automobile allowances and certain limited professional fees. These are each described and
quantified in the Summary Compensation Table below. |
Compensation Philosophy and Procedures
Medical Properties Compensation Committee is responsible for designing our executive
compensation plans, establishing compensation levels, and measuring the performance of the Named
Executive Officers. In order to assist the Compensation Committee to design, establish and monitor
our executive compensation plans, the committee has engaged since 2007 the services of FTI SMG, a
nationally recognized compensation consulting firm specializing in the real estate industry, and we
continued to use the services of FTI SMG in 2010 and through the date of this prospectus. We did
not have any prior relationship with FTI SMG.
In 2010, FTI SMG advised the Compensation Committee about, among other matters, executive
compensation trends, evolving designs of compensation programs, suggested adjustments to the peer
group, and the amount of incentive compensation potential actually realized by the Named Executive
Officers. Additionally, representatives of FTI SMG consult with Messrs. Aldag and Hamner
periodically and present to the Compensation Committee the opinions of FTI SMG about any proposals
suggested by such members of management. FTI SMG representatives frequently participate in meetings
of the Compensation Committee and consult with members of the Compensation Committee between such
meetings.
The Compensation Committee recognizes that it is essential to receive objective advice from
its outside compensation consultant. Historically, on an annual basis since 2007, FTI SMG has been
engaged by management to perform a variety of tax structuring and compliance services unrelated to
executive compensation. Although these services were not specifically approved in advance by the
Compensation Committee, the Compensation Committee has been aware of and approved of FTI SMGs role
as a provider of non-executive compensation related services to us. FTI SMG reports to the
Compensation Committee any such services and fees annually, in connection with its retention, and
upon the reasonable request of the Compensation Committee. The Compensation Committee has
determined that FTI SMGs advice is objective and free from the influence of management. The
Compensation Committee also closely examines the safeguards and steps that FTI SMG takes to ensure
that its executive compensation consulting services are objective. The Compensation Committee takes
into consideration that:
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|
|
the Compensation Committee directly hired and has the authority to terminate FTI SMGs
engagement for executive compensation related services; |
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|
|
the Compensation Committee solely determined the terms and conditions of FTI SMGs
engagement for compensation related services, including the fees charged; |
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|
|
FTI SMG is engaged by and reports directly to the Compensation Committee for all
executive compensation services; and |
|
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|
|
FTI SMG has direct access to members of the Compensation Committee during and between
meetings. |
During 2010, we paid FTI SMG $95,600 in consulting fees directly related to executive, board
and other compensation-related services performed for the Compensation Committee. During the same
period, we paid FTI SMG $206,990 for its tax structuring and compliance consulting services unrelated to
executive, board and compensation matters.
84
In 2010, FTI SMG continued to evaluate Medical Properties executive and director compensation
practices in light of evolving market conditions. As such, the compensation review in 2010 by FTI
SMG compared our executive pay practices against the same peer group of companies as that in 2008
and 2009 (with the exception that Thomas Properties Group, Inc. is no longer considered in the peer
group). The peer group is comprised of the following REITs (the Peer Group):
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|
|
Alexandria Real Estate Equities, Inc.
|
|
First Potomac Realty Trust
|
|
Nationwide Health Properties, Inc. |
BioMed Realty Trust
|
|
Health Care REIT, Inc.
|
|
Omega Healthcare Investors, Inc. |
Cogdell Spencer, Inc.
|
|
Healthcare Realty Trust
|
|
Parkway Properties, Inc. |
Colonial Properties Trust
|
|
Kite Realty Group Trust
|
|
Ventas, Inc. |
Corporate Office Properties Trust, Inc.
|
|
LTC Properties, Inc.
|
|
Washington Real Estate Investment Trust |
Digital Realty Trust, Inc.
|
|
Maguire Properties, Inc. |
|
|
Components of Executive Compensation
As noted above, a significant portion of the Named Executive Officers total compensation is
based on pre-established measures, the achievement of which we believe is correlated with long term
creation and maintenance of stockholder value. Another significant portion of the value the Named
Executive Officers are eligible to earn as compensation is represented by shares of restricted
common stock that vest over multiple periods and materially impact the long term net worth of the
Named Executive Officers. We believe these two key elements of our compensation strategy create
incentives for the Named Executive Officers to make decisions that are expected to generate
sustainable stockholder value over the long term.
The compensation of the Named Executive Officers was comprised of Base Salaries, Annual Bonus
(non-equity incentive plan compensation) and Long-term Incentive Awards. In 2007, Medical
Properties also implemented a Multi-year Incentive Plan. All of these components, and a description
of how the Compensation Committee determined 2010 compensation, are summarized below.
Base Salaries
The Compensation Committee has determined that base salaries should comprise a relatively
minor portion of the total compensation that an executive is eligible to earn and has established
base salary levels relative to the Peer Group. In 2010, each of the Named Executive Officers base
salary was increased only by the approximate change in the consumer price index during 2009. In
limiting base salary increases to inflation, the Compensation Committee considered the
opportunities for the executive officers to earn incentive compensation based on their achievement
of certain longer-term financial and operational targets as described below.
Annual Bonus (Non-Equity Incentive Plan Compensation)
The Named Executive Officers have opportunities to earn annual cash compensation of up to
specified multiples of their base salaries if certain specified corporate goals are reached at the
Threshold, Target, Superior and Outperformance levels as described below. The following
table specifies the potential multiples for each current Named Executive Officer.
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|
Executive Name |
|
Threshold |
|
|
Target |
|
|
Superior |
|
|
Outperformance |
|
|
Edward K. Aldag Jr. |
|
|
100 |
% |
|
|
175 |
% |
|
|
250 |
% |
|
|
350 |
% |
R. Steven Hamner |
|
|
75 |
% |
|
|
125 |
% |
|
|
175 |
% |
|
|
250 |
% |
Emmett E. McLean |
|
|
75 |
% |
|
|
125 |
% |
|
|
175 |
% |
|
|
250 |
% |
85
The majority (generally, 65%) of the potential annual bonus for each Named Executive
Officer is based on quantifiable measures of performance that are established and discussed with
each executive early in the fiscal year. In early 2010, the following goals, measurements and
potential base salary multiples were established for calendar year 2010:
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Corporate Goal |
|
Weight |
|
|
Threshold |
|
|
Target |
|
|
Superior |
|
|
Outperformance |
|
|
Normalized FFO Goal (1) |
|
|
25.0 |
% |
|
$ |
0.85 |
|
|
$ |
0.88 |
|
|
$ |
0.90 |
|
|
$ |
0.92 |
|
Exposure by Tenant |
|
|
10.0 |
% |
|
36% max |
| |
33% max |
| |
28% max |
| |
27% max |
|
Acquisitions |
|
|
10.0 |
% |
|
$100 million |
| |
$150 million |
| |
$200 million |
| |
$250 million |
|
Liquidity |
|
|
25.0 |
% |
|
$50 million |
| |
$60 million |
| |
$70 million |
| |
$80 million |
|
AFFO Payout (2) |
|
|
15.0 |
% |
|
|
92.0 |
% |
|
|
89.0 |
% |
|
|
85.0 |
% |
|
|
84.0 |
% |
BinaryRecapitalize
Balance Sheet |
|
|
15.0 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
Yes |
Total |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For computational purposes, we use the NAREIT definition of FFO (funds from
operations), with adjustments for certain items, including in 2010 (a) various non-routine
charges, including items related to the recapitalization transactions, loan impairment,
executive severance, and write-offs of straight line rent ($0.31 per share), (b)
incremental interest avoided by prepayment of debt with recapitalization proceeds ($0.12
per share), (c) the effects of sales of assets and note prepayments ($0.09 per share), (d)
accounting changes for convertible bonds and participating securities ($0.04 per share),
(e) the early collection of $10,000,000 of additional rent from Shasta ($0.12 per share)
and (f) the dilution from the recapitalization of our balance sheet ($0.19 per share). |
|
|
|
Dilution resulting from the 2010 recapitalization transactions, including the issuance of
approximately 29.9 million shares of common stock, is not considered because the
Compensation Committee believes that near-term dilution is necessary to take advantage of
longer-term growth opportunities; for example, as a result of the recapitalization
transactions, the Company was able to commit to almost $400 million in new investments since
the recapitalization less than one year earlier. |
|
(2) |
|
For computational purposes we adjusted the normalized FFO amount as described above
to exclude straight-line rent revenue ($0.06 per share), non-cash, share-based compensation
expense ($0.07 per share), and deferred financing cost amortization expense ($0.06 per
share). |
|
|
|
|
|
|
|
Corporate Goal |
|
2010 Achievement |
|
Actual Achievement |
|
Normalized FFO Goal
|
|
Outperformance
|
|
| |
$0.94 |
Exposure by Tenant
|
|
Outperformance
|
|
|
|
27% |
Acquisitions
|
|
Superior
|
|
$230 million
|
Liquidity
|
|
Outperformance
|
|
> $80 million |
AFFO Payout
|
|
Outperformance |
|
|
|
80% |
Recapitalization
|
|
Yes
|
|
Yes
|
The remaining 35% of the annual bonus potential is based on the respective performance of each
Named Executive Officer based on the Compensation Committees consideration of various quantitative
and qualitative factors. For 2010, the factors listed in Executive Summary were considered.
Long-term Incentive Awards
The Compensation Committee may grant long-term, equity-based incentive awards to Medical
Properties executive officers under the 2004 Equity Incentive Plan. These awards may take the form
of incentive stock options, nonqualified stock options, restricted common stock, restricted stock
units, deferred stock units, stock appreciation rights and performance share units. Based on an
assessment of competitive factors and performance, the Compensation Committee determines an award
that is sufficient to both properly reward, and provide future incentive for, each executive
officer. The Compensation Committee generally considers the amount of other components of the
executives awards along with the market information related to compensation of Peer Group company
executives in determining the value and character of long-term incentive awards, and intends to
continue to closely align the interests of the executive officers with those of the stockholders
generally by making such incentive awards in the form of restricted stock. Shares of restricted
stock granted under the 2004 Equity Incentive Plan are designed to provide long-term performance
incentives and rewards tied to the price of Medical Properties
86
common stock. In past years, to encourage retention, restricted stock awards have generally
vested over periods of three to five years, and have sometimes required achievement of certain
performance measures in order to vest.
In 2010, the Compensation Committee added a provision to Medical Properties annual grants of
restricted stock that requires Medical Properties to achieve a TRS of at least 9.5% in order for
the Named Executive Officers to realize one-half of such 2010 grants. In addition, the Compensation
Committee added a separate provision that limits the payment of dividends on performance-based
restricted shares to those that have been earned by the Named Executive Officers pursuant to
achievement of the performance criteria.
To help determine the amount of long-term equity incentives to award the Named Executive
Officers during 2010, the Compensation Committee considered the following factors along with the
total compensation levels of the Named Executive Officers and the Peer Group. Based on our 2009
performance, the Compensation Committee granted time-based and performance based restricted shares
to each of the Named Executive Officers. One-half of such restricted shares vest over a three year
period in equal quarterly amounts. The remaining one-half vest only if during the three year
period, our TRS is equal to or exceeds 9.5% (with carry back and carry forward provisions).
Moreover, dividends that accrue on the performance based restricted stock are not paid until and
unless the requisite TRS performance requirements are achieved.
|
|
|
Managements maintenance of strong operating performance throughout 2009, during the
most critical period of the global credit crisis and recession. |
|
|
|
|
Establishment of prudently staggered debt maturities such that no unmanageable
maturities came due in any single year. Moreover, management successfully created
additional liquidity through selective asset refinancings, moderate equity issuances and
limitations on asset acquisitions. |
|
|
|
|
The Named Executive Officers added important human and other resources in anticipation
of economic recovery, including key managers in accounting and finance, asset management
and asset underwriting. |
|
|
|
|
Generated substantial increases in TRS through share price recovery and maintenance of a
cash dividend during a time when many larger and older REITs had replaced most of their
cash dividend with shares of common stock. |
|
|
|
|
Importantly, the Named Executive Officers by the end of 2009 had positioned us to take
prompt and aggressive advantage of an improving market, and in fact soon thereafter, we
recapitalized our balance sheet and commenced acquisitions of attractive long term assets. |
Based on these considerations, the Compensation Committee awarded long-term incentive shares
of restricted common stock in 2010 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Awards |
|
|
Performance-Based Awards |
|
|
Total Awards |
|
Executive |
|
($)(1) |
|
|
($)(1) |
|
|
($)(1) |
|
| | | |
Edward K. Aldag Jr. |
|
$ |
1,036,283 |
|
|
$ |
906,870 |
|
|
$ |
1,943,153 |
|
R. Steven Hamner |
|
|
518,141 |
|
|
|
453,435 |
|
|
|
971,576 |
|
Emmett E. McLean |
|
|
336,792 |
|
|
|
294,733 |
|
|
|
631,525 |
|
|
|
|
(1) |
|
The following amount of shares was granted to Messrs. Aldag, Hamner and McLean:
196,080, 98,040 and 63,726, respectively. 50% of the shares granted are time-based and 50%
of shares granted are performance-based, and require an annual 9.5% TRS in order for the
shares to be earned by our current Named Executive Officers. |
87
2007 Multi-Year Incentive Program
The Compensation Committee approved on March 8, 2007, and our stockholders approved on May 30,
2007 the general terms of a multi-year incentive program (the 2007 Program) that is administered
under the 2004 Equity Incentive Plan. The 2007 Program was designed to motivate, retain, and reward
Medical Properties senior executive officers over a multi-year period based on the achievement of
key business objectives while maintaining alignment of their interests with those of our
stockholders. The 2007 Program consists of three basic components: time-based restricted equity
awards, core performance restricted equity awards and superior performance awards.
Time-based awards vest ratably over a seven-year period that will end on December 31, 2013.
Core performance awards vest over a seven-year period based on achievement by Medical Properties of
specific total return benchmarks. Cash dividends are paid on all time-based and core performance
award shares, including unvested portions. Superior performance awards, which are intended to
encourage management to create stockholder value in excess of industry expectations in a pay for
performance structure, are earned based on achievement of certain stock price targets or specific
total return benchmarks. If our average stock price (over 30 consecutive trading days) was equal to
or greater than $26, $24, $22, or $20 in 2009 or 2010, 100%, 75%, 58%, or 33% of the superior
performance award is earned, respectively. If Medical Properties average stock price did not reach
$20 in 2009 or 2010, only one-third of the superior performance award is earned if Medical
Properties total stockholder return from March 1, 2007 through December 31, 2010 is at or above
the 50th percentile of the total stockholder return of the REITs in the Morgan Stanley REIT Index.
As of the December 31, 2010 end of the superior performance measurement date, Medical
Properties TRS for the measurement period was above the 50th percentile of the index, but our
shares had not reached a value of $20 in 2009 or 2010. Accordingly, our Named Executive Officers
forfeited two-thirds of the shares that the 2007 Program had been designed to provide pursuant to
the superior performance. Through December 31, 2010, we have reported executive compensation
related to the superior performance awards in an aggregate amount of approximately $1.6 million.
Although two-thirds of this amount, or $1.1 million, will never be received by the Named Executive
Officers, accounting rules prohibit U.S. companies from adjusting the amount of the previously
reported compensation.
Once the superior performance award is earned based on performance, it is subject to further
time vesting. One-third of the earned superior performance awards vest on the fourth anniversary of
grant, and an additional third vest on each of the succeeding two anniversaries, based on continued
employment. During the performance vesting period, cash dividends are paid with respect to the
maximum shares or units that could be earned under the superior performance award at a rate
equivalent to only 20% of our normal dividend rate.
Some or all awards under the 2007 Program, at the election of the awardees, may be granted in
the form of operating partnership profits interest units of the Operating Partnership. Subject to
vesting and the other terms of the applicable award, these profits interest units are exchangeable
for shares of Medical Properties common stock or cash, at Medical Properties election.
Distributions on the profits interest units equal the dividends paid on Medical Properties common
stock on a per unit basis, subject to the terms of the applicable award.
All determinations, interpretations, and assumptions relating to the vesting and calculation
of awards under the 2007 Program are made by the Compensation Committee. In the event of a change
in control of the Company during the vesting period, all grants would become fully vested.
Other Benefits. Medical Properties maintains a 401(k) Retirement Savings plan and annually
matches 100% of the first three percent (3%) of pay contributed, plus fifty percent (50%) of the
next two percent (2%) of pay contributed, to such plan by any employee (subject to certain tax
limitations). We offer medical, dental and vision plans, and pay the coverage cost under these
plans for all employees. Each of the Named Executive Officers have employment agreements with us
pursuant to which certain other benefits are provided to them. The financial terms of each such
employment agreement are set forth in Compensation of Executive Officers below.
Practices with regard to dates and pricing of stock and option grants. The Compensation
Committee determines the number of shares underlying options and shares of restricted stock to
award to each officer and grants such awards. The date of the award is the date of the scheduled
meeting of the Compensation Committee at which
88
the Compensation Committee votes to approve the option or the restricted share amount. The
exercise price of each option granted is the closing price of our common stock on such date of
grant.
In all cases, Medical Properties options are dated (1) on the date of a scheduled
Compensation Committee meeting at which the option amount is approved, (2) on the date of a new
hires start with the Company as approved by the Chairman/CEO in advance of the start date, or (3)
on the date of a terminated senior executives departure from the Company as set out in formal
terms approved in advance. Option exercise prices are determined by the NYSE closing price of
Medical Properties common stock on such date of grant. Additionally, all officers must receive
prior authorization for any purchase or sale of Medical Properties common stock.
Section 162(m). Medical Properties believes that, because it qualifies as a REIT under the
Code and pays dividends sufficient to minimize federal income taxes, the payment of compensation
that does not satisfy the requirements of Section 162(m) will generally not affect Medical
Properties net income. To the extent that compensation does not qualify for a deduction under
Section 162(m), a larger portion of stockholder distributions may be subject to federal income
taxation as dividend income rather than return of capital. The Company does not believe that
Section 162(m) will materially affect the taxability of stockholder distributions, although no
assurance can be given in this regard due to the variety of factors that affect the tax position of
each stockholder. For these reasons, the Compensation Committees compensation policy and practices
are not directly guided by considerations relating to Section 162(m).
Compensation of Executive Officers
Summary Compensation Table
The amounts in the table below are a summary of the components of compensation our Named
Executive Officers received in the last three years:
|
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|
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|
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|
Change in |
|
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|
|
|
|
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|
Pension Value |
|
|
|
|
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|
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|
|
|
|
|
|
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and |
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|
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|
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|
|
Nonqualified |
|
|
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
|
|
|
|
|
principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
Incentive Plan |
|
|
Compensation |
|
|
All Other |
|
|
Total |
|
positions |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Stock Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Compensation |
|
Edward K. Aldag, Jr. |
|
|
2010 |
|
|
$ |
550,680 |
|
|
$ |
|
|
|
$ |
1,943,153 |
(12) |
|
$ |
|
|
|
$ |
1,891,586 |
|
|
$ |
|
|
|
$ |
56,411 |
(1) |
|
$ |
4,441,830 |
|
Chairman of the
Board, Chief |
|
|
2009 |
|
|
|
529,500 |
|
|
|
|
|
|
|
915,699 |
|
|
|
|
|
|
|
1,509,075 |
|
|
|
|
|
|
|
64,890 |
(5) |
|
|
3,019,164 |
|
Executive Officer
and President |
|
|
2008 |
|
|
|
510,000 |
|
|
|
|
|
|
|
2,016,704 |
|
|
|
|
|
|
|
1,650,000 |
|
|
|
|
|
|
|
70,743 |
(9) |
|
|
4,247,447 |
|
|
Emmett E. McLean |
|
|
2010 |
|
|
$ |
372,528 |
|
|
$ |
|
|
|
$ |
631,525 |
(12) |
|
$ |
|
|
|
$ |
913,159 |
|
|
$ |
|
|
|
$ |
45,085 |
(2) |
|
$ |
1,962,297 |
|
Executive Vice
President, Chief |
|
|
2009 |
|
|
|
358,200 |
|
|
|
|
|
|
|
343,388 |
|
|
|
|
|
|
|
703,079 |
|
|
|
|
|
|
|
33,856 |
(6) |
|
|
1,438,523 |
|
Operating Officer,
Treasurer and
Secretary |
|
|
2008 |
|
|
|
345,000 |
|
|
|
|
|
|
|
756,270 |
|
|
|
|
|
|
|
625,000 |
|
|
|
|
|
|
|
39,326 |
(10) |
|
|
1,765,596 |
|
|
R. Steven Hamner |
|
|
2010 |
|
|
$ |
374,712 |
|
|
$ |
|
|
|
$ |
971,576 |
(12) |
|
$ |
|
|
|
$ |
918,512 |
|
|
$ |
|
|
|
$ |
41,192 |
(3) |
|
$ |
2,305,992 |
|
Director, Executive
Vice President |
|
|
2009 |
|
|
|
360,300 |
|
|
|
|
|
|
|
526,529 |
|
|
|
|
|
|
|
707,201 |
|
|
|
|
|
|
|
36,027 |
(7) |
|
|
1,630,057 |
|
and Chief Financial
Officer |
|
|
2008 |
|
|
|
347,000 |
|
|
|
|
|
|
|
1,008,352 |
|
|
|
|
|
|
|
750,000 |
|
|
|
|
|
|
|
18,200 |
(11) |
|
|
2,123,552 |
|
|
Michael G. Stewart |
|
|
2010 |
|
|
$ |
141,665 |
|
|
$ |
|
|
|
$ |
72,878 |
(12) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,923,532 |
(4) |
|
$ |
2,138,075 |
|
Former Executive
Vice President, |
|
|
2009 |
|
|
|
297,200 |
|
|
|
|
|
|
|
160,247 |
|
|
|
|
|
|
|
557,343 |
|
|
|
|
|
|
|
18,800 |
(8) |
|
|
1,033,590 |
|
General Counsel and
Secretary |
|
|
2008 |
|
|
|
286,275 |
|
|
|
|
|
|
|
504,176 |
|
|
|
|
|
|
|
425,000 |
|
|
|
|
|
|
|
18,200 |
(11) |
|
|
1,233,651 |
|
89
|
|
|
(1) |
|
Represents $9,800 in company 401(k) match, $12,000 automobile allowance, $2,174 for the cost
of tax preparation and financial planning services, $3,312 for the cost of disability
insurance, and $29,125 for the cost of life insurance. These additional benefits include
$13,130 to reimburse Mr. Aldag for his tax liabilities associated with such payments. |
|
(2) |
|
Represents $9,800 in company 401(k) match, $9,000 automobile allowance, $14,815 for the cost
of tax preparation, $464 for the cost of disability insurance, and $11,006 for the cost of
life insurance. These additional benefits include $10,709 to reimburse Mr. McLean for his tax
liabilities associated with such payments. |
|
(3) |
|
Represents $9,800 in Company 401(k) match, $9,000 automobile allowance, $1,920 for the cost
of disability insurance, and $20,472 for the cost of life insurance. These additional benefits
include $8,588 to reimburse Mr. Hamner for his tax liabilities associated with such payments. |
|
(4) |
|
Represents a one-time severance payment of $1,909,607 pursuant to a Separation Agreement
between Mr. Stewart and the Company dated June 11, 2011. Also includes $9,800 in Company
401(k) match and an automobile allowance of $4,125. |
|
(5) |
|
Represents $9,800 in company 401(k) match, $12,000 automobile allowance, $6,920 for the cost
of tax preparation and financial planning services, $3,312 for the cost of disability
insurance, and $32,858 for the cost of life insurance. These additional benefits include
$16,687 to reimburse Mr. Aldag for his tax liabilities associated with such payments. |
|
(6) |
|
Represents $9,800 in Company 401(k) match, $9,000 automobile allowance, $415 for the cost of
disability insurance, and $14,641 for the cost of life insurance. These additional benefits
include $6,142 to reimburse Mr. McLean for his tax liabilities associated with such payments. |
|
(7) |
|
Represents $9,800 in Company 401(k) match, $9,000 automobile allowance and $17,227 for the
cost of life insurance. These additional benefits include $7,227 to reimburse Mr. Hamner for
his tax liabilities associated with such payments. |
|
(8) |
|
Represents $9,800 in Company 401(k) match and a $9,000 automobile allowance. |
|
(9) |
|
Represents $9,200 in Company 401(k) match, $12,000 automobile allowance, $17,320 for the cost
of tax preparation and financial planning services, $6,136 for the cost of disability
insurance, and $26,087 for the cost of life insurance. These additional benefits include
$18,209 to reimburse Mr. Aldag for his tax liabilities associated with such payments. |
|
(10) |
|
Represents $9,200 in Company 401(k) match, $9,000 automobile allowance, $6,072 for the cost
of tax preparation and financial planning services, $413 for the cost of disability insurance,
and $14,641 for the cost of life insurance. These additional benefits include $8,689 to
reimburse Mr. McLean for his tax liabilities associated with such payments. |
|
(11) |
|
Represents $9,200 in Company 401(k) match and a $9,000 automobile allowance. |
|
(12) |
|
A portion of this stock award contains performance-based vesting conditions and the value
reported reflects the value of the award at the grant date based upon the probable outcome of
the performance conditions. The reported value for these performance awards was $906,870;
$294,733; $453,435; and $34,012 for Messrs. Aldag, McLean, Hamner and Stewart, respectively.
The value of the award at the grant date, assuming that the highest level of performance
conditions will be achieved, would be $1,036,283; $336,792; $518,141; and $38,866 for Messrs.
Aldag, McLean, Hamner and Stewart, respectively. |
Medical Properties has employment agreements with Edward K. Aldag, Jr., R. Steven Hamner
and Emmett E. McLean. These employment agreements provided the following annual base salaries in
2010: Edward K. Aldag, Jr., $550,680; R. Steven Hamner, $374,712; and Emmett E. McLean, $372,528.
On each January 1, each of the current Named Executive Officers is to receive a minimum increase in
his base salary equal to the increase in the Consumer Price Index, or CPI. These agreements provide
that the current Named Executive Officers agree to devote substantially all of their business time
to our operation. The employment agreement for each of the current Named Executive Officers is for
a three-year term, which is automatically extended at the end of each year within such term for an
additional one year period, unless either party gives notice of non-renewal as provided in the
agreement.
These employment agreements permit Medical Properties to terminate each executives employment
with appropriate notice for or without cause, which includes (1) the conviction of the executive
of, or the entry of a plea of guilty or nolo contendere by the executive to, a felony (exclusive of
any felony relating to negligent operation of a motor vehicle and also exclusive of a conviction,
plea of guilty or nolo contendere arising solely under a statutory provision imposing criminal
liability upon the executive on a per se basis due to the Company offices held by the executive, so
long as any act or omission of the executive with respect to such matter was not
90
taken or omitted in contravention of any applicable policy or directive of the Board of
Directors), (2) a willful breach of his duty of loyalty which is materially detrimental to the
Company, (3) a willful failure to materially perform or materially adhere to explicitly stated
duties that are consistent with the terms of his employment agreement, or Medical Properties
reasonable and customary guidelines of employment or reasonable and customary corporate governance
guidelines or policies, including, without limitation, any business code of ethics adopted by the
Board of Directors, or to follow the lawful directives of the Board of Directors (provided such
directives are consistent with the terms of his employment agreement), which, in any such case,
continues for thirty (30) days after written notice from the Board of Directors to the executive,
or (4) gross negligence or willful misconduct in the material performance of the executives
duties.
Each of the current Named Executive Officers has the right under his employment agreement to
resign for good reason, which includes (1) the employment agreement is not automatically renewed
by the Company; (2) the termination of certain incentive compensation programs; (3) the termination
or diminution of certain employee benefit plans, programs, or material fringe benefits; (4) the
relocation of our principal office outside of a 100 mile radius of Birmingham, Alabama (in the case
of Mr. Aldag); or (4) Medical Properties breach of the employment agreement which continues
uncured for 30 days. In addition, in the case of Mr. Aldag, the following constitute good reason:
(1) his removal from the Board of Directors without cause or his failure to be nominated or elected
to the Board of Directors; or (2) any material reduction in duties, responsibilities, or reporting
requirements, or the assignment of any duties, responsibilities or reporting requirements that are
inconsistent with his positions with Medical Properties.
The executive employment agreements provide a monthly car allowance of $1,000 for Mr. Aldag
and $750 for each of Messrs. Hamner and McLean. The current Named Executive Officers are also
reimbursed for the cost of tax preparation and financial planning services, up to $25,000 annually
for Mr. Aldag and $10,000 annually for each of Messrs. Hamner and McLean. Medical Properties also
reimburses each executive for the income tax he incurs on the receipt of these tax preparation and
financial planning services. In addition, the employment agreements provide for annual paid
vacation of six weeks for Mr. Aldag and four weeks for Messrs. Hamner and McLean, and various other
customary benefits. The employment agreements also provide that Mr. Aldag will receive up to
$20,000 per year in reimbursement for life insurance premiums, which amount is to increase annually
based on the increase in the CPI for such year, and that Messrs. Hamner and McLean will receive up
to $10,000 per year in reimbursement for life insurance premiums which amount is to increase
annually based on the increase in the CPI for such year. Medical Properties also reimburses each
executive for the income tax he incurs on the receipt of these life insurance premium
reimbursements. The current Named Executive Officers are also reimbursed for the cost of their
disability insurance premiums.
The employment agreements provide that the executive officers are eligible to receive the same
benefits, including medical insurance coverage and retirement plan benefits in a 401(k) plan, to
the same extent as other similarly situated employees, and such other benefits as are commensurate
with their position. Participation in employee benefit plans is subject to the terms of said
benefit plans as in effect from time to time.
If the current Named Executive Officers employment ends for any reason, Medical Properties
will pay accrued salary, bonuses and incentive payments already determined, and other existing
obligations. If Medical Properties terminates a current Named Executive Officers employment
without cause, or if any of them terminates his employment for good reason, we will be obligated to
pay (1) a lump sum payment of severance equal to the sum of (a) the product of three and the sum of
the salary in effect at the time of termination plus the average cash bonus (or the highest cash
bonus, in the case of Mr. Aldag) paid to such executive during the preceding three years, grossed
up for taxes in the case of Mr. Aldag, and (b) the incentive bonus prorated for the year in which
the termination occurred; (2) the cost of the executives continued participation in the companys
benefit and welfare plans (other than the 401(k) plan) for a three-year period (a five-year period
in the case of Mr. Aldag); and (3) certain other benefits as provided for in the employment
agreement. Additionally, in the event of a termination by Medical Properties for any reason other
than cause or by the executive for good reason, all of the stock options and restricted stock
granted to the executive will become fully vested, and the executive will have whatever period
remains under the stock options in which to exercise all vested stock options.
In the event of death of any of the current Named Executive Officers, then, in addition to the
accrued salary, bonus, and incentive payments due to them, they shall become fully vested in their
stock options and
91
restricted stock, and their respective beneficiaries will have whatever period remains under
the stock options to exercise such stock options. In addition, their estates would be entitled to
their prorated incentive bonuses.
In the event the employment of the current Named Executive Officers ends as a result of a
termination by Medical Properties for cause or by the executives without good reason, then in
addition to the accrued salary, bonuses and incentive payments due to them, the executives would be
entitled to exercise their vested stock options pursuant to the terms of the grant, but all other
unvested stock options and restricted stock would be forfeited.
Upon a change of control, the current Named Executive Officers will become fully vested in
their stock options and restricted stock and will have whatever period remains under the stock
options in which to exercise their stock options. In addition, if the employment of any current
Named Executive Officer is terminated by Medical Properties for cause or by the executive without
good reason in connection with a change of control, the executive will be entitled to receive an
amount equal to the largest cash compensation paid to the executive for any twelve month period
during his tenure multiplied by three.
If payments become due as a result of a change in control and the excise tax imposed by Code
Section 4999 applies, the terms of the employment agreements require Medical Properties to gross up
the amount payable to the executive by the amount of this excise tax plus the amount of income and
other taxes due as a result of the gross up payment.
For an 18-month period after termination of an executives employment for any reason other
than (1) termination by Medical Properties without cause or (2) termination by the executive for
good reason, each of the executives under these employment agreements has agreed not to compete
with Medical Properties by working with or investing in, subject to certain limited exceptions, any
enterprise engaged in a business substantially similar to Medical Properties business as it was
conducted during the period of the executives employment with us.
The employment agreements provide that the current Named Executive Officers are eligible to
participate in Medical Properties equity incentive plan. The employment agreements also provide
that the current Named Executive Officers are eligible to receive annual cash bonuses based on the
bonus policy adopted by the Compensation Committee.
Former Executive Officer. Effective June 15, 2010, Michael G. Stewart resigned from the
positions of Executive Vice President, General Counsel and Secretary of Medical Properties.
Pursuant to the terms of a Separation Agreement dated June 11, 2010 between Medical Properties and
Mr. Stewart, the Company paid Mr. Stewart a total of $1,909,607 in cash on December 16, 2010. The
Company also accelerated the vesting of 69,019 previously awarded shares of restricted common
stock, with an aggregate value of $673,625 based on the closing price of Medical Properties common
stock on June 15, 2010. In addition, the Separation Agreement provided that, if performance
criteria and other terms set forth in the relevant award agreements were met, an additional 111,623
shares of restricted common stock previously awarded to Mr. Stewart would vest. As the terms of
certain of these superior performance awards were not met, 40,000 of these shares were forfeited on
December 31, 2010.
Prior to Mr. Stewarts separation from the Company on June 15, 2010, the Company had an
employment agreement with Mr. Stewart, the terms of which were substantially similar to the terms
of our employment agreements with the current Named Executive Officers described above. The
Separation Agreement superseded the employment agreement and all other agreements between Mr.
Stewart and the Company.
The employment agreement provided for an annual base salary of $309,088 in 2010; a monthly car
allowance of $750; reimbursement for the cost of tax preparation and financial planning services of
up to $10,000 annually; reimbursement for income tax incurred upon the receipt of the tax
preparation and financial planning services; up to $10,000 per year in reimbursement for life
insurance premiums, which amount increased annually based on the increase in the CPI; reimbursement
for income tax incurred upon the receipt of the life insurance premium reimbursement; and
reimbursement for the cost of disability insurance premiums.
92
Grants of Plan-Based Awards Table
The following Grants of Plan-Based Awards Table provides information about annual bonus
(non-equity incentive plan awards) and stock awards granted to the Named Executive Officers during
the year ended December 31, 2010. In 2010, performance-based and time-based stock awards were
issued to the Named Executive Officers. The performance-based stock awards are included in the
Equity Incentive Plan Award section of the table below and will vest based on Medical Properties
achievement of certain performance targets and if the participant provides the requisite service.
The grant date fair value of these performance awards was based on $9.25 per share, which was
determined using the Monte Carlo valuation method factoring in, among other things, the probability
of achieving the awards performance condition. The time-based stock awards are included in the All
Other Stock Award section of the table below and will vest if the participant provides the
requisite service. The Grant Date Fair Value of Stock and Option Awards reflects the grant date
fair value of the time-based stock awards using a price of $10.57 per share, which was the average
price of Medical Properties common stock on January 6, 2010, when these grants were made. As these
shares vest, we will recognize and report compensation expense based on the grant date fair values
even though the share price will be different on each vesting date, so the actual value to the
Named Executive Officer may be less or more than the amounts below based on the value of the stock
on the vesting date being below or above the grant date fair value.
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All Other |
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All Other |
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Stock |
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Option |
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Awards: |
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Awards: |
|
Exercise |
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Grant |
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Number |
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Number of |
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or Base |
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Date Fair |
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|
Estimated Possible Payouts Under Non-Equity |
|
Estimated Future Payouts Under |
|
of Shares |
|
Securities |
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Price of |
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Value of |
|
|
|
|
Incentive Plan Awards |
|
Equity Incentive Plan Awards |
|
of Stock |
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Underlying |
|
Option |
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Stock and |
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|
|
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Threshold |
|
Target |
|
Superior |
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Outperfor-mance |
|
Threshold |
|
Target |
|
Maximum |
|
or Units |
|
Options |
|
Awards |
|
Option |
Name |
|
Grant Date |
|
($) |
|
($) |
|
($) |
|
($) |
|
(#) |
|
(#)(1) |
|
(#) |
|
(#)(2) |
|
(#) |
|
($/sh) |
|
Awards |
Edward K. Aldag, Jr.
|
|
1/1/2010
|
|
$ |
550,680 |
|
|
$ |
963,690 |
|
|
$ |
1,376,700 |
|
|
$ |
1,927,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,040 |
|
|
|
|
|
98,040 |
|
|
|
|
|
|
$ |
1,943,153 |
|
|
Emmett E. McLean
|
|
1/1/2010
|
|
$ |
279,396 |
|
|
$ |
465,660 |
|
|
$ |
651,924 |
|
|
$ |
931,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,863 |
|
|
|
|
|
31,863 |
|
|
|
|
|
|
$ |
631,525 |
|
|
R. Steven Hamner
|
|
1/1/2010
|
|
$ |
281,034 |
|
|
$ |
468,390 |
|
|
$ |
655,746 |
|
|
$ |
936,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,020 |
|
|
|
|
|
49,020 |
|
|
|
|
|
|
$ |
971,576 |
|
|
Michael G. Stewart
|
|
1/1/2010
|
|
$ |
231,816 |
|
|
$ |
386,360 |
|
|
$ |
540,904 |
|
|
$ |
772,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
1/6/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,677 |
|
|
|
|
|
3,677 |
|
|
|
|
|
|
$ |
72,878 |
|
|
|
|
(1) |
|
Represent awards of restricted common stock which will vest based on the Companys
achievement of certain performance targets and if the participant provides the requisite
service. |
|
(2) |
|
Represents awards of restricted common stock which will vest based on the participants
service. |
93
Outstanding Equity Awards at December 31, 2010
The table below shows the outstanding equity awards held by the Named Executive Officers as
of December 31, 2010. Dollar amounts are based on $10.83, the closing price of Medical Properties
common stock on December 31, 2010.
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Equity |
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Incentive |
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Equity |
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Plan |
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Incentive |
|
|
Awards: |
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Plan |
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Market or |
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Awards: |
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|
payout |
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Equity |
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Number of |
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value of |
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Incentive |
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|
|
|
|
Unearned |
|
|
Unearned |
|
|
|
|
|
|
|
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|
|
|
Plan Awards: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Shares, |
|
|
Shares, |
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Value of |
|
|
Units or |
|
|
Units or |
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Shares or |
|
|
Other |
|
|
Other |
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Units of |
|
|
Rights |
|
|
Rights |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
|
Stock That |
|
|
Stock That |
|
|
That Have |
|
|
That |
|
|
|
Options (#) |
|
|
Options (#) |
|
|
Unearned |
|
|
Exercise |
|
|
Expiration |
|
|
Have Not |
|
|
Have Not |
|
|
Not Vested |
|
|
Have Not |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Options (#) |
|
|
Price ($) |
|
|
Date |
|
|
Vested (#) |
|
|
Vested ($) |
|
|
(#)(5) |
|
|
Vested ($) |
|
Edward K. Aldag, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422,124 |
(1) |
|
$ |
4,571,603 |
|
|
|
278,930 |
|
|
$ |
3,020,812 |
|
Emmett E. McLean |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,451 |
(2) |
|
$ |
1,889,304 |
|
|
|
105,170 |
|
|
$ |
1,138,991 |
|
R. Steven Hamner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,227 |
(3) |
|
$ |
2,330,908 |
|
|
|
124,999 |
|
|
$ |
1,353,739 |
|
Michael G. Stewart |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
(4) |
|
$ |
216,600 |
|
|
|
42,093 |
|
|
$ |
455,867 |
|
|
|
|
(1) |
|
3,500 shares vest on February 14, 2011. 20,000 shares vest in annual installments from
March 8, 2011 through March 8, 2012. 64,284 shares vest in annual installments from December
31, 2011 through December 31, 2013. 100,250 shares vest in annual installments from February
14, 2011 through February 14, 2013. 60,560 shares vest in quarterly installments from January
2, 2011 through January 2, 2012. 73,530 shares vest in quarterly installments from January 1,
2011 through January 1, 2013. 100,000 shares vest in annual installments from January 1, 2011
to December 31, 2013. |
|
(2) |
|
1,250 shares vest on February 14, 2011. 9,000 shares vest in annual installments from March
8, 2011 through March 8, 2012. 30,000 shares vest in annual installments from December 31,
2011 through December 31, 2013. 37,593 shares vest in annual installments from February 14,
2011 through February 14, 2013. 22,710 shares vest in quarterly installments from January 2,
2011 through January 2, 2012. 23,898 shares vest in quarterly installments from January 1,
2011 through January 1, 2013. 50,000 LTIPs vest in annual installments from January 1, 2011 to
December 31, 2013. |
|
(3) |
|
1,375 shares vest on February 14, 2011. 10,000 shares vest in annual installments from March
8, 2011 through March 8, 2012. 32,142 LTIPs vest in annual installments from December 31, 2011
through December 31, 2013. 50,124 shares vest in annual installments from February 14, 2011
through February 14, 2013. 34,821 shares vest in quarterly installments from January 2, 2011
through January 2, 2012. 36,765 shares vest in quarterly installments from January 1, 2011
through January 1, 2013. 50,000 LTIPs vest in annual installments from January 1, 2011 to
December 31, 2013. |
|
(4) |
|
20,000 shares vest in annual installments from January 1, 2011 to December 31, 2013. |
|
(5) |
|
For Mr. Aldag, includes 178,570 of core performance awards and 100,360 of other performance
based awards. For Mr. McLean, includes 71,428 of core performance awards and 33,742 of other
performance based awards. For Mr. Hamner, includes 78,570 of core performance awards and
46,429 of other performance based awards. For Mr. Stewart, includes 32,142 of core performance
awards and 9,951 of other performance based awards. |
|
|
|
Core performance awards vest annually and ratably over a seven-year period (beginning March 1,
2007 through December 31, 2013) contingent upon the companys achievement of a simple 9% annual
total return to stockholders. Core performance awards provide for payment of dividends on all
vested and unvested awards. |
94
Option Exercises and Stock Vested Table.
The following table sets forth the aggregate number of shares of common stock that vested in
2010 (we have never issued stock options to purchase shares to the Named Executive Officers). The
value realized on vesting is the product of (1) the fair market value of a share of common stock on
the vesting date, multiplied by (2) the number of shares vesting.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards |
|
|
Stock Awards |
|
|
|
Number of Shares |
|
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
Acquired on |
|
|
Value Realized on |
|
|
Acquired on |
|
|
Value Realized |
|
Name |
|
Exercise (#) |
|
|
Exercise ($) |
|
|
Vesting (#) |
|
|
Upon Vesting ($) |
|
Edward K. Aldag, Jr. |
|
|
|
|
|
|
|
|
|
|
227,201 |
|
|
$ |
2,338,944 |
|
Emmett E. McLean |
|
|
|
|
|
|
|
|
|
|
85,571 |
|
|
$ |
882,102 |
|
R. Steven Hamner |
|
|
|
|
|
|
|
|
|
|
112,844 |
|
|
$ |
1,161,008 |
|
Michael G. Stewart |
|
|
|
|
|
|
|
|
|
|
96,574 |
|
|
$ |
955,624 |
|
Potential Payments upon Termination or Change in Control
The following table shows potential payments and benefits that will be provided to the current
Named Executive Officers upon the occurrence of certain termination triggering events. We have
excluded Mr. Stewart from the table below as his employment terminated effective June 15, 2010. Mr.
Stewart received the termination benefits described above.
The change-in-control provisions in the employment agreements are designed to align
managements interests with those of our stockholders. See the discussion above for information
about payments upon termination or change-in-control. All equity interests included in the
termination and change-in-control calculations represent previously awarded stock-based awards and
are valued based on the closing price of Medical Properties common stock on December 31, 2010.
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Involuntary Not for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cause; executive for |
|
|
Termination for |
|
|
|
|
|
|
|
|
|
|
|
Good Reason; |
|
|
Cause; executive |
|
Name |
|
Change in Control |
|
|
Death |
|
|
Permanent Disability |
|
|
without Good Reason |
|
Edward K. Aldag, Jr. |
|
$ |
17,643,592 |
|
|
$ |
7,652,415 |
|
|
$ |
17,643,592 |
|
|
$ |
|
|
Emmett E. McLean |
|
$ |
6,885,356 |
|
|
$ |
3,064,295 |
|
|
$ |
6,480,117 |
|
|
$ |
|
|
R. Steven Hamner |
|
$ |
7,564,319 |
|
|
$ |
3,720,647 |
|
|
$ |
7,277,496 |
|
|
$ |
|
|
95
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Medical Properties Board of Directors has adopted a written related person transaction
approval and disclosure policy for the review, approval or ratification of any related person
transaction. This policy, which was adopted by resolution of the full Board of Directors as
reflected in Medical Properties corporate records, provides that all related person transactions
must be reviewed and approved by a majority of the disinterested directors on Medical Properties
Board of Directors in advance of Medical Properties or any of its subsidiaries entering into the
transaction; provided that, if Medical Properties or any of its subsidiaries enter into a
transaction without recognizing that such transaction constitutes a related party transaction, the
approval requirement will be satisfied if such transaction is ratified by a majority of the
disinterested directors on the Board promptly after we recognize that such transaction constituted
a related person transaction. Disinterested directors are directors that do not have a personal
financial interest in the transaction that is adverse to our financial interest or that of our
stockholders. The term related person transaction refers to a transaction required to be
disclosed by us pursuant to Item 404 of Regulation S-K (or any successor provision) promulgated by
the SEC. For purposes of determining whether such disclosure is required, a related person will not
be deemed to have a direct or indirect material interest in any transaction that is deemed not to
be material (or would be deemed not material if such related person was a director) for purposes of
determining director independence pursuant to standards of director independence under the NYSE
rules.
As of the date of this prospectus, we have no related person transactions.
96
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Medical Properties Trust, Inc.
The following table provides information about the beneficial ownership of Medical Properties
common stock as of September 6, 2011, unless otherwise indicated, by each director of Medical
Properties, each executive officer of Medical Properties, all directors and executive officers of
Medical Properties as a group, and each person known to management to be the beneficial owner of
more than 5% of the outstanding shares of Medical Properties common stock.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Medical |
|
|
|
|
|
|
Properties |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Beneficially |
|
|
Percent of Shares |
|
Name of Beneficial Owner* |
|
Owned |
|
|
Outstanding(1) |
|
|
Directors and Named Executive Officers: |
|
|
|
|
|
|
|
|
Edward K. Aldag, Jr. |
|
|
1,399,361 |
(2) |
|
|
1.25 |
% |
Emmett E. McLean |
|
|
563,428 |
(3) |
|
|
* |
* |
R. Steven Hamner |
|
|
645,057 |
(4) |
|
|
* |
* |
William G. McKenzie |
|
|
115,489 |
(5) |
|
|
* |
* |
G. Steven Dawson |
|
|
105,319 |
(7) |
|
|
* |
* |
Robert E. Holmes, Ph.D. |
|
|
90,168 |
(6) |
|
|
* |
* |
Sherry A. Kellett |
|
|
43,859 |
(8) |
|
|
* |
* |
L. Glenn Orr, Jr. |
|
|
99,446 |
(6) |
|
|
* |
* |
All persons who are directors and executive officers of
Medical Properties as a group (8 persons) |
|
|
3,062,127 |
(9) |
|
|
2.74 |
% |
Other Stockholders: |
|
|
|
|
|
|
|
|
The Vanguard Group, Inc.
100 Vanguard Boulevard
Malvern, PA 19355 |
|
|
11,327,541 |
(10) |
|
|
10.13 |
% |
Vanguard Specialized Funds Vanguard REIT Index Fund
100 Vanguard Boulevard
Malvern, PA 19355 |
|
|
5,883,623 |
(11) |
|
|
5.26 |
% |
BlackRock, Inc.
40 East 52nd Street
New York, NY 10022 |
|
|
9,502,524 |
(12) |
|
|
8.50 |
% |
EARNEST Partners, LLC
1180 Peachtree Street NE, Suite 2300
Atlanta, Georgia 30309 |
|
|
6,441,763 |
(13) |
|
|
5.76 |
% |
|
|
|
* |
|
Unless otherwise indicated, the address is c/o Medical Properties Trust, Inc., 1000 Urban
Center Drive, Suite 501, Birmingham, Alabama 35242. |
|
** |
|
Less than 1% of the outstanding shares of Medical Properties common stock. |
|
(1) |
|
Based on 111,838,237 shares of Medical Properties common stock outstanding as of September
6. 2011 and includes 130,000 vested common stock options and 94,288 vested operating
partnership units (convertible into an equal number of shares of Medical Properties common
stock). Shares of Medical Properties common stock that are deemed to be beneficially owned by
a stockholder within 60 days after September 6, 2011 are deemed outstanding for purposes of
computing such stockholders percentage ownership but are not deemed outstanding for the
purpose of computing the percentage outstanding of any other stockholder. Except as otherwise
indicated in the notes to this table, beneficial ownership includes sole voting and investment
power.. |
|
(2) |
|
Includes 480,587 shares of unvested restricted common stock, which the named officer has no
right to sell or pledge. Separately, 362,003 shares are pledged as security. |
|
(3) |
|
Includes 111,079 shares of unvested restricted common stock, which the named officer has no
right to sell or pledge. Includes 4,200 shares in a custodial account for one of his children. |
|
(4) |
|
Includes 198,232 shares of unvested restricted common stock, which the named officer has no
right to sell or pledge. |
|
(5) |
|
Includes 47,210 shares of unvested restricted common stock, which the named officer has no
right to sell or pledge. Separately, 26,072 shares are pledged as security. |
|
(6) |
|
Includes 20,000 shares of Medical Properties common stock issuable upon exercise of vested
stock options and 12,381 shares of unvested restricted common stock. In addition, shares held
by Mr. Orr include 700 shares held in a trust account and in accounts for his wife and
daughter. |
|
(7) |
|
Includes 20,000 shares of Medical Properties common stock issuable upon exercise of vested
stock options and 12,381 shares of unvested restricted common stock. Also, includes, 71,570
shares held by Corriente Private Trust. Mr. Dawson is the sole trustee and beneficiary of
Corriente Private Trust. Mr. Dawson through Corriente Private Trust has voting and dispositive
power with respect to the shares. |
|
(8) |
|
Includes 12,381 shares of unvested restricted common stock. |
|
(9) |
|
See notes (1)-(8) above. |
97
|
|
|
(10) |
|
Share and beneficial ownership information was obtained from a Schedule 13G/A filed February
9, 2011 with the SEC. Includes shares of Medical Properties common stock held by Vanguard
Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc. Vanguard
Fiduciary Trust Company directs the voting of 175,025, or 0.16% of the shares outstanding of
Medical Properties, of which it is the beneficial owner as a result of it serving as
investment manager of collective trust accounts. |
|
(11) |
|
Share and beneficial ownership information was obtained from a Schedule 13G/A filed February
9, 2011 with the SEC, which states that Vanguard Specialized Funds Vanguard REIT Index
Fund, a wholly owned fund of The Vanguard Group, Inc., has sole power to vote or direct the
voting of these 5,883,623 shares outstanding of Medical Properties. |
|
(12) |
|
Share and beneficial ownership information was obtained from a Schedule 13G/A filed January
21, 2011 with the SEC. According to the Schedule 13G/A, BlackRock has sole voting power and
sole dispositive power over 9,502,524 shares of Medical Properties common stock. The Schedule
13G/A states that various persons have the right to receive or the power to direct the receipt
or dividends from or the proceeds from the sale of Medical Properties common stock but that
no one persons interest in Medical Properties common stock is more than five percent of the
total outstanding common shares. |
|
(13) |
|
Share and beneficial ownership information was obtained from a Schedule 13G/A filed August
10, 2011 with the SEC. According to the Schedule 13G/A, EARNEST Partners, LLC is filing as an
investment adviser in accordance with 240.13d-1(b)(1)(ii)(E), and no client interest relates
to more than five percent of the class. Per the Schedule 13G/A, EARNEST Partners, LLC has sole
voting power, shared voting power, and sole dispositive power over 2,761,936; 1,438,747; and
6,441,763 shares of Medical Properties common stock, respectively. |
MPT Operating Partnership, L.P. and MPT Finance Corporation
As of June 30, 2011, Medical Properties owned directly or indirectly 99.9% of the operating
partnership units of MPT Operating Partnership, L.P. The remaining 0.1% of operating partnership
units are owned by Emmett E. McLean, R. Steven Hamner and William G. McKenzie. MPT Finance
Corporation is a wholly owned subsidiary of the Operating Partnership.
98
DESCRIPTION OF OTHER MATERIAL INDEBTEDNESS
Our Credit Facility
On April 26, 2011, Medical Properties and the Operating Partnership also entered into an
amended and restated revolving credit agreement (the Revolving Credit Facility) with JPMorgan
Chase Bank, N.A., as administrative agent, KeyBank National Association, as syndication agent, and
the several lenders from time to time parties thereto.
The Revolving Credit Facility, which governs a $330 unsecured credit facility, amends and
restates the revolving credit and term loan agreement, dated May 17, 2010, by and among Medical
Properties, the Operating Partnership, KeyBank National Association and Royal Bank of Canada, as
Syndication Agents, JPMorgan Chase Bank, N.A., as Administrative Agent, and the several lenders
from time to time parties thereto, as amended (the Old Credit Facility). The Old Credit Facility
governed a $480 million secured credit facility consisting of a $150 million term loan and a $330
million revolving credit facility.
Concurrently with the effectiveness of the Revolving Credit Facility, the Operating
Partnership repaid in full the $150 million term loan under the old credit agreement with the
proceeds from the issuance of the Notes.
The Revolving Credit Facility provides for a $330 million revolving loan facility (the
Revolving Facility), a swingline loan facility of up to 10% of the Revolving Facility (the
Swingline Facility), and a letter of credit facility of up to 10% of the Revolving Facility (the
Letter of Credit Facility). Within 30 months of the closing date, the Operating Partnership may
request an increase in the Revolving Facility so as to increase the aggregate amount up to a
maximum of $400 million.
The maturity date of the Revolving Facility is October 31, 2015. The maturity date of any loan
made under the Swingline Facility is the earlier of October 31, 2015 and the first date after such
loan is made that is the 15th or last day of a calendar month and is at least 2 business days after
such loan is made, and the maturity date of any letter of credit issued pursuant to the Letter of
Credit Facility is the earlier of the first anniversary of the issuance of such letter of credit
and the date that is 5 business days prior to October 31, 2015.
At the Operating Partnerships election, loans under the Revolving Facility may also be made
as either ABR Loans or Eurodollar Loans. The applicable margin for ABR Loans under the Revolving
Facility will initially be 1.60% and is adjustable on a sliding scale from 1.60% to 2.40% based on
current total leverage. The applicable margin for Eurodollar Loans under the Revolving Facility
will initially be 2.60% and is adjustable on a sliding scale from 2.60% to 3.40% based on current
total leverage. Swingline Facility loans will bear interest at a rate equal to the rate of ABR
Loans under the Revolving Facility. Letters of credit will bear interest at a rate equal to the
applicable margin then in effect with respect to Eurodollar Loans under the Revolving Facility.
The Operating Partnership may prepay the Revolving Credit Facility at any time, subject to
certain notice requirements. Borrowings under the Revolving Credit Facility are guaranteed by
Medical Properties and the subsidiary guarantors pursuant to a Guarantee Agreement in favor of
JPMorgan Chase Bank, N.A., as administrative agent. As part of the transaction, Medical Properties
will pay the lenders a quarterly commitment fee on the undrawn portion of the Revolving Credit
Facility, ranging from 0.375% to 0.50% per annum, based upon the amount of the undrawn portion of
the Revolving Credit Facility. The Operating Partnership will also pay any lender issuing a letter
of credit a fee of 0.20% per annum on the letter of credit obligations.
The Revolving Credit Facility contains customary financial and operating covenants, including
covenants relating to total leverage ratio, fixed charge coverage ratio, mortgage secured leverage
ratio, recourse mortgage secured indebtedness, consolidated adjusted net worth, unsecured leverage
ratio, unsecured interest coverage ratio and covenants restricting the incurrence of debt,
imposition of liens, the payment of dividends, and entering into affiliate transactions. The
Revolving Credit Facility also contains customary events of default, including among others,
nonpayment of principal or interest, material inaccuracy of representations and failure to comply
with covenants. If an event of default occurs and is continuing under the Revolving Credit
Facility, the entire outstanding balance may become immediately due and payable.
99
MPT of North Cypress, L.P. Revolving Credit Facility
In June 2007, one of our subsidiaries, MPT of North Cypress, L.P., a Delaware limited
partnership, entered into a $42.0 million collateralized revolving credit facility that matures in
2012 that will not be repaid or terminated in connection with the Transactions. This facility
incurs interest at the 30-day LIBOR plus 1.50% (1.77% at December 31, 2010). The amount available
under the facility decreases $0.8 million per year until maturity. The facility is collateralized
by one real estate property with a net book value of $56.5 million at December 31, 2010 and $55.8
million at June 30, 2011. At June 30, 2011, we had $39.6 million outstanding on this revolving
credit facility and no additional availability. The weighted-average interest rate on this
revolving bank credit facility was 1.74% for 2010. Because MPT of North Cypress, L.P. will not
guarantee the Old Notes or the Exchange Notes, all borrowings under this facility will be
structurally senior to such notes.
Senior Unsecured Notes
During 2006, the Operating Partnership 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. 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. During the second quarter of 2010, we entered into an interest rate swap to fix $65
million of our $125 million Senior Notes, starting July 31, 2011 (date on which the interest rate
is scheduled to turn variable) through maturity date (or July 2016), at a rate of 5.507%. We also
entered into an interest rate swap to fix $60 million of our Senior Notes starting October 31, 2011
(date on which the related interest rate is scheduled to turn variable) through the maturity date
(or October 2016) at a rate of 5.675%.
Exchangeable Senior Notes
In November 2006, the 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 had 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 cash or 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 our senior unsecured obligations and
are guaranteed by Medical Properties. During 2010, 93% of the outstanding 2006 Exchangeable Notes
were repurchased at a price of 103% of principal amount plus accrued
and unpaid interest (or $136.3
million) pursuant to a cash tender offer. The outstanding balance on the 2006 Exchangeable Notes is
$9.2 million as of June 30, 2011.
In March 2008, we issued and sold, in a private offering, $75.0 million of Exchangeable Senior
Notes (the 2008 Exchangeable Notes). In April 2008, we sold an additional $7.0 million of the
2008 Exchangeable Notes pursuant to the initial purchasers overallotment option. 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 had an initial exchange rate of 80.8898 shares of Medical
Properties 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
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 cash or Medical
Properties common shares for the remainder of the exchange value in excess of the principal
amount. The 2008 Exchangeable Notes are senior unsecured obligations and are guaranteed by Medical
Properties. In July 2011, we used a portion of the proceeds
100
from the offering of the Old Notes to repurchase 85% of the outstanding 2008 Exchangeable
Notes at a price of 118.5% of the principal amount plus accrued and unpaid interest (or $84.2
million) pursuant to a cash tender offer. Additionally, in August 2011, we repurchased $1.5
million of the outstanding 2008 Exchangeable Notes in the open market. We will recognize a charge
in the 2011 third quarter of approximately $10.5 million related to the retirement of these 2008
Exchangeable Notes.
Northland Mortgage Loan
In connection with our acquisition of the Northland LTACH Hospital on February 14, 2011, we
assumed a $16.1 million mortgage. The Northland mortgage loan requires monthly principal and
interest payments based on a 30-year amortization period. The Northland mortgage loan has a fixed
interest rate of 6.2%, matures on January 1, 2018 and can be prepaid after January 1, 2013, subject
to a certain prepayment premium.
101
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes are to be issued under the Indenture. The Indenture under which the
Exchange Notes are to be issued is the same indenture under which the Old Notes were issued. Any
Old Note that remains outstanding after the completion of the exchange offer, together with the
Exchange Notes issued in connection with the exchange offer, will be treated as a single class of
securities under the Indenture. As used in this Description of Exchange Notes, except as
otherwise specified or the context otherwise requires, the Old Notes, the Exchange Notes and any
additional notes we may issue under the Indenture are referred to together as the notes.
The following is a summary of the material provisions of the Indenture. It does not restate
that agreement, and we urge you to read the Indenture in its entirety, which is available upon
request to Medical Properties at the address indicated under Where You Can Find More Information
elsewhere in this prospectus, because it, and not this description, defines your rights as a
noteholder.
You can find the definitions of certain capitalized terms used in this description under the
subheading Certain Definitions. The term Opco refers to MPT Operating Partnership and the
term Finco refers to MPT Finance Corporation. The term Issuers as used in this section refers
only to Opco and Finco and not to any of their subsidiaries and the term Parent as used in this
section refers only to Medical Properties Trust, Inc. and not to any of its subsidiaries.
General
The Old Notes were issued in an aggregate principal amount of $450.0 million. The notes are
unsecured senior obligations of the Issuers and will mature on May 1, 2021. The Exchange Notes will
initially bear interest at a rate of 6.875% per annum, payable semiannually to holders of record at
the close of business on the April 15 or the October 15 immediately preceding the interest payment
date on May 1 and November 1 of each year, commencing May 1, 2012.
Principal of, premium, if any, and interest on the Exchange Notes will be payable, and the
Exchange Notes may be exchanged or transferred, in accordance with the terms of the indenture.
Interest on the Exchange Notes will accrue from the most recent date to which interest on the
Old Notes has been paid and will be payable semi-annually in arrears on May 1 and November 1,
commencing on May 1, 2012. We will deem the right to receive any interest accrued but unpaid
on the Old Notes waived by you if we accept your Old Notes for exchange. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. Additional interest may accrue
on the Exchange Notes in certain circumstances if we do not consummate the exchange offer or file
the shelf registration statement, as applicable, as provided in the Registration Rights Agreement.
The Exchange Notes will be issued only in fully registered form, without coupons, in
denominations of $2,000 of principal amount and any integral multiple of $1,000 in excess thereof.
No service charge will be made for any registration of transfer or exchange of Exchange Notes, but
the Issuers are entitled to require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection with a registration of transfer.
Subject to the covenants described below under Covenants and applicable law, the Issuers
are entitled to issue additional notes under the indenture. The Notes and any additional notes
subsequently issued under the indenture will be treated as a single class for all purposes under
the indenture, including waivers, amendments, redemptions and offers to purchase. Additional notes
will not necessarily be fungible with the Notes for U.S. federal income tax purposes.
Optional Redemption
Prior to May 1, 2016, the Issuers will be entitled at their option to redeem all or any
portion of the notes at a redemption price equal to 100% of the principal amount of such notes plus
the Applicable Premium as of, and any
102
accrued and unpaid interest to, but not including, the redemption date (subject to the right
of each holder on the relevant record date to receive interest due on the relevant interest payment
date).
On or after May 1, 2016, the Issuers may redeem the notes in whole or from time to time in
part, at the redemption prices (expressed as percentages of the principal amount thereof) set forth
below, plus accrued and unpaid interest thereon to, but not including, the redemption date (subject
to the right of holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period beginning on May 1 of each
of the years indicated below:
|
|
|
|
|
Year |
|
Percentage |
|
|
2016 |
|
|
103.438 |
% |
2017 |
|
|
102.292 |
% |
2018 |
|
|
101.146 |
% |
2019 and thereafter |
|
|
100.000 |
% |
|
In addition, at any time prior to May 1, 2014, the Issuers may redeem, on any one or more
occasions, with all or a portion of the net cash proceeds of one or more Equity Offerings (within
60 days of the consummation of any such Equity Offering), up to 35% of the aggregate principal
amount of the notes (including any additional notes) at a redemption price (expressed as a
percentage of the aggregate principal amount of the notes so redeemed) equal to 106.875% plus
accrued and unpaid interest to but not including, the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the relevant interest
payment date); provided, however, that at least 65% of the original aggregate principal amount of
the notes must remain outstanding immediately after each such redemption.
After notice of optional redemption has been given as provided in the indenture, if funds for
the redemption of any notes called for redemption have been made available on the redemption date,
such notes called for redemption will cease to bear interest on the date fixed for the redemption
specified in the redemption notice and the only right of the holders of such notes will be to
receive payment of the redemption price.
Notice of any optional redemption of any notes will be given to holders (with a copy to the
Trustee) at their addresses, as shown in the notes register, not more than 60 nor less than 30 days
prior to the date fixed for redemption. The notice of redemption will specify, among other items,
the redemption price and the principal amount of the notes held by the holder to be redeemed.
The Issuers will notify the trustee at least 45 days prior to the redemption date (or such
shorter period as is satisfactory to the trustee) of the aggregate principal amount of the notes to
be redeemed and the redemption date. If less than all the notes are to be redeemed, the trustee
shall select, pro rata or by lot or by any such similar method in accordance with the procedures of
DTC, the notes to be redeemed. Notes may be redeemed in part in the minimum authorized
denomination for the notes or in any integral multiple thereof.
The Issuers or their Affiliates are entitled to acquire notes by means other than a redemption
from time to time, including through open market purchases, privately negotiated transactions,
tender offers, exchange offers or otherwise, so long as such acquisition does not otherwise violate
the terms of the indenture, upon such terms and at such prices as the Issuers or their Affiliates
may determine, which may be less than any redemption price then in effect and could be for cash or
other consideration.
Sinking Fund
There will be no sinking fund payments for the notes.
Ranking The Notes
The notes will be:
|
|
|
general unsecured obligations of the Issuers; |
103
|
|
|
equal in right of payment with all other existing and future senior Indebtedness of the
Issuers, including Indebtedness under the Credit Agreement; |
|
|
|
|
senior in right of payment to any existing and future Subordinated Indebtedness of the
Issuers; |
|
|
|
|
effectively subordinated to any existing and future Secured Indebtedness of the Issuers
to the extent of the value of the collateral securing such Indebtedness; |
|
|
|
|
structurally subordinated to the liabilities and preferred stock of our non-Guarantor
subsidiaries; and |
|
|
|
|
fully and unconditionally guaranteed by the Guarantors. |
As of June 30, 2011, the Issuers and the Guarantors would have had $664.2 million of
indebtedness (none of which would have been secured indebtedness) and $220.3 million would have
been available for Opco (net of approximately $8.9 million of letters of credit outstanding) to
borrow under the Credit Agreement.
The Guarantees
The notes will be guaranteed by Parent and each of the Issuers current and future Restricted
Subsidiaries that guarantee the Credit Agreement until certain conditions are met.
Each Guarantee of the notes will be:
|
|
|
a general unsecured obligation of the Guarantor; |
|
|
|
|
equal in right of payment with all other existing and future senior Indebtedness of that
Guarantor, including its Guarantee of the Credit Agreement; |
|
|
|
|
senior in right of payment to any existing and future Subordinated Indebtedness of the
Guarantor; |
|
|
|
|
effectively subordinated to any existing and future Secured Indebtedness of the
Guarantor to the extent of the value of the collateral securing such Indebtedness; and |
|
|
|
|
structurally subordinated to the liabilities and preferred stock of our non-Guarantor
subsidiaries. |
See Risk FactorsRisks Relating to the Exchange NotesU.S. federal and state statutes allow
courts, under specific circumstances, to avoid the guarantees, subordinate claims in respect of the
guarantees and require note holders to return payments received from the guarantors.
For the fiscal year ended December 31, 2010 and the six months ended June 30, 2011, the
non-guarantor Subsidiaries generated approximately 22% and 16%, respectively, of the Parents
consolidated total revenues. In addition, as of December 31, 2010 and June 30, 2011, the
non-guarantor Subsidiaries held approximately 12% and 13%, respectively, of the Parents
consolidated total assets. See Risk FactorsRisks Relating to the Exchange Notes Claims of
noteholders will be structurally subordinated to claims of creditors of any of our subsidiaries
that do not guarantee the notes and Risk FactorsRisks Relating to the Exchange NotesYour
right to receive payments on the notes is effectively subordinated to the right of lenders who have
a security interest in our assets to the extent of the value of those assets.
Certain Covenants
Suspension of Covenants
During a Suspension Period, the Parent, Issuers and the Restricted Subsidiaries will not be
subject to the following corresponding provisions of the indenture (each a Suspended Covenant):
104
|
|
|
CovenantsLimitation on Restricted Payments |
|
|
|
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CovenantsLimitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries; |
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CovenantsFuture Guarantees by Restricted Subsidiaries; |
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CovenantsLimitation on Transactions with Affiliates; |
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CovenantsLimitation on Asset Sales; and |
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Clause (3) of CovenantsConsolidation, Merger and Sale of Assets. |
All other provisions of the indenture will apply at all times during any Suspension Period so
long as any notes remain outstanding thereunder; provided that the Interest Coverage Ratio that
will be applicable under clause (3) of CovenantsLimitation on Indebtedness will be 1.5 to 1.0
during any Suspension Period.
Suspension Period means any period:
(1) beginning on the date that:
(A) the notes have Investment Grade Status;
(B) no Default or Event of Default has occurred and is continuing; and
(C) the Issuers have delivered an officers certificate to the trustee certifying that the
conditions set forth in clauses (A) and (B) above are satisfied; and
(2) ending on the date (the Reversion Date) that the notes cease to have Investment Grade
Status.
On each Reversion Date, all Indebtedness, liens thereon and dividend blockages incurred during
the Suspension Period prior to such Reversion Date will be deemed to have been outstanding on the
Issue Date.
For purposes of calculating the amount available to be made as Restricted Payments under
clause (C) of the first paragraph of the Limitation on Restricted Payments covenant,
calculations under that clause will be made with reference to the Transaction Date, as set forth in
that clause. Accordingly, (x) Restricted Payments made during the Suspension Period not otherwise
permitted pursuant to any of clauses (1) through (11) under the second paragraph under the
Limitation on Restricted Payments covenant will reduce the amount available to be made as
Restricted Payments under clause (C) of the first paragraph of such covenant; provided, however,
that the amount available to be made as a Restricted Payment on the Transaction Date shall not be
reduced to below zero solely as a result of such Restricted Payments, but may be reduced to below
zero as a result of negative cumulative Funds from Operations during the Suspension Period for the
purpose of clause (C)(i) of the first paragraph of such covenant, and (y) the items specified in
clauses (C)(i)-(vi) of the first paragraph of such covenant that occur during the Suspension Period
will increase the amount available to be made as Restricted Payment under clause (C) of the first
paragraph of such covenant. Any Restricted Payment made during the Suspension Period that are of
the type described in the second paragraph of the Limitation on Restricted Payments covenant
(other than the Restricted Payment referred to in clauses (1) or (2) of such second paragraph or
any exchange of Capital Stock for Capital Stock or Indebtedness referred to in clause (4) or (5) of
such second paragraph), and the Net Cash Proceeds from any issuance of Capital Stock referred to in
clauses (4) and (5) of the second paragraph of the Limitation on Restricted Payments covenant
(adjusted to avoid double counting) shall not be included in calculating the amounts permitted to
be incurred under such clause (C) on each Reversion Date. For purposes of the Limitation on
Asset Sales covenant, on each
Reversion Date, the unutilized Excess Proceeds will be reset to zero. No Default or Event of
Default will be deemed to have occurred on the Reversion Date (or thereafter) under any Suspended
Covenant solely as a result of any actions taken by the Parent or any Restricted Subsidiaries
thereof, or events occurring, during the Suspension Period. For purposes of the Maintenance of
Total Unencumbered Assets covenant, if the Parent and its Restricted
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Subsidiaries are not in
compliance with such covenant as of a Reversion Date, no Default or Event of Default will be deemed
to have occurred for up to 120 days following the Reversion Date; provided that neither the Parent
nor any of its Restricted Subsidiaries shall incur any Secured Indebtedness until such time that
the requirements of such covenant have been.
Limitation on Indebtedness
(1) The Issuers will not and will not permit any of the Restricted Subsidiaries to Incur any
Indebtedness (including Acquired Indebtedness) if, immediately after giving effect to the
Incurrence of such additional Indebtedness and the receipt and application of the proceeds
therefrom, the aggregate principal amount of all outstanding Indebtedness of the Issuers and the
Restricted Subsidiaries on a consolidated basis would be greater than 60% of their Adjusted Total
Assets.
(2) The Issuers will not, and will not permit any of the Restricted Subsidiaries to, Incur any
Secured Indebtedness (including Acquired Indebtedness) if, immediately after giving effect to the
Incurrence of such additional Secured Indebtedness and the receipt and application of the proceeds
therefrom, the aggregate principal amount of all outstanding Secured Indebtedness of the Issuers
and the Restricted Subsidiaries on a consolidated basis would be greater than 40% of their Adjusted
Total Assets.
(3) The Issuers will not, and will not permit any of the Restricted Subsidiaries to Incur any
Indebtedness (including Acquired Indebtedness); provided, however, that the Issuers or any of the
Restricted Subsidiaries may Incur Indebtedness (including Acquired Indebtedness) if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Interest Coverage Ratio of the Issuers and the Restricted Subsidiaries on a
consolidated basis would be at least 2.0 to 1.0; provided that the amount of Indebtedness
(including Acquired Indebtedness) that may be Incurred by Restricted Subsidiaries that are not
Guarantors shall not exceed in the aggregate 5% of Adjusted Total Assets of the Issuers and the
Restricted Subsidiaries.
(4) Notwithstanding paragraph (1), (2) or (3) above, the Issuers or any of the Restricted
Subsidiaries (except as specified below) may Incur each and all of the following:
(A) Indebtedness of the Issuers or any of the Restricted Subsidiaries outstanding under any
Credit Facility at any time in an aggregate principal amount not to exceed the greater of (x) $400
million and (y) 30% of Adjusted Total Assets of the Issuers and the Restricted Subsidiaries;
(B) Indebtedness of the Issuers or any of the Restricted Subsidiaries owed to:
(i) the Issuers evidenced by an unsubordinated promissory note, or
(ii) any Restricted Subsidiary;
provided, however, that any event that results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary of the Issuers or any subsequent transfer of such Indebtedness (other than to
the Issuers or any other Restricted Subsidiary of the Issuers) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause (B);
(C) Indebtedness of the Issuers or any of their Restricted Subsidiaries under Currency
Agreements and Interest Rate Agreements; provided that such agreements (i) are designed solely to
protect the Issuers or any of their Restricted Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates (whether fluctuations of fixed to floating rate interest
or floating to fixed rate interest) and (ii) do not increase the Indebtedness of the
obligor outstanding at any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and compensation payable
thereunder;
(D) Indebtedness of the Issuers or any of the Subsidiary Guarantors, to the extent the net
proceeds thereof are promptly:
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(i) used to purchase notes tendered in an Offer to Purchase made as a result of a Change in
Control, or
(ii) used to redeem all the notes as described above under Optional Redemption,
(iii) deposited to defease the notes as described below under Defeasance, or
(iv) deposited to discharge the obligations under the notes and indenture as described below
under Satisfaction and Discharge;
(E) (i) Guarantees of Indebtedness of the Issuers by any of the Subsidiary Guarantors;
provided the guarantee of such Indebtedness is permitted by and made in accordance with the Future
Guarantees by Restricted Subsidiaries covenant described below, and (ii) Guarantees by a
Subsidiary Guarantor of any Indebtedness of any other Subsidiary Guarantor;
(F) Indebtedness outstanding on the Issue Date (other than pursuant to clause (A) or (G));
(G) Indebtedness represented by the notes and the Guarantees issued on the Issue Date and any
notes issued in exchange for the notes (including any Guarantees thereof) pursuant to the
Registration Rights Agreement;
(H) Indebtedness consisting of obligations to pay insurance premiums incurred in the ordinary
course of business;
(I) Indebtedness in respect of any bankers acceptance, bank guarantees, letter of credit,
warehouse receipt or similar facilities, and reinvestment obligations related thereto, entered into
in the ordinary course of business;
(J) Indebtedness in respect of workers compensation claims, self-insurance obligations,
indemnities, bankers acceptances, performance, completion and surety bonds or guarantees and
similar types of obligations in the ordinary course of business;
(K) Indebtedness represented by cash management obligations and other obligations in respect
of netting services, automatic clearinghouse arrangements, overdraft protections and similar
arrangements in each case in connection with deposit accounts;
(L) Indebtedness supported by a letter of credit procured by the Issuers or their Restricted
Subsidiaries in a principal amount not in excess of the stated amount of such letter of credit and
where the underlying Indebtedness would otherwise be permitted;
(M) Permitted Refinancing Indebtedness incurred in exchange for, or the net proceeds of which
are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that
was permitted by the indenture to be incurred under the provisions of paragraph (1), (2) or (3) of
this covenant or clause (F), (G), (M) or (O) of this paragraph (4);
(N) Indebtedness (including Capitalized Lease Obligations) Incurred by the Issuers or any
Restricted Subsidiary within 270 days of the related purchase, lease or improvement, to finance the
purchase, lease or improvement of property (real or personal) or equipment used in the business of
the Issuers or any Restricted Subsidiary, whether through the direct purchase of assets or the
Capital Stock of any Person owning such assets in
an aggregate principal amount not to exceed at any one time outstanding the greater of (x)
$25.0 million and (y) 2% of Adjusted Total Assets at any time outstanding; or.
(O) Additional Indebtedness of the Issuers and their Restricted Subsidiaries in aggregate
principal amount at any time outstanding not to exceed the greater of $50 million and 4.0% of the
Issuers and their Restricted Subsidiaries Adjusted Total Assets; provided, however, that any
Permitted Refinancing Indebtedness incurred
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under clause (M) above in respect of such Indebtedness
shall be deemed to have been incurred under this clause (O) for purposes of determining the amount
of Indebtedness that may at any time be incurred under this clause (O).
(5) Notwithstanding any other provision of this Limitation on Indebtedness covenant, the
maximum amount of Indebtedness that the Parent, the Issuers or any of the Restricted Subsidiaries
may Incur pursuant to this Limitation on Indebtedness covenant shall not be deemed to be
exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in
the exchange rates of currencies.
(6) For purposes of determining any particular amount of Indebtedness under this Limitation
on Indebtedness covenant, (i) Indebtedness Incurred and outstanding under the Credit Agreement on
or prior to the Issue Date shall be treated as Incurred pursuant to clause (A) of paragraph (4) of
this Limitation on Indebtedness covenant, and (ii) Guarantees, Liens or obligations with respect
to letters of credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included.
For purposes of determining compliance with this covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of permitted Indebtedness
described in clauses (A) through (O) of paragraph (4) above or is entitled to be incurred pursuant
to paragraphs (1), (2) and (3) above, the Issuers shall, in their sole discretion, be entitled to
classify all or a portion of such item of Indebtedness on the date of its incurrence or issuance
and determine the order of such incurrence or issuance (and may later reclassify such item of
Indebtedness) and may divide and classify such Indebtedness in more than one of the types of
Indebtedness described. At any time that the Issuers or the Restricted Subsidiaries would be
entitled to have incurred any then outstanding Indebtedness under clause (1), (2) and (3) of this
covenant, such Indebtedness shall be automatically reclassified into Indebtedness incurred pursuant
to those paragraphs. Notwithstanding the foregoing, any Indebtedness Incurred and outstanding
under the Credit Agreement on or prior to the Issue Date shall be deemed to have been incurred
under clause (A) of paragraph (4) above and may not be reclassified. Indebtedness permitted by
this covenant need not be permitted solely by reference to one provision permitting such
Indebtedness, but may be permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness. For the avoidance of doubt, the
outstanding principal amount of any particular Indebtedness shall be counted only once and any
obligations arising under any guarantee, Lien, letter of credit or similar instrument supporting
such Indebtedness shall not be double counted.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the
incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated
in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on
the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case
of revolving credit debt; provided, however, that if such Indebtedness is incurred to refinance
other Indebtedness denominated in a foreign currency, and such refinancing would cause the
applicable U.S. dollar denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated
restriction shall be deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such Indebtedness being
refinanced, plus the amount of any reasonable premium (including reasonable tender premiums),
defeasance costs and any reasonable fees and expenses incurred in connection with the issuance of
such new Indebtedness. The principal amount of any Indebtedness incurred to refinance other
Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be
calculated based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such refinancing.
Maintenance of Total Unencumbered Assets
The Issuers and their Restricted Subsidiaries will maintain Total Unencumbered Assets of not
less than 150% of the aggregate outstanding principal amount of the Unsecured Indebtedness of the
Issuers and their Restricted Subsidiaries on a consolidated basis in accordance with GAAP.
Limitation on Restricted Payments
Opco will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly:
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(1) declare or pay any dividend or make any distribution on or with respect to Capital Stock
of Opco or any Restricted Subsidiary held by Persons other than Opco or any of its Restricted
Subsidiaries, other than (i) dividends or distributions payable solely in shares of its Capital
Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (ii) pro rata dividends or other distributions made by a Restricted
Subsidiary of Opco that is not Wholly Owned to minority stockholders (or owners of equivalent
interests in the event such Subsidiary is not a corporation);
(2) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock
(including options, warrants or other rights to acquire such shares of Capital Stock) of Opco or
any of its direct or indirect parent entities held by any Person (other than a Restricted
Subsidiary);
(3) make any voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, or give any irrevocable
notice of redemption of Subordinated Indebtedness of the Issuers or any Subsidiary Guarantor, in
each case excluding (i) any intercompany Indebtedness between or among the Parent, the Issuers or
any of the Subsidiary Guarantors; (ii) the payment, purchase, redemption, defeasance, acquisition
or retirement (collectively, a purchase) of Subordinated Indebtedness purchased in anticipation
of satisfying a sinking fund obligation, principal installment or final maturity, in each case due
within one year of the date of such payment, purchase, redemption, defeasance, acquisition or
retirement and (iii) the giving of an irrevocable notice of redemption with respect to a
transaction described in clauses (3) or (5) of the second paragraph of this covenant; or
(4) make an Investment, other than a Permitted Investment, in any Person
(such payments or any other actions described in clauses (1) through (4) above being collectively
Restricted Payments) if, at the time of, and after giving effect to, the proposed Restricted
Payment:
(A) a Default or Event of Default shall have occurred and be continuing,
(B) the Issuers could not Incur at least $1.00 of Indebtedness under paragraphs (1) and (3) of
the Limitation on Indebtedness covenant, or
(C) the aggregate amount of all Restricted Payments (the amount, if other than in cash, to be
determined in good faith by the Board of Directors of the Issuers, whose determination shall be
conclusive and evidenced by a Board Resolution) made after the Issue Date shall exceed the sum of,
without duplication:
(i) 95% of the aggregate amount of the Funds From Operations (or, if the Funds From Operations
is a loss, minus 100% of the amount of such loss) accrued on a cumulative basis during the period
(taken as one accounting period) beginning April 1, 2011 and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been filed with the SEC or
provided to the trustee pursuant to the SEC Reports and Reports to holders covenant , plus
(ii) 100% of the aggregate Net Cash Proceeds received by the Issuers after the Issue Date from
(x) the issuance and sale of Opcos Capital Stock (other than Disqualified Stock) or (y) the
issuance and sale of Parents Capital Stock (to the extent contributed to Opco as Capital Stock
(other than Disqualified Stock)) to a Person who is not a Subsidiary of the Parent, including from
an issuance or sale permitted by the indenture of Indebtedness of the Issuers or any of its
Restricted Subsidiaries for cash subsequent to the Issue Date upon the conversion of such
Indebtedness into Capital Stock (other than Disqualified Stock) of Opco or Parent, or from the
issuance to a Person
who is not a Subsidiary of the Parent of any options, warrants or other rights to acquire
Capital Stock of Opco or Parent (in each case, exclusive of any Disqualified Stock or any options,
warrants or other rights that are redeemable at the option of the holder for cash or Indebtedness,
or are required to be redeemed, prior to the Stated Maturity of the notes), plus
(iii) 100% of (x) the aggregate net cash proceeds and (y) the fair market value of other
property, in any such case, received by means of the sale or other disposition (other than to the
Issuers or a Restricted Subsidiary) of Restricted Investments made by the Issuers or a Restricted
Subsidiary and repurchases and redemptions of such
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Restricted Investments from the Issuers or a
Restricted Subsidiary (other than by the Issuers or a Restricted Subsidiary) and repayments of
loans or advances that constitute Restricted Investments made by the Issuers or a Restricted
Subsidiary, in each case after the Issue Date (except, in each case, to the extent any such payment
or proceeds are included in the calculation of Funds From Operations), plus
(iv) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
or the merger, amalgamation or consolidation of an Unrestricted Subsidiary into one of the Issuers
or a Restricted Subsidiary or the transfer of all or substantially all of the assets of an
Unrestricted Subsidiary to one of the Issuers or a Restricted Subsidiary after the Issue Date, the
fair market value, as determined in good faith by the Issuers or if such fair market value may
exceed $50.0 million, in writing by a nationally recognized investment banking, appraisal or
accounting firm, of the Investment in such Unrestricted Subsidiary or the assets transferred at the
time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary or at the time
of such merger, amalgamation, consolidation or transfer of assets (other than to the extent the
Investment in such Unrestricted Subsidiary constituted a Permitted Investment), plus
(v) the fair market value of non-cash tangible assets or Capital Stock acquired in exchange
for an issuance of Capital Stock (other than Disqualified Stock or Capital Stock issued in exchange
for Capital Stock of the Issuers or Parent utilized pursuant to clauses (3) or (4) of the
succeeding paragraph) of Opco or, to the extent contributed to Opco or one or more Restricted
Subsidiaries, the Parent, in each case, subsequent to the Issue Date (including upon conversion or
exchange of the Common Units for Capital Stock of the Parent, in which case the fair market value
shall equal the fair market value received upon issuance of such Common Units), plus
(vi) without duplication, in the event the Issuers or any Restricted Subsidiary makes any
Investment in a Person that, as a result of or in connection with such Investment, becomes a
Restricted Subsidiary, an amount not to exceed the amount of Investments previously made by the
Issuers and the Restricted Subsidiaries in such Person that was treated as a Restricted Payment.
Notwithstanding the foregoing, the limitations on Restricted Payments described above shall
not apply to the following:
(1) any distribution or other action which is necessary to maintain the Parents status as a
REIT under the Code, if the aggregate principal amount of outstanding Indebtedness of the Issuers
and the Restricted Subsidiaries on a consolidated basis determined in accordance with GAAP is less
than 60% of Adjusted Total Assets as of the end of the fiscal quarter covered in the Parents
annual or quarterly report most recently furnished to holders of the notes or filed with the SEC,
as the case may be;
(2) the payment of any dividend or distribution or the consummation of any irrevocable
redemption within 60 days after the date of declaration thereof or the giving of a redemption
notice related thereto, as the case may be, if, at said date of declaration or notice, such payment
would comply with the foregoing paragraph;
(3) the payment, redemption, repurchase, defeasance or other acquisition or retirement for
value of Subordinated Indebtedness, including premium, if any, and accrued and unpaid interest,
with the proceeds of, or in exchange for, Indebtedness Incurred under paragraph (1), (2) or (3) or
clause (M) of paragraph (4) of the Limitation on Indebtedness covenant;
(4) (a) the making of any Restricted Payment in exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of Opco or the Parent (other than any Disqualified
Stock or any
Capital Stock sold to an Issuer or a Restricted Subsidiary or to an employee stock ownership
plan or any trust established by the Parent or any of its Subsidiaries) or from substantially
concurrent contributions to the equity capital of Opco (collectively, including any such
contributions, Refunding Capital Stock) (with any offering within 90 days deemed as substantially
concurrent); and (b) the declaration and payment of accrued dividends on any Capital Stock
redeemed, repurchased, retired, defeased or acquired out of the proceeds of the sale of Refunding
Capital Stock within 90 days of such sale; provided, that the amount of any such proceeds or
contributions that are utilized for any Restricted Payment pursuant to this clause (4) shall be
excluded from the amount described in clause (4)(C)(ii) of this covenant;
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(5) the payment, redemption, repurchase, defeasance or other acquisition or retirement for
value of Subordinated Indebtedness, including premium, if any, and accrued and unpaid interest with
the proceeds of, or in exchange for, an issuance of, shares of Capital Stock of the Parent or Opco
(or options, warrants or other rights to acquire such Capital Stock) that occurs within 90 days of
such payment, redemption, repurchase, defeasance or other acquisition or retirement for value;
provided, that the amount of any such proceeds or contributions that are utilized for any
Restricted Payments pursuant to this clause (5) shall be excluded from the amount described in
clause (4)(C)(ii) of this covenant;
(6) (x) the distribution or dividend to Parent, the proceeds of which are used to repurchase,
redeem or otherwise acquire or retire for value any shares of Capital Stock of the Parent held by
any of the Parents or Medical Property Trust LLCs and (y) the repurchase, redemption or other
acquisition or retirement for value of any shares of Capital Stock of Opco or any Restricted
Subsidiary in each case held by any of the Parents or an Issuers or any Restricted Subsidiaries
current or former officers, directors, consultants or employees (or any permitted transferees,
assigns, estates or heirs of any of the foregoing); provided, however, the aggregate amount
distributed or dividended to Parent and paid by the Issuers and the Restricted Subsidiaries
pursuant to this clause (6) shall not exceed $5 million in any calendar year (excluding for
purposes of calculating such amount the amount paid for Capital Stock repurchased, redeemed,
acquired or retired with the cash proceeds from the repayment of outstanding loans previously made
by the Parent, an Issuer or a Restricted Subsidiary thereof for the purpose of financing the
acquisition of such Capital Stock), with unused amounts in any calendar year being carried over to
the next two succeeding calendar years; provided further, that such amount in any calendar year may
be increased by an amount not to exceed (A) the Net Cash Proceeds from the sale of Capital Stock
(other than Disqualified Stock) of Opco or Parent to the extent contributed to Opco or any of its
Restricted Subsidiaries to members of management, directors or consultants of the Parent, Opco or
any of the Restricted Subsidiaries that occurs after the Issue Date, to the extent such proceeds
(i) have not otherwise been and are not thereafter applied to the payment of any other Restricted
Payment or (ii) are not attributable to loans made by the Parent, an Issuer or a Restricted
Subsidiary thereof for the purpose of financing the acquisition of such Capital Stock, plus (B) the
cash proceeds of key man life insurance policies received by the Issuers and their Restricted
Subsidiaries after the Issue Date, less (C) the amount of any Restricted Payments previously made
pursuant to clauses (A) and (B) of this clause (6); provided further, however, that cancellation of
Indebtedness owing to an Issuer or any of its Restricted Subsidiaries from current or former
officers, directors, consultants or employees (or any permitted transferees, assigns, estates or
heirs of any of the foregoing) of the Parent, an Issuer or any Restricted Subsidiary thereof in
connection with a repurchase of Capital Stock of the Parent, the Issuers or any Restricted
Subsidiary shall not be deemed to constitute a Restricted Payment for purposes of the Indenture;
(7) (x) distributions or dividends to Parent, the proceeds of which are used and (y) payments
made or expected to be made by the Issuers or any Restricted Subsidiary, in each case, in respect
of withholding or similar taxes payable upon exercise of Capital Stock by any future, present or
former employee, director, officer, manager or consultant (or any permitted transferees, assigns,
estates or heirs of any of the foregoing) and any repurchases of Capital Stock deemed to occur upon
exercise of stock options or warrants if such Capital Stock represents a portion of the exercise
price of such options or warrants or required withholding or similar taxes and cashless repurchases
of Capital Stock deemed to occur upon exercise of stock options or warrants if such Capital Stock
represent a portion of the exercise price of such options or warrants;
(8) the repurchase, redemption or other acquisition or retirement for value of any
Subordinated Indebtedness pursuant to the provisions similar to those described under Repurchase
of Notes Upon a Change of Control and Limitation on Asset Sales; provided that all notes validly
tendered by holders of notes in connection
with a Change of Control Offer or Asset Sale Offer, as applicable, have been repurchased,
redeemed, acquired or retired for value;
(9) Permitted Payments to Parent;
(10) any distribution or dividend to Parent, the proceeds of which are used for the payment of
cash in lieu of the issuance of fractional shares of Capital Stock upon exercise or conversion of
securities exercisable or convertible into Capital Stock of the Parent and the payment of cash in
lieu of the issuance of fractional shares of Capital Stock upon exercise or conversion of
securities exercisable or convertible into Capital Stock of Opco; or
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(11) additional Restricted Payments in an aggregate amount not to exceed $100.0 million;
provided, however, that, except in the case of clauses (1), (2) and (3), no Default or Event of
Default shall have occurred and be continuing or occur as a direct consequence of the actions or
payments set forth therein.
The net amount of any Restricted Payment permitted pursuant to clauses (1) and (2) of the
immediately preceding paragraph (adjusted to avoid double counting) shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this Limitation on
Restricted Payments covenant have been met with respect to any subsequent Restricted Payments.
The net amount of any Restricted Payment permitted pursuant to clauses (3) through (11) of the
immediately preceding paragraph shall be excluded in calculating whether the conditions of clause
(C) of the first paragraph of this Limitation on Restricted Payments covenant have been met with
respect to any subsequent Restricted Payments. The amount of all Restricted Payments (other than
cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by the Issuers or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Issuers will not, and will not permit any Restricted Subsidiaries to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Restricted Subsidiary to:
(A) pay dividends or make any other distributions permitted by applicable law on any Capital
Stock of such Restricted Subsidiary owned by an Issuer or any of its Restricted Subsidiaries,
(B) pay any Indebtedness owed to an Issuer or any other Restricted Subsidiary,
(C) make loans or advances to an Issuer or any other Restricted Subsidiary, or
(D) transfer its property or assets to an Issuer or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or restrictions:
(1) existing under, by reason of or with respect to, the indenture, the Credit Agreement and
any other agreement in effect on the Issue Date as in effect on the Issue Date, and any amendments,
modifications, restatements, extensions, increases, supplements, refundings, refinancing, renewals
or replacements of such agreements; provided, however, that the encumbrances and restrictions in
any such amendments, modifications, restatements, extensions, increases, supplements, refundings,
refinancing, renewals or replacements are not materially more restrictive, taken as a whole, than
those in effect on the Issue Date;
(2) existing under, by reason of or with respect to any other Indebtedness of the Issuers or
their Restricted Subsidiaries permitted under the indenture; provided, however, that the Issuers
have determined in good faith that the encumbrances and restrictions contained in the agreement or
agreements governing the other Indebtedness are not materially more restrictive, taken as a whole,
than those contained in customary comparable financings and will not impair in any material respect
the Issuers and the Guarantors ability to make payments on the notes when due;
(3) existing with respect to any Person or the property or assets of such Person acquired by
an Issuer or any Restricted Subsidiary, existing at the time of such acquisition and not incurred
in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or
the property or assets of any Person other than such Person or the property or assets of such
Person so acquired and any amendments, modifications, restatements, extensions, increases,
supplements, refundings, refinancing, renewals or replacements thereof; provided, however, that the
encumbrances and restrictions in any such amendments, modifications, restatements, extensions,
increases, supplements, refundings, refinancing, renewals or replacements are entered into in the
ordinary course of business or not materially more restrictive, taken as a whole, than those
contained in the
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instruments or agreements with respect to such Person or its property or assets as
in effect on the date of such acquisition;
(4) existing under, by reason of or with respect to provisions in joint venture, operating or
similar agreements;
(5) in the case of clause (D) in the first paragraph of this Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries covenant:
(a) that restrict in a customary manner the subletting, assignment or transfer of any property
or asset that is a lease, license, conveyance or contract or similar property or asset,
(b) existing by virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any property or assets of an Issuer or any Restricted Subsidiary not otherwise
prohibited by the indenture,
(c) existing under, by reason of or with respect to (i) purchase money obligations for
property acquired in the ordinary course of business or (ii) capital leases or operating leases
that impose encumbrances or restrictions on the property so acquired or covered thereby, or
(d) arising or agreed to in the ordinary course of business, not relating to any Indebtedness,
and that do not, individually or in the aggregate, detract from the value of property or assets of
an Issuer or any Restricted Subsidiary in any manner material to an Issuer and its Restricted
Subsidiaries taken as a whole;
(6) any encumbrance or restriction with respect to a Restricted Subsidiary that is a Guarantor
which was previously an Unrestricted Subsidiary pursuant to or by reason of an agreement that such
Subsidiary is a party to or entered into before the date on which such Subsidiary became a
Restricted Subsidiary; provided that such agreement was not entered into in anticipation of
an Unrestricted Subsidiary becoming a Restricted Subsidiary and any such encumbrance or restriction
does not extend to any assets or property of the Issuers or any other Restricted Subsidiary other
than the assets and property of such Subsidiary; and
(7) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been
entered into for the sale or disposition of the Capital Stock of, or property and assets of, such
Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the
closing of such sale or other disposition.
Nothing contained in this Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries covenant shall prevent an Issuer or any Restricted Subsidiary from
restricting the sale or other disposition of property or assets of an Issuer or any of its
Restricted Subsidiaries that secure Indebtedness of the Issuers or any of their Restricted
Subsidiaries. For purposes of determining compliance with this covenant, (1) the priority of any
Preferred Stock in receiving dividends or liquidating distributions prior to distributions being
paid on common stock shall not be deemed a restriction on the ability to make distributions on
Capital Stock, and (2) the subordination of loans or advances made to a Restricted Subsidiary to
other Indebtedness incurred by such Restricted Subsidiary shall not be deemed a restriction on the
ability to make loans or advances.
Future Guarantees by Restricted Subsidiaries
The Issuers will cause each Restricted Subsidiary that is not a Guarantor that borrows under
or Guarantees the Credit Agreement on the Issue Date, and any domestic Restricted Subsidiary that
is not a Guarantor that borrows
under or Guarantees the Credit Agreement or any other capital markets Indebtedness thereafter,
to, within 30 days thereof, execute and deliver to the trustee a supplemental indenture pursuant to
which such Restricted Subsidiary will unconditionally Guarantee, on a joint and several basis, the
full and prompt payment of the principal of, premium, if any, and interest in respect of the notes
on a senior basis and all other obligations under the indenture.
Any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its terms that it shall
be automatically and unconditionally released and discharged upon:
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(1) any sale, exchange or transfer, to any Person that is not a Subsidiary of an Issuer of
Capital Stock held by an Issuer and its Restricted Subsidiaries in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
indenture) such that, immediately after giving effect to such transaction, such Restricted
Subsidiary would no longer constitute a Subsidiary of an Issuer,
(2) in connection with the merger or consolidation of a Subsidiary Guarantor with (a) an
Issuer or (b) any other Subsidiary Guarantor (provided that the surviving entity remains a
Subsidiary Guarantor),
(3) if the Issuers properly designate any Restricted Subsidiary that is a Subsidiary Guarantor
as an Unrestricted Subsidiary under the indenture,
(4) upon the Legal Defeasance (as defined below) or Covenant Defeasance (as defined below) or
satisfaction and discharge of the indenture,
(5) upon a liquidation or dissolution of a Subsidiary Guarantor permitted under the indenture,
or
(6) the release or discharge of the Guarantee that resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such Guarantee.
In addition, any Subsidiary Guarantee shall be automatically and unconditionally released and
discharged if such Subsidiary ceases to guarantee obligations under the Credit Agreement or ceases
to constitute a co-borrower with respect to the Credit Agreement.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, enter into, renew or extend any transaction (including the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate
of such holder) of 10% or more of any class of Capital Stock of the Parent or with any Affiliate of
the Parent, an Issuer or any Restricted Subsidiary, in each case involving consideration in excess
of $5 million, except upon terms that are not materially less favorable to the Issuers or such
Restricted Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of the agreement
providing therefor, in a comparable arms length transaction with a Person that is not such a
holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the disinterested directors of the Board of
Directors of the Parent or (B) for which the Parent or any Restricted Subsidiary delivers to the
trustee a written opinion of a nationally recognized investment banking, appraisal or accounting
firm stating that the transaction is fair to the Parent or such Restricted Subsidiary from a
financial point of view;
(2) any transaction solely between an Issuer and any of its Restricted Subsidiaries or solely
between Restricted Subsidiaries;
(3) the payment of reasonable fees and compensation (including through the issuance of Capital
Stock) to, and indemnification and similar arrangements on behalf of, current, former or future
directors, officers, employees or consultants of Parent or any Restricted Subsidiary of Parent;
(4) the issuance or sale of Capital Stock (other than Disqualified Stock) of an Issuer;
(5) any Restricted Payments not prohibited by the Limitation on Restricted Payments covenant
and Investments constituting Permitted Investments;
(6) any contracts, instruments or other agreements or arrangements in each case as in effect
on the date of the indenture, and any transactions pursuant thereto or contemplated thereby, or any
amendment,
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modification or supplement thereto or any replacement thereof entered into from time to
time, as long as such agreement or arrangements as so amended, modified, supplemented or replaced,
taken as a whole, is not materially more disadvantageous to the Issuers and the Restricted
Subsidiaries at the time executed than the original agreement or arrangements as in effect on the
date of the indenture;
(7) any employment, consulting, service or termination agreement, or customary indemnification
arrangements, entered into by an Issuer or any Restricted Subsidiary with current, former or future
officers and employees of the Parent or an Issuer or such Restricted Subsidiary and the payment of
compensation to officers and employees of the Parent, an Issuer or any Restricted Subsidiary
(including amounts paid pursuant to employee benefit plans, employee stock option or similar
plans), in each case in the ordinary course of business;
(8) loans and advances to officers and employees of the Parent, an Issuer or any Restricted
Subsidiary or guarantees in respect thereof (or cancellation of such loans, advances or
guarantees), for bona fide business purposes, including for reasonable moving and relocation,
entertainment and travel expenses and similar expenses, made in the ordinary course of business;
(9) transactions with a Person that is an Affiliate of the Parent or an Issuer solely because
the Parent or an Issuer, directly or indirectly, owns Capital Stock of, or controls such Person;
(10) any transaction with a Person who is not an Affiliate immediately before the consummation
of such transaction that becomes an Affiliate as a result of such transaction; or
(11) the entering into or amending of any tax sharing, allocation or similar agreement and any
payments thereunder.
Notwithstanding the foregoing, any transaction or series of related transactions covered by
the first paragraph of this Limitation on Transactions with Affiliates covenant and not covered
by (2) through (11) of the immediately foregoing paragraph:
(1) the aggregate amount of which exceeds $10 million in value must be approved or determined
to be fair in the manner provided for in clause (1)(A) or (B) above; and
(2) the aggregate amount of which exceeds $25 million in value, must be determined to be fair
in the manner provided for in clause (1)(B) above.
SEC Reports and Reports to Holders
Whether or not Opco is then required to file reports with the SEC, Opco shall file with the
SEC all such reports and other information as it would be required to file with the SEC by Sections
13(a) or 15(d) under the Exchange Act if it was subject thereto; provided, however, that, if filing
such documents by Opco with the SEC is not permitted under the Exchange Act, Opco shall, within 15
days after the time Opco would be required to file such information with the SEC if it were subject
to Section 13 or 15(d) under the Exchange Act, provide such documents and reports to the trustee
and upon written request supply copies of such documents and reports to any holder and shall post
such documents and reports on Opcos public website. Opco shall supply the trustee and each holder
or shall supply to the trustee for forwarding to each such holder, without cost to such holder,
copies of such reports and other information. Delivery of such information, documents and reports
to the trustee is for informational purposes only and the trustees receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuers compliance with any of
its covenants hereunder (as to which the trustee is entitled to rely exclusively on officers
certificates).
So long as permitted by the SEC, at any time that either (x) one or more Subsidiaries of Opco
is an Unrestricted Subsidiary or (y) Opco holds directly any material assets (including Capital
Stock) other than the Capital Stock of the Issuers, then the quarterly and annual financial
information required by this covenant will include a reasonably detailed presentation, either in
Managements Discussion and Analysis of Financial Condition and Results of Operations or any
other comparable section, of the financial condition and results of operations of
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the Issuers and
its Restricted Subsidiaries separate from the financial condition and results of operations of such
Unrestricted Subsidiaries and other material assets of the Issuers.
Opco shall also, within a reasonably prompt period of time following the disclosure of the
annual and quarterly information required above, conduct a conference call with respect to such
information and results of operations for the relevant reporting period. No fewer than three
Business Days prior to the date of the conference call required to be held in accordance with the
preceding sentence, Opco shall issue a press release to the appropriate internationally recognized
wire services announcing the date that such information will be available and the time and date of
such conference call.
Opco will also agree that, for so long as any notes remain outstanding, it will furnish to the
holders and to securities analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
So long as the Parent is a Guarantor of the notes, the Indenture will permit Opco to satisfy
its obligations in this covenant with respect to filing, furnishing, providing and posting
documents, reports and other information relating to Opco by the Parents filing, furnishing,
providing and posting, as the case may be, of such documents, reports and other information
relating to the Parent; provided that the same is accompanied by consolidating information that
explains in reasonable detail and in the same manner described in this offering memorandum the
differences between the information relating to the Parent and its consolidated Subsidiaries on the
one hand, and the information relating to the Parent, the Issuers and the Subsidiary Guarantors on
a standalone basis, on the other hand, as of the ending date of the period covered by such report.
Limitation on Asset Sales
The Issuers will not, and will not permit any of their Restricted Subsidiaries to, consummate
any Asset Sale, unless:
(1) the consideration received by the Issuers or such Restricted Subsidiary is at least equal
to the fair market value of the assets sold or disposed of; and
(2) at least 75% of the consideration received consists of cash, Temporary Cash Investments or
Replacement Assets, or a combination of cash, Temporary Cash Investments or Replacement Assets;
provided, however, with respect to the sale of one or more properties that up to 75% of the
consideration may consist of indebtedness of the purchaser of such properties so long as such
Indebtedness is secured by a first priority Lien on the property or properties sold.
For purposes of this provision, each of the following shall be deemed to be cash:
(a) any liabilities of the Issuers or any Restricted Subsidiary (as shown on the most recent
consolidated balance sheet of the Issuers and their Restricted Subsidiaries other than contingent
liabilities and liabilities that are by their terms subordinated to the notes or any Guarantee)
that are assumed by the transferee of any such assets pursuant to an agreement that releases the
Issuers or any such Restricted Subsidiary from further liability with respect to such liabilities
or that are assumed by contract or operation of law;
(b) any securities, notes or other obligations received by an Issuer or any such Restricted
Subsidiary froth such transferee that are converted by the Parent or such Restricted Subsidiary
into cash or Temporary Cash
Investments within 180 days (to the extent of the cash or Temporary Cash Investments received
in that conversion); and
(c) any Designated Non-Cash Consideration received by the Issuers or any such Restricted
Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other
Designated Non-Cash Consideration received pursuant to this clause (c) that is at the time
outstanding, not to exceed the greater of (x) $25 million and (y) 2.0% of the Issuers Adjusted
Total Assets at the time of the receipt of such Designated Non-Cash
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Consideration, with the fair
market value of each item of Designated Non-Cash Consideration being measured at the time received
and without giving effect to subsequent changes in value.
Within 365 days after the receipt of any Net Cash Proceeds from an Asset Sale, the Issuers or any
such Restricted Subsidiary may apply such Net Cash Proceeds:
(1) to prepay, repay, redeem or purchase Pari Passu Indebtedness of the Issuers or a
Subsidiary Guarantor that is Secured Indebtedness (in each case other than Indebtedness owed to the
Issuers or an Affiliate of the Issuers);
(2) to make an Investment in (provided such Investment is in the form of Capital Stock), or to
acquire all or substantially all of the assets of, a Person engaged in a Permitted