Edgar Filing: MEDICAL PROPERTIES TRUST INC

Large accelerated filer

x (Medical Properties Trust, Inc. only)

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

(MPT Operating Partnership, L.P. only)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32559

MEDICAL PROPERTIES TRUST, INC.

MPT OPERATING PARTNERSHIP, L.P.

(Exact Name of Registrant as Specified in Its Charter)


MARYLAND DELAWARE		20-0191742 20-0242069
(State or other jurisdiction of incorporation or organization)		(I. R. S. Employer Identification No.)

1000 URBAN CENTER DRIVE, SUITE 501 BIRMINGHAM, AL		35242
(Address of principal executive offices)		(Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (205) 969-3755

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 7, 2011, the registrant had 111,700,249 shares of common stock, par value $.001, outstanding.

MEDICAL PROPERTIES TRUST, INC. AND MPT OPERATING PARTNERSHIP, L.P.

AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED September 30, 2011

Table of Contents


	Page
PART I — FINANCIAL INFORMATION
Item 1 Financial Statements

Medical Properties Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010		3
Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2011 and 2010		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010		5

MPT Operating Partnership, L.P. and Subsidiaries
Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010		6

Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2011 and 2010		7

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010		8

Medical Properties Trust, Inc. and MPT Operating Partnership, L.P.
Notes to Condensed Consolidated Financial Statements		9
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3 Quantitative and Qualitative Disclosures about Market Risk		30
Item 4 Controls and Procedures		31
PART II — OTHER INFORMATION
Item 1 Legal Proceedings		32
Item 1A Risk Factors		32
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3 Defaults Upon Senior Securities		32
Item 4 (Removed and Reserved)		32
Item 5 Other Information		32
Item 6 Exhibits		33
SIGNATURE		34
INDEX TO EXHIBITS		35

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	September 30, 2011			December 31, 2010
(In thousands, except per share amounts)	(Unaudited)			(Note 2)
Assets
Real estate assets
Land, buildings and improvements, and intangible lease assets	$	1,258,288		$	1,032,369
Mortgage loans		165,000			165,000

Gross investment in real estate assets		1,423,288			1,197,369
Accumulated depreciation and amortization		(100,772	)		(76,094	)

Net investment in real estate assets		1,322,516			1,121,275
Cash and cash equivalents		114,368			98,408
Interest and rent receivable		28,822			26,176
Straight-line rent receivable		34,603			28,912
Other loans		56,131			50,985
Other assets		39,249			23,058

Total Assets	$	1,595,689		$	1,348,814

Liabilities and Equity
Liabilities
Debt, net	$	649,013		$	369,970
Accounts payable and accrued expenses		57,666			35,974
Deferred revenue		23,576			23,137
Lease deposits and other obligations to tenants		27,770			20,157

Total liabilities		758,025			449,238
Equity
Preferred stock, $0.001 par value. Authorized 10,000 shares; no shares outstanding		—			—
Common stock, $0.001 par value. Authorized 150,000 shares; issued and outstanding — 110,647 shares at September 30, 2011, and 110,225 shares at December 31, 2010		111			110
Additional paid in capital		1,054,040			1,051,785
Distributions in excess of net income		(204,343	)		(148,530	)
Accumulated other comprehensive loss		(11,982	)		(3,641	)
Treasury shares, at cost		(262	)		(262	)

Total Medical Properties Trust, Inc. stockholders’ equity		837,564			899,462

Non-controlling interests		100			114

Total equity		837,664			899,576

Total Liabilities and Equity	$	1,595,689		$	1,348,814

See accompanying notes to condensed consolidated financial statements.

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands, except per share amounts)	2011			2010			2011			2010
Revenues
Rent billed	$	30,738		$	23,472		$	88,519		$	69,032
Straight-line rent		1,802			(1,124	)		5,606			469
Interest and fee income		5,251			6,296			15,812			20,594

Total revenues		37,791			28,644			109,937			90,095
Expenses
Real estate depreciation and amortization		8,430			6,209			24,678			18,100
Impairment charge		—			—			564			12,000
Property-related		312			600			629			2,055
General and administrative		5,736			5,849			20,428			20,532
Acquisition expenses		530			364			3,186			1,314

Total operating expenses		15,008			13,022			49,485			54,001

Operating income		22,783			15,622			60,452			36,094
Other income (expense)
Interest income and other		51			1,475			58			1,488
Debt refinancing costs		(10,425	)		(342	)		(14,214	)		(6,556	)
Interest expense		(11,935	)		(8,092	)		(32,462	)		(26,106	)

Net other expense		(22,309	)		(6,959	)		(46,618	)		(31,174	)

Income from continuing operations		474			8,663			13,834			4,920
Income (loss) from discontinued operations		(6	)		301			141			7,463

Net income		468			8,964			13,975			12,383
Net income attributable to non-controlling interests		(43	)		(45	)		(131	)		(63	)

Net income attributable to MPT common stockholders	$	425		$	8,919		$	13,844		$	12,320

Earnings per common share — basic and diluted
Income from continuing operations attributable to MPT common stockholders	$	—		$	0.08		$	0.12		$	0.04
Income from discontinued operations attributable to MPT common stockholders		—			—			—			0.08

Net income attributable to MPT common stockholders	$	—		$	0.08		$	0.12		$	0.12

Weighted average shares outstanding:
Basic		110,714			110,046			110,568			97,573
Diluted		110,719			110,046			110,576			97,575

Dividends declared per common share	$	0.20		$	0.20		$	0.60		$	0.60

See accompanying notes to condensed consolidated financial statements.

MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,
	2011			2010
	(In thousands)
Operating activities
Net income	$	13,975		$	12,383
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		25,254			19,634
Straight-line rent revenue		(5,606	)		(587	)
Share-based compensation		5,293			5,250
Gain on sale of real estate		(5	)		(7,693	)
Impairment		564			12,000
Increase (decrease) in accounts payable and accrued liabilities		13,317			2,899
Amortization and write-off of deferred financing costs and debt discount		8,523			4,961
Premium paid on extinguishment of debt		13,091			3,834
Other adjustments		(7,278	)		(5,188	)

Net cash provided by operating activities		67,128			47,493
Investing activities
Real estate acquired		(196,511	)		(73,851	)
Principal received on loans receivable		2,898			46,532
Proceeds from sale of real estate		—			75,000
Investment in loans receivable and other investments		(16,800	)		(9,626	)
Construction in progress and other		(12,297	)		(15,578	)

Net cash (used for) provided by investing activities		(222,710	)		22,477
Financing activities
Revolving credit facilities, net		39,600			(137,200	)
Additions to term debt		450,000			148,500
Payments of term debt		(237,810	)		(216,325	)
Distributions paid		(67,194	)		(54,761	)
Sale of common stock, net		—			288,470
Lease deposits and other obligations to tenants		7,613			2,233
Debt issuance costs paid and other financing activities		(20,667	)		(9,713	)

Net cash provided by financing activities		171,542			21,204

Increase in cash and cash equivalents for period		15,960			91,174
Cash and cash equivalents at beginning of period		98,408			15,307

Cash and cash equivalents at end of period	$	114,368		$	106,481

Interest paid		18,761			20,846
Supplemental schedule of non-cash investing activities:
Real estate acquired via assumption of mortgage loan		(14,592	)		—
Supplemental schedule of non-cash financing activities:
Distributions declared, unpaid		22,407			22,326
Assumption of mortgage loan (as part of real estate acquired)		14,592			—

See accompanying notes to condensed consolidated financial statements.

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	September 30, 2011			December 31, 2010
(In thousands)	(Unaudited)			(Note 2)
Assets
Real estate assets
Land, buildings and improvements, and intangible lease assets	$	1,258,288		$	1,032,369
Mortgage loans		165,000			165,000

Gross investment in real estate assets		1,423,288			1,197,369
Accumulated depreciation and amortization		(100,772	)		(76,094	)

Net investment in real estate assets		1,322,516			1,121,275
Cash and cash equivalents		114,368			98,408
Interest and rent receivable		28,822			26,176
Straight-line rent receivable		34,603			28,912
Other loans		56,131			50,985
Other assets		39,249			23,058

Total Assets	$	1,595,689		$	1,348,814

Liabilities and Capital
Liabilities
Debt, net	$	649,013		$	369,970
Accounts payable and accrued expenses		35,308			13,658
Deferred revenue		23,576			23,137
Lease deposits and other obligations to tenants		27,770			20,157
Payable due to Medical Properties Trust, Inc.		21,923			21,943

Total liabilities		757,590			448,865
Capital
General Partner – issued and outstanding – 1,106 units at September 30, 2011 and 1,102 units at December 31, 2010		8,500			9,035
Limited Partners:
Common units – issued and outstanding – 109,541 units at September 30, 2011 and 109,123 units at December 31, 2010		841,481			894,441
LTIP units – issued and outstanding – 94 units at September 30, 2011 and 94 units at December 31, 2010		—			—
Accumulated other comprehensive loss		(11,982	)		(3,641	)

Total MPT Operating Partnership capital		837,999			899,835

Non-controlling interests		100			114

Total capital		838,099			899,949

Total Liabilities and Capital	$	1,595,689		$	1,348,814

See accompanying notes to condensed consolidated financial statements.

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands, except per unit amounts)	2011			2010			2011			2010
Revenues
Rent billed	$	30,738		$	23,472		$	88,519		$	69,032
Straight-line rent		1,802			(1,124	)		5,606			469
Interest and fee income		5,251			6,296			15,812			20,594

Total revenues		37,791			28,644			109,937			90,095
Expenses
Real estate depreciation and amortization		8,430			6,209			24,678			18,100
Impairment charge		—			—			564			12,000
Property-related		312			600			629			2,055
General and administrative		5,718			5,858			20,366			20,458
Acquisition expenses		530			364			3,186			1,314

Total operating expenses		14,990			13,031			49,423			53,927

Operating income		22,801			15,613			60,514			36,168
Other income (expense)
Interest income and other		51			1,475			58			1,488
Debt refinancing costs		(10,425	)		(342	)		(14,214	)		(6,556	)
Interest expense		(11,935	)		(8,092	)		(32,462	)		(26,106	)

Net other expense		(22,309	)		(6,959	)		(46,618	)		(31,174	)

Income (loss) from continuing operations		492			8,654			13,896			4,994
Income (loss) from discontinued operations		(6	)		301			141			7,463

Net income		486			8,955			14,037			12,457
Net income attributable to non-controlling interests		(43	)		(45	)		(131	)		(63	)

Net income attributable to MPT Operating Partnership partners	$	443		$	8,910		$	13,906		$	12,394

Earnings per units — basic and diluted
Income (loss) from continuing operations attributable to MPT Operating Partnership partners	$	—		$	0.08		$	0.12		$	0.04
Income from discontinued operations attributable to MPT Operating Partnership partners		—			—			—			0.08

Net income attributable to MPT Operating Partnership Partners	$	—		$	0.08		$	0.12		$	0.12

Weighted average units outstanding:
Basic		110,714			110,046			110,568			97,573
Diluted		110,719			110,046			110,576			97,575
Dividends declared per unit	$	0.20		$	0.20		$	0.60		$	0.60

See accompanying notes to condensed consolidated financial statements.

MPT OPERATING PARTNERSHIP, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	For the Nine Months Ended September 30,
	2011			2010
	(In thousands)
Operating activities
Net income	$	14,037		$	12,457
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		25,254			19,634
Straight-line rent revenue		(5,606	)		(587
Unit-based compensation		5,293			5,250
Gain on sale of real estate		(5	)		(7,693	)
Impairment		564			12,000
Increase (decrease) in accounts payable and accrued liabilities		13,254			2,825
Amortization and write-off of deferred financing costs and debt discount		8,523			4,961
Premium paid on extinguishment of debt		13,091			3,834
Other adjustments		(7,277	)		(5,188	)

Net cash provided by operating activities		67,128			47,493
Investing activities
Real estate acquired		(196,511	)		(73,851	)
Principal received on loans receivable		2,898			46,532
Proceeds from sale of real estate		—			75,000
Investment in loans receivable and other investments		(16,800	)		(9,626	)
Construction in progress and other		(12,297	)		(15,578	)

Net cash (used for) provided by investing activities		(222,710	)		22,477
Financing activities
Revolving credit facilities, net		39,600			(137,200	)
Additions to term debt		450,000			148,500
Payments of term debt		(237,810	)		(216,325	)
Distributions paid		(67,194	)		(54,761	)
Sale of common units, net		—			288,470
Lease deposits and other obligations to tenants		7,613			2,233
Debt issuance costs paid and other financing activities		(20,667	)		(9,713	)

Net cash provided by financing activities		171,542			21,204

Increase in cash and cash equivalents for period		15,960			91,174
Cash and cash equivalents at beginning of period		98,408			15,307

Cash and cash equivalents at end of period	$	114,368		$	106,481

Interest paid		18,761			20,846
Supplemental schedule of non-cash investing activities:
Real estate acquired via assumption of mortgage loan		(14,592	)		—
Supplemental schedule of non-cash financing activities:
Distributions declared, unpaid		22,407			22,326
Assumption of mortgage loan (as part of real estate acquired)		14,592			—

See accompanying notes to condensed consolidated financial statements.

MEDICAL PROPERTIES TRUST, INC., AND MPT OPERATING PARTNERSHIP, L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Medical Properties Trust, Inc., a Maryland corporation, was formed on August 27, 2003 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in, owning, and leasing commercial real estate. Our operating partnership subsidiary, MPT Operating Partnership, L.P. (the “Operating Partnership”), through which we conduct all of our operations, was formed in September 2003. Through another wholly-owned subsidiary, Medical Properties Trust, LLC, we are the sole general partner of the Operating Partnership. At present, we directly own substantially all of the limited partnership interests in the Operating Partnership and have elected to report our required disclosures and that of the Operating Partnership on a combined basis except where material differences exist.

We have operated as a real estate investment trust (“REIT”) since April 6, 2004, and accordingly, elected REIT status upon the filing in September 2005 of the calendar year 2004 federal income tax return. Accordingly, we will not be subject to U.S. federal income tax, provided that we continue to qualify as a REIT and our distributions to our stockholders equal or exceed our taxable income. Certain activities we undertake must be conducted by entities which we elected to be treated as a taxable REIT subsidiaries (“TRS”). Our TRSs are subject to both federal and state income taxes.

Our primary business strategy is to acquire and develop real estate and improvements, primarily for long-term lease to providers of healthcare services such as operators of general acute care hospitals, inpatient physical rehabilitation hospitals, long-term acute care hospitals, surgery centers, centers for treatment of specific conditions such as cardiac, pulmonary, cancer, and neurological hospitals, and other healthcare-oriented facilities. We manage our business as a single business segment.

2. Summary of Significant Accounting Policies

Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, including rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

For information about significant accounting policies, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2010 along with updates (if needed) provided in our Form 10-Qs filed in 2011.

3. Real Estate and Lending Activities

Acquisitions

On January 4, 2011, we acquired the real estate of the 19-bed, 4-year old Gilbert Hospital in a suburb of Phoenix, Arizona area for $17.1 million. Gilbert Hospital is operated by affiliates of Visionary Health, LLC, the same group that we expect will also operate the hospital that we are currently developing in Florence, Arizona. We acquired this asset subject to an existing lease that expires in May 2022.

On January 31, 2011, we acquired for $23.5 million the real estate of the 60-bed Atrium Medical Center at Corinth in the Dallas area, a long-term acute care hospital that was completed in 2009 and is subject to a lease that expires in June 2024. In addition, through one of our affiliates, we invested $1.3 million to acquire approximately 19% of a joint venture arrangement with an affiliate of Vibra Healthcare, LLC (“Vibra”) that will manage and has acquired a 51% interest in the operations of the facility. We also made a $5.2 million working capital loan to the joint venture. The former operators of the hospital, comprised primarily of local physicians, retained ownership of 49% of the operating entity.

On February 4, 2011, we purchased for $58 million the real estate of Bayonne Medical Center, a 6-story, 278-bed acute care hospital in the New Jersey area of metropolitan New York, and leased the facility to the operator under a 15-year lease, with six 5-year extension options. The operator is an affiliate of a private hospital operating company that acquired the hospital in 2008.

On February 9, 2011, we acquired the real estate of the 306-bed Alvarado Hospital in San Diego, California for $70 million from Prime Healthcare Services, Inc. (“Prime”). Prime is the operator of the facility and will lease the facility under a 10-year lease that provides, under certain conditions for lease extensions.

On February 14, 2011, we completed the acquisition of the Northland LTACH Hospital located in Kansas City, a 35-bed hospital that opened in April 2008 and has a lease that expires in 2028. This hospital was part of a three property acquisition announced in

December 2010 and is currently being operated by Kindred Healthcare Inc. (formerly RehabCare). The purchase price of this hospital was $19.5 million, which included the assumption of a $16 million existing mortgage loan that matures in January 2018.

On July 18, 2011, we acquired the real estate of the 40-bed Vibra Specialty Hospital of DeSoto in Desoto, Texas for $13.0 million. Vibra Specialty Hospital of DeSoto is a new long-term acute care hospital that is currently ramping up its operations. This facility will be leased to a subsidiary of Vibra for a fixed term of 15 years with options to extend. In addition, we have made a $2.5 million equity investment in the operator of this facility for a 25% equity ownership.

On September 30, 2011, we purchased the real estate of a 40-bed long-term acute care facility in New Braunfels, Texas for $10.0 million. This facility will be leased to an affiliate of Post Acute Medical, LLC for a fixed term of 15 years with options to extend. In addition, we have made a $1.4 million equity investment for a 25% equity ownership in the operator of this facility and funded a $2.0 million working capital loan.

On June 17, 2010, we acquired three inpatient rehabilitation hospitals in Texas for an aggregate purchase price of $74 million. The properties acquired had existing leases in place, which we assumed, that have initial terms expiring in 2033. Each lease may, subject to conditions, be renewed by the operator for two additional ten-year terms.

As part of these acquisitions, we purchased the following assets: (dollar amounts in thousands)


	2011		2010
Land	$	17,218	$	6,264
Building		178,535		61,893
Intangible lease assets — subject to amortization (weighted average useful life of 13.5 years in 2011 and 23.1 years in 2010)		15,351		5,694

Total	$	211,104	$	73,851

The purchase price allocations attributable to the identifiable assets acquired and liabilities assumed related to the acquisitions made in 2011 are final except for the New Braunfels property. When all relevant information is obtained, resulting changes, if any, to our provisional purchase price allocation will be retrospectively adjusted to reflect new information obtained about the facts and circumstances that existed as of the respective acquisition date that, if known, would have affected the measurement of the amounts recognized.

From the respective acquisition dates, the seven hospitals acquired in 2011 contributed $5.5 million and $14.0 million of revenue and $3.7 million and $9.1 million of income (excluding related acquisition expenses) for the three and nine months ended September 30, 2011, respectively. In addition, we incurred $0.5 million and $3.2 million of acquisition related costs on consummated and non-consummated deals for the three and nine months ended September 30, 2011.

From the respective acquisition dates, the three hospitals acquired in 2010 contributed $1.9 million and $2.2 million of revenue and $1.4 million and $1.7 million of income (excluding related acquisition expenses) for the three and nine months ended September 30, 2010, respectively. In addition, we incurred $0.4 million and $1.3 million of acquisition related costs during the three and nine months ended September 30, 2010.

The results of operations for each of the properties acquired are included in our consolidated results from the effective date of each acquisition. The following table sets forth certain unaudited pro forma consolidated financial data for 2011 and 2010, as if each acquisition in 2011 and 2010 was consummated on the same terms at the beginning of 2010. Supplemental pro forma earnings were adjusted to exclude acquisition-related costs on consummated deals incurred in the three and nine months ended September 30, 2011 and 2010 (dollar amounts in thousands except per share/unit data).


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2011		2010		2011		2010
Total revenues	$	38,115	$	34,986	$	113,467	$	109,522
Net income		446		11,551		17,161		12,710
Net income per share/unit – diluted	$	—	$	0.10	$	0.15	$	0.12

Disposals

In April 2010, we sold the real estate of our Centinela Hospital, a 369-bed acute care medical center located in Inglewood, California, to Prime, for $75 million resulting in a gain of approximately $6 million. Due to this sale, operating results of our Inglewood facility have been included in discontinued operations for all prior periods.

Leasing Operations

As noted in our second quarter filing, the operator of our Denham Springs facility in Louisiana has not made all the payments required by the real estate lease agreement, and thus, the tenant is in default. During the second quarter of 2011, we evaluated alternative strategies for the recovery of our advances and accruals and at that time determined that the future cash flows of the current tenant and/or related collateral would, more likely than not, result in less than a full recovery of our receivables. As a result, we fully reserved for all outstanding receivables (including $1.5 million in billed rent, $0.2 million of unbilled rent, and $0.1 million of other receivables) with the exception of the $0.7 million promissory note that we expect is recoverable from existing collateral. In addition, we recorded a $0.6 million impairment charge against the real estate during the second quarter of 2011. We have not recorded any rental revenue or reversed previously established reserves during the third quarter, except for $0.2 million, which represents payments received from the tenant subsequent to the second quarter. At September 30, 2011, we continue to believe, based on existing collateral and the current real estate market, that the $0.7 million loan and the $4.4 million of real estate are fully recoverable; however, no assurances can be made that future reserves will not be needed.

As of September 30, 2011, we have advanced $28.8 million to the operator/lessee of Monroe Hospital in Bloomington, Indiana pursuant to a working capital loan agreement, including $0.6 million advanced in the 2011 third quarter related to a project at Monroe designed to increase revenue at the facility. In addition, as of September 30, 2011, we have $14.6 million of rent, interest and other charges owed to us by the operator, of which $5.5 million of interest receivables are significantly more than 90 days past due. Because the operator has not made all payments required by the working capital loan agreement and the related real estate lease agreement, we consider the loan to be impaired. During the first quarter of 2010, we evaluated alternative strategies for the recovery of our advances and accruals and at that time determined that the future cash flows of the current tenant or related collateral would, more likely than not, result in less than a full recovery of our loan advances. Accordingly, we recorded a $12 million charge in the 2010 first quarter to recognize the estimated impairment of the working capital loan. During the third quarter of 2010, we determined that it was reasonably likely that the existing tenant would be unable to make certain lease payments that become due in future years. Accordingly, we recorded a valuation allowance for unbilled straight-line rent in the amount of $2.5 million. At September 30, 2011, our net investment (exclusive of the related real estate) of $31.4 million is our maximum exposure to Monroe and the amount is deemed collectible/recoverable. In making this determination, we considered our first priority secured interest in approximately (i) $7 million in hospital patient receivables, (ii) cash balances of approximately $4 million, (iii) 100% of the membership interests of the operator/lessee and our assessment of the realizable value of our other collateral and (iv) continued improvement in operational revenue statistics compared to previous years.

We continue to evaluate possible strategies for the Monroe hospital. We have entered into a forbearance agreement with the operator whereby we have generally agreed, under certain conditions, not to fully exercise our rights and remedies under the lease and loan agreements during limited periods. We have not committed to the adoption of a plan to transition ownership or management of the Monroe hospital to any new operator, and there is no assurance that any such plan will be completed. Moreover, there is no assurance that any plan that we ultimately pursue will not result in additional charges for further impairment of our working capital loan. We have not recognized any interest income on the Monroe loan since it was considered impaired in the 2010 first quarter.

In September 2010, we exchanged properties with one of our tenants. In exchange for our acute care facility in Cleveland, Texas, we received a similar acute care facility in Hillsboro, Texas. The lease that was in place on our Cleveland facility was carried over to the new facility with no change in lease term or lease rate. This exchange was accounted for at fair value, resulting in a gain of $1.3 million (net of $0.2 million from the write-off of straight-line rent receivables).

In March 2010, we re-leased our Covington facility, located in Covington, Louisiana. The lease has a fixed term of 15 years with an option, at the lessee’s discretion, to extend the term for three additional periods of five years each. Under the terms of the lease, rent during 2010 was based on an annual rate of $1.4 million, and on January 1, 2011, rent began increasing annually by 2%. At the end of each term, the tenant has the right to purchase the facility at a price generally equivalent to the greater of our undepreciated cost and fair market value. Separately, we also obtained an interest in the operations of the tenant whereby we may receive additional consideration based on the profitability of such operations.

In the 2010 second quarter, Prime paid us $12 million in additional rent related to our Shasta property, and we terminated our agreements with Prime concerning the additional rent, which could have paid us up to $20 million over the 10 year lease life. Of this $12 million in additional rent, $3.5 million has been recognized in income from lease inception through September 30, 2011, and we expect to recognize the other $8.5 million into income over the remainder of the lease life.

Loans

In April 2010, Prime repaid $40 million in other loans plus accrued interest.

Concentrations of Credit Risk

For the three months ended September 30, 2011 and 2010, revenue from affiliates of Prime (including rent and interest from loans) accounted for 30.9% and 33.8%, respectively, of total revenue. For the three months ended September 30, 2011 and 2010, revenue from Vibra (including rent and interest from working capital loans) accounted for 12.4% and 15.4%, respectively, of total revenue.

For the nine months ended September 30, 2011 and 2010, revenue from affiliates of Prime (including rent and interest from loans) accounted for 31.1% and 33.4%, respectively, of total revenue. For the nine months ended September 30, 2011 and 2010, revenue from Vibra (including rent and interest from working capital loans) accounted for 12.6% and 14.7%, respectively, of total revenue.

4. Debt

The following is a summary of debt, net of discounts (dollar amounts in thousands):


	As of September 30, 2011				As of December 31, 2010
	Balance			Interest Rate	Balance			Interest Rate
Revolving credit facilities	$	39,600		Variable	$	—		Variable
2006 senior unsecured notes		125,000		Various		125,000		7.333% — 7.871%
2011 senior unsecured notes		450,000		6.875%		—
Exchangeable senior notes:
Principal amount		20,175		6.125% — 9.250%		91,175		6.125% — 9.250%
Unamortized discount		(248	)			(2,585	)

		19,927				88,590

Term loans:
Principal amount		14,486		6.200%		157,683		Various
Unamortized discount		—				(1,303	)

		14,486				156,380

	$	649,013			$	369,970

As of September 30, 2011, principal payments due for our debt (which exclude the effects of any discounts recorded) are as follows:


2011	$	9,232
2012		39,832
2013		11,249
2014		265
2015		283
Thereafter		588,400

Total	$	649,261

To fund the acquisitions disclosed in Note 3, we used cash on-hand, borrowed on our revolving credit facilities, used a portion of the proceeds from the sale of the 2011 senior unsecured notes, and assumed a $16 million mortgage loan. This mortgage loan requires monthly principal and interest payments based on a 30-year amortization period. The mortgage loan has a fixed rate at 6.2%, matures on January 1, 2018 and can be prepaid after January 1, 2013, subject to a certain prepayment premium.

In April 2011, our Operating Partnership and a wholly-owned subsidiary of our Operating Partnership closed on a private offering of $450 million unsecured senior notes. These notes mature in 2021 and the interest rate is fixed at 6.875% per year. Contemporaneously with the closing of the notes, we repaid and terminated our $150 million term loan facility (which was part of the credit facility entered into in 2010) 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. As part of this amendment, we also lowered our interest rate to (1) the higher of the “prime rate” or federal funds rate plus 0.5%, plus a

spread initially set at 1.60%, but that is adjustable from 1.60% to 2.40% based on current total leverage, or (2) LIBOR plus a spread initially set at 2.60%, but that is adjustable from 2.60% to 3.40% based on current total leverage. We paid down in full this revolving credit facility’s outstanding balance with the proceeds from the notes offering.

In the 2011 third quarter, we used proceeds from our 2011 senior unsecured notes offering to repurchase 86.6% of the outstanding 9.25% exchangeable senior notes due 2013 at a weighted average price of 118.4% of the principal amount (or $84.1 million) plus accrued and unpaid interest pursuant to a cash tender offer. The interest savings from the retirement of this debt will offset the majority of the premium paid to retire it, and the potential dilution effect from the convertible aspect of these notes is removed.

In connection with these 2011 refinancing activities, we recognized charges of $10.4 million and $14.2 million for the three and nine months ended September 30, 2011, respectively, related to the write-off of previously deferred loan costs and discounts associated with the payoff of the debt instruments noted above.

In April 2010, we completed a public offering of common stock (the “Offering”) resulting in net proceeds, after underwriting discount and commissions, of approximately $279 million. See Note 5 to our condensed consolidated financial statements for further information. We used the net proceeds from the Offering to repurchase 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. In addition, we paid off a $30 million term loan. Finally, in May 2010, we closed on a $450 million credit facility, and the proceeds of such along with the Offering were used to repay in full all outstanding obligations under the previous credit facility. These refinancing activities resulted in a charge of $0.3 million and $6.6 million for the three and nine months ended September 30, 2010, respectively.

At September 30, 2011, $65 million of our 2006 senior unsecured notes carried a variable rate of 2.67%, while the remaining $60 million was fixed at rates ranging from 7.333% to 7.715%. During the second quarter 2010, we entered into an interest rate swap to fix $65 million of our $125 million senior unsecured notes, which started July 31, 2011 (date on which the interest rate turned variable) and will run 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%. At September 30, 2011, the fair value of the interest rate swaps is $12.0 million, which is reflected in accounts payable and accrued expenses on the condensed consolidated balance sheet.

We account for our interest rate swaps as cash flow hedges. Accordingly, the effective portion of changes in the fair value of our swaps is recorded as a component of accumulated other comprehensive income/loss on the balance sheet until the underlying debt matures while the ineffective portion is recorded through earnings. We estimate the fair value of interest rate swaps using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates derived from observable market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk, both our own nonperformance risk and the respective counterparty’s nonperformance risk. We did not have any hedge ineffectiveness in the periods; therefore, there was no income statement effect recorded during the three and nine month periods ended September 30, 2011 or 2010.

Our debt facilities impose certain restrictions on us, including restrictions on our ability to: incur debts; grant liens; provide guarantees in respect of obligations of any other entity; make redemptions and repurchases of our capital stock; prepay, redeem or repurchase debt; engage in mergers or consolidations; enter into affiliated transactions; dispose of real estate; and change our business. In addition, the agreements governing our debt facilities limit the amount of dividends we can pay to 95% of normalized adjusted funds from operations, as defined in the agreements, on a rolling four quarter basis starting for the fiscal quarter ending March 31, 2012 and thereafter. Prior to March 31, 2012, a similar dividend restriction exists but at a higher percentage for transitional purposes. These agreements also contain provisions for the mandatory prepayment of outstanding borrowings under these facilities from the proceeds received from the sale of properties, except a portion may be reinvested subject to certain limitations, as defined in the credit facility agreement.

In addition to these restrictions, the amended credit facility contains customary financial and operating covenants, including covenants relating to our total leverage ratio, fixed charge coverage ratio, mortgage secured leverage ratio, recourse mortgage secured leverage ratio, consolidated adjusted net worth, facility leverage ratio, and borrowing base interest coverage ratio. 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. At September 30, 2011, we were in compliance with all such financial and operating covenants.

5. Common Stock

In April 2010, we completed a public 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 the Offering, after underwriting discount and commissions, approximated $279 million. We used the net proceeds from the Offering to fund the tender offer as discussed in Note 4 with any remaining proceeds to be used for general corporate purposes including funding the acquisition in June 2010.

During the first quarter of 2010, we sold 0.9 million shares of our common stock under our at-the-market equity offering program, at an average price of $10.77 per share, for total proceeds, net of a 2% sales commission, of $9.5 million.

6. Stock Awards

Our Second Amended and Restated Medical Properties Trust, Inc. 2004 Equity Incentive Plan (the “Equity Incentive Plan”) authorizes the issuance of common stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance units and awards of interests in our Operating Partnership. The Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors. We have reserved 7,441,180 shares of common stock for awards under the Equity Incentive Plan for which 2,642,597 shares remain available for future stock awards as of September 30, 2011. We awarded the following during 2011 and 2010:

Time-based awards - We granted 269,085 and 277,680 shares in 2011 and 2010, respectively, of time-based restricted stock to management, independent directors, and certain employees. These awards vest quarterly based on service, over three years, in equal amounts.

Performance-based awards - Our management team and certain employees (2011 only) were awarded 229,938 and 182,600 performance based awards in 2011 and 2010, respectively. These awards vest ratably over a three year period based on the achievement of certain total shareholder return measures, with a carry-back and carryforward provision through December 31, 2014 (for the 2010 awards) and December 31, 2015 (for the 2011 awards). Dividends on these awards are paid only upon achievement of the performance measures.

Multi-year Performance-based awards - We awarded 600,000 shares in 2011 of multi-year performance-based awards to management and certain employees. 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 shares only upon achievement of the performance measures.

7. Partner’s Capital

The Operating Partnership is made up of a general partner, Medical Properties Trust, LLC (“General Partner”) and limited partners including the Company (which owns 100% of the General Partner) and three other partners who are employees. By virtue of its ownership of the General Partner, the Company has a 99.9% ownership interest in Operating Partnership via its ownership of all the common units. The remaining ownership interest is held by the three employees via their ownership of LTIP units. These LTIP units were issued to the employees pursuant to the 2007 Multi-Year Incentive Plan, which is part of the Equity Incentive Plan and once vested in accordance with their award agreement, may be converted to common units per the Second Amended and Restated Agreement of Limited Partnership of MPT Operating Partnership, L.P. (“Operating Partnership Agreement”)

In regards to distributions, the Operating Partnership shall distribute cash at such times and in such amounts as are determined by the General Partner in its sole and absolute discretion, to common unit holders who are common unit holders on the record date. However, per the Operating Partnership Agreement, the General Partner shall use its reasonable efforts to cause the Operating Partnership to distribute amounts sufficient to enable the Company to pay stockholder dividends that will allow the Company to (i) meet its distribution requirement for qualification as a REIT and (ii) avoid any federal income or excise tax liability imposed by the Internal Revenue Code, other than to the extent the Company elects to retain and pay income tax on its net capital gain. In accordance with the Operating Partnership Agreement, LTIP units are treated as common units for distribution purposes.

The Operating Partnership’s net income will generally be allocated first to the General Partner to the extent of any cumulative losses and then to the limited partners in accordance with their respective percentage interests in the common units issued by the Operating Partnership. Any losses of the Operating Partnership will generally be allocated first to the limited partners until their capital account is zero and then to the General Partner. In accordance with the Operating Partnership Agreement, LTIP units are treated as common units for purposes of income and loss allocations.

Limited partners have the right to require the Operating Partnership to redeem part or all of their common units. It is at the Operating Partnership’s discretion to redeem such common units for cash based on the fair market value of an equivalent number of shares of the Company’s common stock at the time of redemption, or alternatively, redeem the common units for shares of the Company’s common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, or similar events. In order for LTIP units to be redeemed, they must first be converted to common units and then must wait two years from the issuance of the LTIP units to be redeemed.

8. Fair Value of Financial Instruments

We have various assets and liabilities that are considered financial instruments. We estimate that the carrying value of cash and cash equivalents, and accounts payable and accrued expenses approximate their fair values. Included in our accounts payable and accrued expenses are our interest rate swaps, which are recorded at fair value based on Level 2 observable market assumptions using

standardized derivative pricing models. We estimate the fair value of our loans, interest, and other receivables by discounting the estimated future cash flows using the current rates at which similar receivables would be made to others with similar credit ratings and for the same remaining maturities. We determine the fair value of our exchangeable notes based on quotes from securities dealers and market makers. We estimate the fair value of our senior notes, revolving credit facilities, and term loans based on the present value of future payments, discounted at a rate which we consider appropriate for such debt.

The following table summarizes fair value information for our financial instruments (dollar amounts in thousands):


	September 30, 2011						December 31, 2010
Asset (Liability)	Book Value			Fair Value			Book Value			Fair Value
Interest and rent receivables	$	28,822		$	22,418		$	26,176		$	20,265
Loans		221,131			223,556			215,985			209,126
Debt, net		(649,013	)		(597,802	)		(369,970	)		(359,910	)

9. Discontinued Operations

In December 2010, we sold the real estate of our Montclair Hospital, an acute care medical center, to Prime for proceeds of $20.0 million. We realized a gain on the sale of $2.2 million.

In October 2010, we sold the real estate of our Sharpstown hospital in Houston, Texas to a third party for proceeds of $3.0 million resulting in a gain of $0.7 million.

In April 2010, we sold the real estate of our Centinela Hospital, a 369-bed acute care medical center located in Inglewood, California, to Prime for $75 million resulting in a gain of approximately $6 million.

The following table presents the results of discontinued operations, which include the revenue and expenses of the three previously-owned facilities noted above, for the three and nine months ended September 30, 2011 and 2010 (dollar amounts in thousands except per share/unit amounts):


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2011			2010		2011		2010
Revenues	$	—		$	572	$	—	$	4,264
Gain on sale		—			—		5		6,178
Income (loss)		(6	)		301		141		7,463
Earnings per share/unit — diluted	$	—		$	—	$	—	$	0.08

10. Earnings Per Share/Common Unit

Medical Properties Trust, Inc.

Our earnings per share were calculated based on the following (amounts in thousands):

		$(000,000)			$(000,000)
	For the Three Months Ended September 30,
	2011			2010
Numerator:
Income (loss) from continuing operations	$	474		$	8,663
Non-controlling interests’ share in continuing operations		(43	)		(45	)
Participating securities’ share in earnings		(264	)		(316	)

Income (loss) from continuing operations, less participating securities’ share in earnings		167			8,302
Income (loss) from discontinued operations attributable to MPT common stockholders		(6	)		301

Net income, less participating securities’ share in earnings	$	161		$	8,603

		$(000,000)		$(000,000)
	For the Three Months Ended September 30,
	2011		2010
Denominator
Basic weighted-average common shares		110,714		110,046
Dilutive share options		5		—

Dilutive weighted-average common shares		110,719		110,046

		$(000,000)			$(000,000)
	For the Nine Months Ended September 30,
	2011			2010
Numerator:
Income (loss) from continuing operations	$	13,834		$	4,920
Non-controlling interests’ share in continuing operations		(131	)		(63	)
Participating securities’ share in earnings		(860	)		(994	)

Income (loss) from continuing operations, less participating securities’ share in earnings		12,843			3,863
Income (loss) from discontinued operations attributable to MPT common stockholders		141			7,463

Net income, less participating securities’ share in earnings	$	12,984		$	11,326


Denominator
Basic weighted-average common shares		110,568			97,573
Dilutive share options		8			2

Dilutive weighted-average common shares		110,576			97,575

MPT Operating Partnership, L.P.

Our earnings per common unit were calculated based on the following (amounts in thousands):

		$(000,000)			$(000,000)
	For the Three Months Ended September 30,
	2011			2010
Numerator:
Income (loss) from continuing operations	$	492		$	8,654
Non-controlling interests’ share in continuing operations		(43	)		(45	)
Participating securities’ share in earnings		(264	)		(316	)

Income (loss) from continuing operations, less participating securities’ share in earnings		185			8,293
Income (loss) from discontinued operations attributable to MPT Operating Partnership partners		(6	)		301

Net income, less participating securities’ share in earnings	$	179		$	8,594


Denominator
Basic weighted-average units		110,714			110,046
Dilutive options		5			—

Dilutive weighted-average units		110,719			110,046

		$(000,000)			$(000,000)
	For the Nine Months Ended September 30,
	2011			2010
Numerator:
Income (loss) from continuing operations	$	13,896		$	4,994
Non-controlling interests’ share in continuing operations		(131	)		(63	)
Participating securities’ share in earnings		(860	)		(994	)

Income (loss) from continuing operations, less participating securities’ share in earnings		12,905			3,937
Income (loss) from discontinued operations attributable to MPT Operating Partnership partners		141			7,463

Net income, less participating securities’ share in earnings	$	13,046		$	11,400


Denominator
Basic weighted-average units		110,568			97,573
Dilutive options		8			2

Dilutive weighted-average units		110,576			97,575

For the three and nine months ended September 30, 2011 and 2010, 0.1 million of options were excluded from the diluted earnings per share/unit calculation as they were not determined to be dilutive. Shares/units that may be issued in the future in accordance with our exchangeable senior notes were excluded from the diluted earnings per share/unit calculation as they were not determined to be dilutive.

11. Contingencies

We are a party to various legal proceedings incidental to our business. In the opinion of management, after consultation with legal counsel, the ultimate liability, if any, with respect to those proceedings is not presently expected to materially affect our financial position, results of operations or cash flows.

12. Comprehensive Income (Loss)

Medical Properties Trust, Inc.

The following table provides a summary of comprehensive income (loss) for the applicable periods (in thousands):

		$(000,000)			$(000,000)
	For the Three Months Ended September 30,
	2011			2010
Net income	$	468		$	8,964
Other comprehensive income (loss):
Unrealized loss on interest rate swap		(5,272	)		(3,845	)

Total comprehensive income (loss)		(4,804	)		5,119
Comprehensive income attributable to non-controlling interests		(43	)		(45	)

Comprehensive income (loss) attributable to MPT common stockholders	$	(4,847	)	$	5,074

		$(000,000)			$(000,000)
	For the Nine Months Ended September 30,
	2011			2010
Net income	$	13,975		$	12,383
Other comprehensive income (loss):
Unrealized loss on interest rate swap		(8,341	)		(7,005	)

Total comprehensive income (loss)		5,634			5,378
Comprehensive income attributable to non-controlling interests		(131	)		(63	)

Comprehensive income (loss) attributable to MPT common stockholders	$	5,503		$	5,315

MPT Operating Partnership, L.P.

The following table provides a summary of comprehensive income (loss) for the applicable periods (in thousands):

		$(000,000)			$(000,000)
	For the Three Months Ended September 30,
	2011			2010
Net income	$	486		$	8,955
Other comprehensive income (loss):
Unrealized loss on interest rate swap		(5,272	)		(3,845	)

Total comprehensive income (loss)		(4,786	)		5,110
Comprehensive income attributable to non-controlling interests		(43	)		(45	)

Comprehensive income (loss) attributable to MPT Operating Partnership partners	$	(4,829	)	$	5,065

		$(000,000)			$(000,000)
	For the Nine Months Ended September 30,
	2011			2010
Net income	$	14,037		$	12,457
Other comprehensive income (loss):
Unrealized loss on interest rate swap		(8,341	)		(7,005	)

Total comprehensive income (loss)		5,696			5,452
Comprehensive income attributable to non-controlling interests		(131	)		(63	)

Comprehensive income (loss) attributable to MPT Operating Partnership partners	$	5,565		$	5,389

13. Subsequent Events

In October 2011, we entered into agreements with Emerus Holdings to acquire, provide development funding for, and lease three acute care hospitals near San Antonio, Texas. We expect our investment in these three facilities, once built, will approximate $30 million. These three facilities will be leased under a master lease with an initial term of 15 years and three five-year extension options.

On November 4, 2011, we acquired Hoboken University Medical Center in Hoboken, New Jersey, a 350-bed acute care facility. The total investment for this transaction is $75.0 million, which includes 100% ownership of the real estate, a secured working capital loan of up to $20 million, and a $5 million convertible note. The lease with the tenant has an initial term of 15 years with six five-year extension options.

14. Income Taxes

With the early prepayment of working capital loans by Prime and the impairment of the Monroe loan in 2010 as more fully described in Note 3, we did not believe that one of our taxable REIT subsidiaries would generate enough taxable income to use the federal and state net operating losses within the carry-forward period specified by law. Therefore, in the 2010 second quarter, we fully reserved for the $1.5 million deferred tax asset, of which $1.2 million relates to discontinued operations. We continue to monitor this valuation allowance and if circumstances change (such as new loans or other transactions), we will adjust this valuation allowance accordingly.

15. Executive Severance

On June 11, 2010, we announced the resignation of our general counsel effective June 15, 2010. Pursuant to the terms of his separation agreement, we accelerated the vesting of certain previously awarded shares of restricted stock resulting in additional stock compensation expense of $0.9 million. In addition, we agreed to pay him a one time cash payment of $1.9 million on December 16, 2010. This total severance of $2.8 million is included in general and administrative expense for the nine month period ended September 30, 2010.

16. Condensed Consolidating Financial Information

The following tables present the condensed consolidating financial information for (a) Medical Properties Trust, Inc. (“Parent” and a guarantor to our 2011 senior unsecured notes), (b) MPT Operating Partnership, L.P. and MPT Finance Corporation (“Subsidiary Issuer”), (c) on a combined basis, the guarantors of our 2011 unsecured senior notes (“Subsidiary Guarantors”), and (d) on a combined basis, the non-guarantor subsidiaries (“Non-Guarantor Subsidiaries”). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantee by each 100% owned Subsidiary Guarantor is joint and several, and we believe separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. Furthermore, there are no significant legal restrictions on the Parent’s ability to obtain funds from its subsidiaries by dividend or loan.

The guarantees by the Subsidiary Guarantors may be released and discharged upon: (1) any sale, exchange or transfer of all of the capital stock of a Subsidiary Guarantor; (2) the merger or consolidation of a Subsidiary Guarantor with a Subsidiary Issuer or any other Subsidiary Guarantor; (3) the proper designation of any Subsidiary Guarantor by the Subsidiary Issuers as “unrestricted” for covenant purposes under the indenture governing the 2011 senior unsecured notes; (4) the legal defeasance or covenant defeasance or satisfaction and discharge of the indenture; (5) a liquidation or dissolution of a Subsidiary Guarantor permitted under the indenture governing the 2011 senior unsecured notes; or (6) the release or discharge of the Subsidiary Guarantor from its guarantee obligations under our revolving credit facility.

Condensed Consolidated Balance Sheet

September 30, 2011

(in thousands)


	Parent		Subsidiary Issuers		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Assets
Real estate assets
Land, buildings and improvements and intangible lease assets	$	—	$	86	$	1,087,256		$	170,946		$	—		$	1,258,288
Mortgage loans		—		—		165,000			—			—			165,000

Gross investment in real estate assets		—		86		1,252,256			170,946			—			1,423,288
Accumulated depreciation and amortization		—		—		(87,681	)		(13,091	)		—			(100,772	)

Net investment in real estate assets				86		1,164,575			157,855			—			1,322,516
Cash & cash equivalents		—		113,132		—			1,236			—			114,368
Interest and rent receivable		—		505		22,184			6,133			—			28,822
Straight-line rent receivable		—		—		25,158			9,445			—			34,603
Other loans		—		177		230			55,724			—			56,131
Net intercompany receivable (payable)		21,923		869,106		(856,530	)		(34,499	)		—			—
Investment in subsidiaries		838,099		462,310		43,020			—			(1,343,429	)		—
Other assets		—		21,794		1,199			16,256			—			39,249

Total Assets	$	860,022	$	1,467,110	$	399,836		$	212,150		$	(1,343,429	)	$	1,595,689


Liabilities and Equity
Liabilities
Debt, net	$	—	$	594,927	$	—		$	54,086		$	—		$	649,013
Accounts payable and accrued expenses		22,358		33,481		1,416			411			—			57,666
Deferred revenue		—		603		18,277			4,696			—			23,576
Lease deposits and other obligations to tenants		—		—		26,641			1,129			—			27,770

Total liabilities		22,358		629,011		46,334			60,322			—			758,025
Total Medical Properties Trust Inc. stockholder’s equity		837,564		837,999		353,502			151,828			(1,343,329	)		837,564

Non-controlling interests		100		100		—			—			(100	)		100

Total equity		837,664		838,099		353,502			151,828			(1,343,429	)		837,664

Total Liabilities and Equity	$	860,022	$	1,467,110	$	399,836		$	212,150		$	(1,343,429	)	$	1,595,689

Condensed Consolidated Statements of Income

For the Three Months Ended September 30, 2011

(in thousands)


	Parent			Subsidiary Issuers			Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Revenues
Rent billed	$	—		$	—		$	26,608	$	4,461		$	(331	)	$	30,738
Straight-line rent		—			—			1,255		547			—			1,802
Interest and fee income		—			1,351			4,000		1,088			(1,188	)		5,251

Total revenues		—			1,351			31,863		6,096			(1,519	)		37,791
Expenses
Real estate depreciation and amortization		—			—			7,455		975			—			8,430
Impairment charge		—			—			—		—			—			—
Property-related		—			87			211		345			(331	)		312
General and administrative		18			6,348			—		(630	)		—			5,736
Acquisition expenses		—			513			17		—			—			530

Total operating expenses		18			6,948			7,683		690			(331	)		15,008

Operating income (expense)		(18	)		(5,597	)		24,180		5,406			(1,188	)		22,783
Other income (expense)
Interest income and other		—			44			84		(77	)		—			51
Debt refinancing costs		—			(10,425	)		—		—			—			(10,425	)
Interest expense		—			(11,735	)		230		(1,618	)		1,188			(11,935	)

Net other income (expense)		—			(22,116	)		314		(1,695	)		1,188			(22,309	)

Income (loss) from continuing operations		(18	)		(27,713	)		24,494		3,711			—			474
Income (loss) from discontinued operations		—			—			—		(6	)		—			(6	)
Equity in earnings of consolidated subsidiaries net of income taxes		486			28,199			1,112		—			(29,797	)		—

Net income (loss)		468			486			25,606		3,705			(29,797	)		468
Net income (loss) attributable to non-controlling interests		(43	)		(43	)		—		—			43			(43	)

Net income (loss) attributable to MPT common stockholders	$	425		$	443		$	25,606	$	3,705		$	(29,754	)	$	425

Condensed Consolidated Statements of Income

For the Nine Months Ended September 30, 2011

(in thousands)


	Parent			Subsidiary Issuers			Subsidiary Guarantors		Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Revenues
Rent billed	$	—		$	—		$	76,907	$	12,606		$	(994	)	$	88,519
Straight-line rent		—			—			3,891		1,715			—			5,606
Interest and fee income		—			4,118			12,677		3,105			(4,088	)		15,812

Total revenues		—			4,118			93,475		17,426			(5,082	)		109,937
Expenses
Real estate depreciation and amortization		—			—			21,914		2,764			—			24,678
Impairment charge		—			—			564		—			—			564
Property-related		—			87			513		1,023			(994	)		629
General and administrative		62			18,356			—		2,010			—			20,428
Acquisition expenses		—			2,717			469		—			—			3,186

Total operating expenses		62			21,160			23,460		5,797			(994	)		49,485

Operating income (expense)		(62	)		(17,042	)		70,015		11,629			(4,088	)		60,452
Other income (expense)
Interest income and other		—			42			84		(68	)		—			58
Debt refinancing costs		—			(14,109	)		—		(105	)		—			(14,214	)
Interest expense		—			(31,750	)		488		(5,288	)		4,088			(32,462	)

Net other income (expense)		—			(45,817	)		572		(5,461	)		4,088			(46,618	)

Income (loss) from continuing operations		(62	)		(62,859	)		70,587		6,168			—			13,834
Income (loss) from discontinued operations		—			—			98		43			—			141
Equity in earnings of consolidated subsidiaries net of income taxes		14,037			76,896			3,457		—			(94,390	)		—

Net income (loss)		13,975			14,037			74,142		6,211			(94,390	)		13,975
Net income (loss) attributable to non-controlling interests		(131	)		(131	)		—		—			131			(131	)

Net income (loss) attributable to MPT common stockholders	$	13,844		$	13,906		$	74,142	$	6,211		$	(94,259	)	$	13,844

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2011

(in thousands)


	Parent			Subsidiary Issuers			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Operating Activities
Net cash provided by (used in) operating activities	$	(124	)	$	(26,727	)	$	86,972		$	7,007		$	—		$	67,128

Investing Activities
Real estate acquired		—			—			(168,600	)		(27,911	)		—			(196,511	)
Principal received on loans receivable		—			—			—			2,898			—			2,898
Proceeds from sales of real estate		—			—			—			—			—			—
Investments in and advances to subsidiaries		67,126			(89,763	)		89,135			504			(67,002	)		—
Investments in loans receivable and other investments		—			(205	)		(3,314	)		(13,281	)		—			(16,800	)
Construction in progress and other		—			—			(12,297	)		—			—			(12,297	)

Net cash provided by (used in) investing activities		67,126			(89,968	)		(95,076	)		(37,790	)		(67,002	)		(222,710	)

Financing Activities
Revolving credit facilities, net		—			—			—			39,600			—			39,600
Additions to term debt		—			450,000			—			—			—			450,000
Payments of term debt		—			(229,271	)		—			(8,539	)		—			(237,810	)
Distributions paid		(67,002	)		(67,194	)		—			—			67,002			(67,194	)
Sale of common stock, net		—			—			—			—			—			—
Lease deposits and other obligations to tenants		—			—			8,104			(491	)		—			7,613



Debt issuance costs paid and other financing activities		—			(20,530	)		—		(137	)		—		(20,667	)

Net cash provided by financing activities		(67,002	)		133,005			8,104		30,433			67,002		171,542

Increase (decrease) in cash and cash equivalents for period		—			16,310			—		(350	)		—		15,960
Cash and cash equivalents at beginning of period		—			96,822			—		1,586			—		98,408

Cash and cash equivalents at end of period	$	—		$	113,132		$	—	$	1,236		$	—	$	114,368

Condensed Consolidated Balance Sheet

December 31, 2010

(in thousands)


	Parent		Subsidiary Issuers		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated

Assets
Real estate assets
Land, buildings and improvements and intangible lease assets	$	—	$	297	$	903,630		$	128,442		$	—		$	1,032,369
Mortgage loans		—		—		165,000			—			—			165,000

Gross investment in real estate assets		—		297		1,068,630			128,442			—			1,197,369
Accumulated depreciation and amortization		—		—		(65,767	)		(10,327	)		—			(76,094	)

Net investment in real estate assets		—		297		1,002,863			118,115			—			1,121,275
Cash & cash equivalents		—		96,822		—			1,586			—			98,408
Interest and rent receivable		—		157		20,727			5,292			—			26,176
Straight-line rent receivable		—		—		21,180			7,732			—			28,912
Other loans		—		178		—			50,807			—			50,985
Net intercompany receivable (payable)		21,944		774,771		(767,395	)		(29,320	)		—			—
Investment in subsidiaries		899,949		390,232		42,970			—			(1,333,151	)		—
Other assets		—		10,289		1,215			11,554			—			23,058

Total Assets	$	921,893	$	1,272,746	$	321,560		$	165,766		$	(1,333,151	)	$	1,348,814


Liabilities and Equity
Liabilities
Debt, net	$	—	$	361,537	$	—		$	8,433		$	—		$	369,970
Accounts payable and accrued expenses		22,317		10,824		2,430			403			—			35,974
Deferred revenue		—		436		17,826			4,875			—			23,137
Lease deposits and other obligations to tenants		—		—		18,539			1,618			—			20,157

Total liabilities		22,317		372,797		38,795			15,329			—			449,238

Total Medical Properties Trust Inc. stockholder’s equity		899,462		899,835		282,765			150,437			(1,333,037	)		899,462

Non-controlling interests		114		114		—			—			(114	)		114

Total equity		899,576		899,949		282,765			150,437			(1,333,151	)		899,576

Total Liabilities and Equity	$	921,893	$	1,272,746	$	321,560		$	165,766		$	(1,333,151	)	$	1,348,814

Condensed Consolidated Statements of Income

For the Three Months Ended September 30, 2010

(in thousands)


	Parent			Subsidiary Issuers			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated

Revenues
Rent billed	$	—		$	—		$	20,116		$	3,682		$	(326	)	$	23,472
Straight-line rent		—			—			(1,612	)		488			—			(1,124	)
Interest and fee income		—			1,420			4,216			2,192			(1,532	)		6,296

Total revenues		—			1,420			22,720			6,362			(1,858	)		28,644
Expenses
Real estate depreciation and amortization		—			—			5,421			788			—			6,209
Impairment charge		—			—			—			—			—			—
Property-related		—			(43	)		640			329			(326	)		600
General and administrative		(9	)		5,781			—			77			—			5,849
Acquisition expenses		—			364			—			—			—			364

Total operating expenses		(9	)		6,102			6,061			1,194			(326	)		13,022

Operating income (loss)		9			(4,682	)		16,659			5,168			(1,532	)		15,622
Other income (expense)
Interest income and other		—			(17	)		1,494			(2	)		—			1,475
Debt refinancing costs		—			(342	)		—			—			—			(342	)
Interest expense		—			(8,058	)		(5	)		(1,561	)		1,532			(8,092	)

Net other income (expense)		—			(8,417	)		1,489			(1,563	)		1,532			(6,959	)



Income (loss) from continuing operations		9			(13,099	)		18,148			3,605		—			8,663
Income (loss) from discontinued operations		—			—			(154	)		455		—			301
Equity in earnings of consolidated subsidiaries net of income taxes		8,955			22,054			1,073			—		(32,082	)		—

Net income (loss)		8,964			8,955			19,067			4,060		(32,082	)		8,964
Net income (loss) attributable to non-controlling interests		(45	)		(45	)		—			—		45			(45	)

Net income attributable to MPT common stockholders	$	8,919		$	8,910		$	19,067		$	4,060	$	(32,037	)	$	8,919

Condensed Consolidated Statements of Income

For the Nine Months Ended September 30, 2010

(in thousands)


				Subsidiary			Subsidiary			Non-Guarantor						Total
	Parent			Issuers			Guarantors			Subsidiaries			Eliminations			Consolidated
Revenues
Rent billed	$	—		$	—		$	59,011		$	10,726		$	(705	)	$	69,032
Straight-line rent		—			—			(951	)		1,420			—			469
Interest and fee income		—			5,561			12,621			8,411			(5,999	)		20,594

Total revenues		—			5,561			70,681			20,557			(6,704	)		90,095
Expenses
Real estate depreciation and amortization		—			—			15,740			2,360			—			18,100
Impairment charge		—			—			—			12,000			—			12,000
Property-related		—			5			2,020			735			(705	)		2,055
General and administrative		74			20,216			—			242			—			20,532
Acquisition expenses		—			1,314			—			—			—			1,314

Total operating expenses		74			21,535			17,760			15,337			(705	)		54,001

Operating income (loss)		(74	)		(15,974	)		52,921			5,220			(5,999	)		36,094
Other income (expense)
Interest income and other		—			—			1,494			(6	)		—			1,488
Debt refinancing costs		—			(6,556	)		—			—			—			(6,556	)
Interest expense		—			(25,706	)		(33	)		(6,366	)		5,999			(26,106	)

Net other income (expense)		—			(32,262	)		1,461			(6,372	)		5,999			(31,174	)

Income (loss) from continuing operations		(74	)		(48,236	)		54,382			(1,152	)		—			4,920
Income (loss) from discontinued operations		—			—			(561	)		8,024			—			7,463
Equity in earnings of consolidated subsidiaries net of income taxes		12,457			60,693			3,201			—			(76,351	)		—

Net income (loss)		12,383			12,457			57,022			6,872			(76,351	)		12,383
Net income (loss) attributable to non-controlling interests		(63	)		(63	)		—			—			63			(63	)

Net income attributable to MPT common stockholders	$	12,320		$	12,394		$	57,022		$	6,872		$	(76,288	)	$	12,320

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2010

(in thousands)


	Parent			Subsidiary Issuers			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Total Consolidated
Operating Activities
Net cash provided by (used in) operating activities	$	(1,885	)	$	(19,512	)	$	68,429		$	461		$	—		$	47,493

Investing Activities
Real estate acquired		—			—			(73,851	)		—			—			(73,851	)
Principal received on loans receivable		—			—			—			46,532			—			46,532
Proceeds from sales of real estate		—			—			—			75,000			—			75,000
Investments in and advances to subsidiaries		(231,996	)		49,874			8,711			(60,470	)		233,881			—
Investments in loans receivable and other investments		—			—			(5,000	)		(4,626	)		—			(9,626	)
Construction in progress and other		—			(13	)		(1,607	)		(13,958	)		—			(15,578	)

Net cash provided by (used in) investing activities		(231,996	)		49,861			(71,747	)		42,478			233,881			22,477

Financing Activities
Revolving credit facilities, net		—			(96,000	)		—			(41,200	)		—			(137,200	)
Additions to term debt		—			148,500			—			—			—			148,500
Payments of term debt		—			(216,145	)		—			(180	)		—			(216,325	)
Distributions paid		(54,589	)		(54,761	)		—			—			54,589			(54,761	)
Sale of common stock, net		288,470			288,470			—			—			(288,470	)		288,470
Lease deposits and other obligations to tenants		—			—			3,318			(1,085	)		—			2,233
Debt issuance costs paid and other financing activities		—			(9,713	)		—			—			—			(9,713	)

Net cash provided by financing activities		233,881			60,351			3,318			(42,465	)		(233,881	)		21,204

Increase in cash and cash equivalents for period		—			90,700			—			474			—			91,174
Cash and cash equivalents at beginning of period		—			14,814			—			493			—			15,307

Cash and cash equivalents at end of period	$	—		$	105,514		$	—		$	967		$	—		$	106,481

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the consolidated financial condition and consolidated results of operations are presented on a combined basis for Medical Properties Trust, Inc. and MPT Operating Partnership, L.P. as there are no material differences between these two entities.

The discussion and analysis of the consolidated financial condition and consolidated results of operations should be read together with the condensed consolidated financial statements and notes thereto contained in this Form 10-Q and the financial statements and notes thereto contained in our Annual Report on Form 10-K (as amended) for the year ended December 31, 2010.

Forward-Looking Statements.

This report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or future performance, achievements or transactions or events to be materially different from those expressed or implied by such forward-looking statements, including, but not limited to, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended, filed with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. Such factors include, among others, the following:

•

national and local economic, business, real estate and other market conditions;

•

the competitive environment in which we operate;

•

the execution of our business plan;

•

financing risks;

•

acquisition and development risks;

•

potential environmental contingencies and other liabilities;

•

other factors affecting real estate industry generally or the healthcare real estate industry in particular;

•

our ability to maintain our status as a REIT for federal and state income tax purposes;

•

our ability to attract and retain qualified personnel;

•

federal and state healthcare regulatory requirements; and

•

the continuing impact of the recent economic recession, which may have a negative effect on the following, among other things:

•

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;

•

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 our future interest expense; and

•

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.

Key Factors that May Affect Our Operations

Our revenues are derived primarily from rents we earn pursuant to the lease agreements with our tenants and from interest income from loans to our tenants and other facility owners. Our tenants operate in the healthcare industry, generally providing medical, surgical and rehabilitative care to patients. The capacity of our tenants to pay our rents and interest is dependent upon their ability to conduct their operations at profitable levels. We believe that the business environment of the industry segments in which our tenants operate is generally positive for efficient operators. However, our tenants’ operations are subject to economic, regulatory and market conditions that may affect their profitability. Accordingly, we monitor certain key factors, changes to which we believe may provide early indications of conditions that may affect the level of risk in our lease and loan portfolio.

Key factors that we consider in underwriting prospective tenants and borrowers and in monitoring the performance of existing tenants and borrowers include the following:

•

the historical and prospective operating margins (measured by a tenant’s earnings before interest, taxes, depreciation, amortization and facility rent) of each tenant or borrower and at each facility;

•

the ratio of our tenants’ and borrowers’ operating earnings both to facility rent and to facility rent plus other fixed costs, including debt costs;

•

trends in the source of our tenants’ or borrowers’ revenue, including the relative mix of Medicare, Medicaid/MediCal, managed care, commercial insurance, and private pay patients; and

•

the effect of evolving healthcare regulations on our tenants’ and borrowers’ profitability.

Certain business factors, in addition to those described above that directly affect our tenants and borrowers, will likely materially influence our future results of operations. These factors include:

•

trends in the cost and availability of capital, including market interest rates, that our prospective tenants may use for their real estate assets instead of financing their real estate assets through lease structures;

•

changes in healthcare regulations that may limit the opportunities for physicians to participate in the ownership of healthcare providers and healthcare real estate;

•

reductions in reimbursements from Medicare, state healthcare programs, and commercial insurance providers that may reduce our tenants’ profitability and our lease rates;

•

competition from other financing sources; and

•

the ability of our tenants and borrowers to access funds in the credit markets.

CRITICAL ACCOUNTING POLICIES

Refer to our 2010 Annual Report on Form 10-K, as amended, along with our subsequently filed Form 10-Qs in 2011, for a discussion of our critical accounting policies, which include revenue recognition, investment in real estate, purchase price allocation, loans, losses from rent receivables, stock-based compensation, exchangeable senior notes, and our accounting policy on consolidation. During the three months ended September 30, 2011, there were no material changes to these policies.

Overview

We were 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 have operated as a real estate investment trust (“REIT”) since April 6, 2004, and accordingly, elected REIT status upon the filing in September 2005 of our calendar year 2004 federal income tax return. We acquire and develop healthcare facilities and lease the facilities to healthcare operating companies under long-term net leases. We also make mortgage loans to healthcare operators collateralized by their real estate assets. In addition, we selectively make loans to certain of our operators through our taxable REIT subsidiaries, the proceeds of which are used for acquisitions and working capital. Finally, from time to time, we acquire profits or equity interests in our tenants that gives us a limited right to share in the tenant’s positive cash flow or earnings.

At September 30, 2011, our portfolio consisted of 60 properties: 56 facilities (of the 58 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. Our owned and ground leased facilities consisted of 22 general acute care hospitals, 19 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 consisted of general acute care facilities.

All of our investments are currently located in the United States. The following is our revenue by operating type (dollar amounts in thousands):

Revenue by property type:

		$000,000		$000,000			$000,000		$000,000
	For the Three Months Ended September 30, 2011		% of Total			For the Three Months Ended September 30, 2010		% of Total
General Acute Care Hospitals	$	22,585		59.8	%	$	16,829		58.8	%
Long-term Acute Care Hospitals		9,726		25.7	%		6,649		23.2	%
Rehabilitation Hospitals		4,631		12.3	%		4,402		15.4	%
Medical Office Buildings		433		1.1	%		426		1.5	%
Wellness Centers		416		1.1	%		338		1.1	%

Total revenue	$	37,791		100.0	%	$	28,644		100.0	%

		$000,000		$000,000			$000,000		$000,000
	For the Nine Months Ended September 30, 2011		% of Total			For the Nine Months Ended September 30, 2010		% of Total
General Acute Care Hospitals	$	66,822		60.8	%	$	58,042		64.4	%
Long-term Acute Care Hospitals		26,783		24.4	%		19,777		22.0	%
Rehabilitation Hospitals		13,788		12.5	%		9,984		11.1	%
Medical Office Buildings		1,298		1.2	%		1,279		1.4	%
Wellness Centers		1,246		1.1	%		1,013		1.1	%

Total revenue	$	109,937		100.0	%	$	90,095		100.0	%

We have 28 employees as of November 4, 2011. We believe that any increase in 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.

Results of Operations

Three months Ended September 30, 2011 Compared to September 30, 2010

Net income for the three months ended September 30, 2011 was $0.4 million, compared to $8.9 million for the three months ended September 30, 2010. As described below, a significant contributor to the difference between 2011 and 2010 net income is the write-off of debt costs and the redemption premium associated with our debt refinancing activities more fully described in Note 4 of Item 1 of this Form 10-Q. Funds from operations (“FFO”), after adjusting for certain items (as more fully described in Reconciliation of Non-GAAP Financial Measures), was $19.5 million, or $0.18 per diluted share for the 2011 third quarter as compared to $16.9 million, or $0.15 per diluted share for the 2010 third quarter.

A comparison of revenues for the three month period ended September 30, 2011 and 2010 is as follows, as adjusted in 2010 for discontinued operations (dollar amounts in thousands):


	2011		% of Total			2010			% of Total			Year over Year Change
Base rents	$	30,260		80.1	%	$	23,044			80.4	%		31.3	%
Straight-line rents		1,802		4.8	%		(1,125	)		(3.9	)%		260.2	%
Percentage rents		478		1.2	%		429			1.5	%		11.4	%
Fee income		22		0.1	%		157			0.6	%		(86.0	)%
Interest from loans		5,229		13.8	%		6,139			21.4	%		(14.8	)%