MEDICAL PROPERTIES TRUST, INC.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-32559
Medical Properties Trust,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Maryland
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20-0191742
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer Identification
No.)
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1000 Urban Center Drive, Suite 501
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Birmingham, AL
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35242
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(Address of Principal Executive
Offices)
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(Zip Code)
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(205) 969-3755
(Registrants Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment of this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of shares of the Registrants
common stock, par value $0.001 per share (Common
Stock), held by non-affiliates of the Registrant as of
June 30, 2007 was approximately $655,917,760. For purposes
of the foregoing calculation only, all directors and executive
officers of the Registrant have been deemed affiliates.
As of March 13, 2008, 53,710,574 shares of the
Registrants Common Stock were outstanding.
Portions of the Registrants definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 22,
2008 are incorporated by reference into Part III,
Items 10 through 14 of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
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PART I |
| ITEM 1. Business |
| ITEM 1A. Risk Factors |
| ITEM 1B. Unresolved Staff Comments |
| ITEM 2. Properties |
| ITEM 3. Legal Proceedings |
| ITEM 4. Submission of Matters to a Vote of Security Holders |
PART II |
| ITEM 5. Market for Registrants Common Equity, Related Stockholder Matter, and Issuer Purchases of Equity Securities |
| ITEM 6. Selected Financial Data |
| ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations |
| ITEM 7A Quantitative and Qualitative Disclosures about Market Risk |
| ITEM 8. Financial Statements and Supplementary Data |
Consolidated Balance Sheets |
Consolidated Statements of Operations |
Consolidated Statements of Stockholders Equity For the Years Ended December 31, 2007, 2006 and 2005 |
Consolidated Statements of Cash Flows |
Notes To Consolidated Financial Statements |
| ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
| ITEM 9A. Controls and Procedures |
Report of Independent Registered Public Accounting Firm |
| ITEM 9B. Other Information |
PART III |
| ITEM 10. Directors, Executive Officers and Corporate Governance |
| ITEM 11. Executive Compensation |
| ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
| ITEM 13. Certain Relationships and Related Transactions, and Director Independence. |
| ITEM 14. Principal Accountant Fees and Services. |
PART IV |
| ITEM 15. Exhibits and Financial Statement Schedules. |
SIGNATURES |
SCHEDULE III -- REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION |
SCHEDULE IV -- MORTGAGE LOAN ON REAL ESTATE MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES |
INDEX TO EXHIBITS |
EX-10.57 REVOLVING CREDIT AGREEMENT |
EX-10.58 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.59 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.60 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.61 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-10.62 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT |
EX-21.1 SUBSIDIARIES OF THE REGISTRANT |
EX-23.1 CONSENT OF KPMG LLP |
EX-23.2 CONSENT OF MOSS ADAMS LLP |
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO |
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO |
EX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO |
EX-99.1 CONSOLIDATED FINANCIAL STATEMENTS |
EX-99.2 CONSOLIDATED FINANCIAL STATEMENTS |
A WARNING
ABOUT FORWARD LOOKING STATEMENTS
We make forward-looking statements in this Annual Report on
Form 10-K
that are subject to risks and uncertainties. These
forward-looking statements include information about possible or
assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives.
Statements regarding the following subjects, among others, are
forward-looking by their nature:
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our business strategy;
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our projected operating results;
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our ability to acquire or develop net-leased facilities;
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availability of suitable facilities to acquire or develop;
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our ability to enter into, and the terms of, our prospective
leases and loans;
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our ability to raise additional funds through offerings of our
debt and equity securities;
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our ability to obtain future financing arrangements;
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estimates relating to, and our ability to pay, future
distributions;
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our ability to compete in the marketplace;
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lease rates and interest rates;
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market trends;
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projected capital expenditures; and
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the impact of technology on our facilities, operations and
business.
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The forward-looking statements are based on our beliefs,
assumptions and expectations of our future performance, taking
into account information currently available to us. These
beliefs, assumptions and expectations can change as a result of
many possible events or factors, not all of which are known to
us. If a change occurs, our business, financial condition,
liquidity and results of operations may vary materially from
those expressed in our forward-looking statements. You should
carefully consider these risks before you make an investment
decision with respect to our common stock and other securities,
along with, among others, the following factors that could cause
actual results to vary from our forward-looking statements:
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the factors referenced in this Annual Report on
Form 10-K,
including those set forth under the sections captioned
Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations;
and Our Business.
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general volatility of the capital markets and the market price
of our common stock;
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changes in our business strategy;
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changes in healthcare laws and regulations;
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availability, terms and development of capital;
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availability of qualified personnel;
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changes in our industry, interest rates or the general
economy; and
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the degree and nature of our competition.
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When we use the words believe, expect,
may, potential, anticipate,
estimate, plan, will,
could, intend or similar expressions, we
are identifying forward-looking statements. You should not place
undue reliance on these forward-looking statements. We are not
obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
Except as required by law, we disclaim any obligation to update
such statements or to publicly announce the result of any
revisions to any of the forward-looking statements contained in
this Annual Report on
Form 10-K
to reflect future events or developments.
(i)
PART I
Overview
We are a self-advised real estate investment trust that
acquires, develops, leases and makes other investments in
healthcare facilities providing
state-of-the-art
healthcare services. We lease our facilities to healthcare
operators pursuant to long-term net-leases, which require the
tenant to bear most of the costs associated with the property.
We also make long-term, interest only mortgage loans to
healthcare operators, and from time to time, we also make
operating, working capital and acquisition loans to our tenants.
We were formed as a Maryland corporation on August 27, 2003
to succeed to the business of Medical Properties Trust, LLC, a
Delaware limited liability company, which was formed by one of
our founders in December 2002. We conduct substantially all of
our business through our subsidiaries, MPT Operating
Partnership, L.P., and MPT Development Services, Inc. References
in this Annual Report on
Form 10-K
to Medical Properties Trust, Medical
Properties, we, us,
our, and the Company include Medical
Properties Trust, Inc. and our subsidiaries.
Since April 2004, we have issued at various times approximately
50.7 million shares of common stock for net proceeds of
approximately $539.8 million. At March 1, 2008, we
have approximately $934.7 million invested in healthcare
real estate and related assets.
Our investment in healthcare real estate, including mortgage
loans and other loans to certain of our tenants, is considered a
single reportable segment as further discussed in our
Consolidated Financial Statements, Note 2
Summary of Significant Accounting Policies, in Part II,
Item 8 of this Annual Report on
Form 10-K.
All of our investments are located in the United States, and we
have no present plans to invest in
non-U.S. markets
in the foreseeable future.
During 2007, we:
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invested approximately $316 million in new healthcare real
estate assets;
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reduced exposure to Vibra Healthcare to 31% of total revenue
from 55% of total revenue in 2006;
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sold 12.2 million shares of common stock for net proceeds
of $179.1 million or $14.66 per share, net of underwriters
discount and offering expenses; and
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completed agreements for two new credit facilities which provide
for new borrowings of up to $262.0 million.
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Portfolio
of Properties
As of December 31, 2007, our portfolio consisted of
28 properties: 25 facilities which we own are leased to
eight tenants and the remaining in the form of mortgage loans to
two operators. Our owned facilities consisted of 12 general
acute care hospitals, 9 long-term acute care hospitals, and 4
inpatient rehabilitation hospitals. The non-owned facilities on
which we have made mortgage loans consist of general acute care
facilities. We intend to continue to focus on investments in
licensed hospitals as our primary line of business.
Outlook
and Strategy
Our strategy is to lease the facilities that we acquire or
develop to experienced healthcare operators pursuant to
long-term net leases. Alternatively, we have structured certain
of our investments as long-term, interest only mortgage loans to
healthcare operators, and we may make similar investments in the
future. The market for healthcare real estate is extensive and
includes real estate owned by a variety of healthcare operators.
We focus on acquiring and developing those net-leased facilities
that are specifically designed to reflect the latest trends in
healthcare delivery methods. These facilities include but are
not limited to: physical rehabilitation hospitals, long-term
acute care hospitals, and regional and community hospitals.
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Our
Leases and Loans
The leases for our facilities are net leases with
terms requiring the tenant to pay all ongoing operating and
maintenance expenses of the facility, including property,
casualty, general liability and other insurance coverages,
utilities and other charges incurred in the operation of the
facilities, as well as real estate taxes, ground lease rent and
the costs of capital expenditures, repairs and maintenance.
Similarly, borrowers under our mortgage loan arrangements retain
the responsibilities of ownership, including physical
maintenance and improvements and all costs and expenses. Our
leases and loans also provide that our tenants will indemnify us
for environmental liabilities. Our current leases and loans have
initial terms of 10 to 15 years and provide for annual rent
or interest escalation and, in some cases, percentage rent.
Significant
Tenants
At March 1, 2008, we have leases with eight hospital
operating companies covering 25 facilities and we have mortgage
loans to two hospital operating companies. Vibra Healthcare, LLC
(Vibra) leases eight of our facilities. Total
revenue from Vibra in 2007 was approximately $30.1 million,
or 31.3% of total revenue. We expect that the percentage of
revenue we earn from Vibra in 2008 will be substantially less
than that in 2007 because our 2007 acquisitions and our
anticipated near-term future acquisitions are expected to
diversify our portfolio by adding new tenants. Although we
expect to make additional investments in Vibra-operated
properties in the foreseeable future, we believe that our Vibra
revenue will continue to decline relative to our total revenue.
At March 1, 2008, affiliates of Prime Healthcare Services,
Inc. (Prime) lease seven of our facilities and we
have mortgage loans on two facilities owned by affiliates of
Prime. Total revenue from Prime affiliates in 2007 was
approximately $24.9 million, or 25.9% of total revenue. As
of December 31, 2007, expected annual revenue from Prime
represented 34% of total expected annual revenues. It is likely
that we will make additional investments in Prime affiliated
properties in the foreseeable future.
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 the ability of the owner, operator or tenant to sell or
rent that property or to borrow funds using such property as
collateral and may adversely impact our investment in that
property.
Generally, prior to completing any acquisition or closing any
mortgage loan, we obtain Phase I environmental assessments in
order to attempt to identify potential environmental concerns at
the facilities. These assessments are carried out in accordance
with an appropriate level of due diligence and generally include
a physical site inspection, a review of relevant federal, state
and local environmental and health agency database records, one
or more interviews with appropriate site-related personnel,
review of the propertys chain of title and review of
historic aerial photographs and other information on past uses
of the property. We may also conduct limited subsurface
investigations and test for substances of concern where the
results of the Phase I environmental assessments or other
information indicates possible contamination or where our
consultants recommend such procedures.
Competition
We compete in acquiring and developing facilities with financial
institutions, other lenders, real estate developers, other
REITs, other public and private real estate companies and
private real estate investors. Among the factors adversely
affecting our ability to compete are the following:
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we may have less knowledge than our competitors of certain
markets in which we seek to invest in or develop facilities;
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many of our competitors have greater financial and operational
resources than we have;
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our competitors or other entities may pursue a strategy similar
to ours; and
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some of our competitors may have existing relationships with our
potential customers.
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To the extent that we experience vacancies in our facilities, we
will also face competition in leasing those facilities to
prospective tenants. The actual competition for tenants varies
depending on the characteristics of each local market. Virtually
all of our facilities operate in a competitive environment, and
patients and referral sources, including physicians, may change
their preferences for healthcare facilities from time to time.
Healthcare
Regulatory Matters
The following discussion describes certain material federal
healthcare laws and regulations that may affect our operations
and those of our tenants. However, the discussion does not
address state healthcare laws and regulations, except as
otherwise indicated. These state laws and regulations, like the
federal healthcare laws and regulations, could affect our
operations and those of our tenants. Moreover, the discussion
relating to reimbursement for healthcare services addresses
matters that are subject to frequent review and revision by
Congress and the agencies responsible for administering federal
payment programs. Consequently, predicting future reimbursement
trends or changes is inherently difficult.
Ownership and operation of hospitals and other healthcare
facilities are subject, directly and indirectly, to substantial
federal, state and local government healthcare laws and
regulations. Our tenants failure to comply with these laws
and regulations could adversely affect their ability to meet
their lease obligations. Physician investment in us or in our
facilities also will be subject to such laws and regulations. We
intend for all of our business activities and operations to
conform in all material respects with all applicable laws and
regulations.
Anti-Kickback Statute. 42 U.S.C.
§1320a-7b(b),
or the Anti-Kickback Statute, 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 and is punishable by criminal 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 Anti-Kickback Statute defines the term
remuneration very broadly and, accordingly, local
physician investment in our facilities could trigger scrutiny of
our lease arrangements under the Anti-Kickback Statute. In
addition to certain statutory exceptions, the Office of
Inspector General of the Department of Health and Human
Services, or OIG, has issued Safe Harbor Regulations
that describe practices that will not be considered violations
of the Anti-Kickback Statute. These include a safe harbor for
space rental arrangements which protects payments made by a
tenant to a landlord under a lease arrangement meeting certain
conditions. We intend to use our 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, the conditions for the safe harbor
for space rental. We cannot assure you, however, that we will
meet all the conditions for the safe harbor, and it is unlikely
that we will meet all conditions for the safe harbor in those
instances in which percentage rent is contemplated and we have
physician investors. In addition, federal regulations require
that our tenants with purchase options pay fair market value
purchase prices for facilities in which we have physician
investment. We intend our lease agreement purchase option prices
to be fair market value; however, we cannot assure you that all
of our purchase options will be at fair market value. Any
purchase not at fair market value may present risks of challenge
from healthcare regulatory authorities. The fact that a
particular arrangement does not fall within a statutory
exception or safe harbor does not mean that the arrangement
violates the Anti-Kickback Statute. The statutory exception and
Safe Harbor Regulations simply provide a guaranty that
qualifying arrangements will not be prosecuted under the
Anti-Kickback Statute. The implication of the Anti-Kickback
Statute could limit our ability to include local physicians as
investors or tenants or restrict the types of leases into which
we may enter if we wish to include such physicians as investors
having direct or indirect ownership interests in our facilities.
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Federal Physician Self-Referral Statute. 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 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. Financial
relationships are defined very broadly to include relationships
between a physician and an entity in which the physician or the
physicians family member has (i) a direct or indirect
ownership or investment interest that exists in the entity
through equity, debt or other means and includes an interest in
an entity that holds a direct or indirect ownership or
investment interest in any entity providing designated health
services; or (ii) a direct or indirect compensation
arrangement with the entity.
The Stark Law as originally enacted in 1989 only applied to
referrals for clinical laboratory tests reimbursable by
Medicare. However, the law was amended in 1993 and 1994 and,
effective January 1, 1995, became applicable to referrals
for an expanded list of designated health services reimbursable
under Medicare or Medicaid.
The Stark Law specifies a number of substantial sanctions that
may be imposed upon violators. Payment is to be denied for
Medicare claims related to designated health services referred
in violation of the Stark Law. Further, any amounts collected
from individual patients or third-party payors for such
designated health services must be refunded on a timely basis. A
person who presents or causes to be presented a claim to the
Medicare program in violation of the Stark Law is also subject
to civil monetary penalties of up to $15,000 per claim, civil
monetary penalties of up to $100,000 per arrangement and
possibly even exclusion from participation in the Medicare and
Medicaid programs.
Final regulations applicable only to physician referrals for
clinical laboratory services were published in August 1995. A
proposed rule applicable to physician referrals for all
designated health services was published in January 1998. In
January 2001, the Centers for Medicare & Medicaid
Services (CMS) published the Phase I final rule,
which finalized a significant portion of the 1998 proposed rule.
On March 26, 2004, CMS issued the second phase of its final
regulations addressing physician referrals to entities with
which they have a financial relationship (the Phase
II rule). The Phase II rule addresses and interprets
a number of exceptions for ownership and compensation
arrangements involving physicians, including the exceptions for
space and equipment rentals and the exception for indirect
compensation arrangements. The Phase II rule also includes
exceptions for physician ownership and investment, including
physician ownership of rural providers and hospitals. The new
regulation revised the hospital ownership exception to reflect
the 18-month
moratorium that began December 8, 2003 on physician
ownership or investment in specialty hospitals, which was
enacted in Section 507 of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003. The Phase II
rule became effective on July 26, 2004. The moratorium
imposed by the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 expired on June 8, 2005. However,
that moratorium was retroactively extended by the passage of the
Deficit Reduction Act of 2005 (the DRA) which
requires the Secretary of Health and Human Services to develop a
strategic and implementing plan for physician investment in
specialty hospitals that addresses the issues of the report is
due six months after the date of enactment, but this deadline
may be extended by two months. The DRA also directs CMS to
continue the moratorium on enrollment of specialty hospitals
until the earlier of the date the report is submitted or six
months after enactment of the DRA. On August 8, 2006, CMS
published the final report and the moratorium expired. However,
CMS continues to scrutinize physician investments in specialty
hospitals. CMS has stated its intention to require certain
specialty and other hospitals to provide detailed information
regarding their financial arrangements with physicians. CMS will
use this information to review those arrangements for compliance
with the Stark Law.
In those cases where physicians invest in our subsidiaries or
our facilities, we intend to fashion our lease arrangements with
healthcare providers to meet the applicable indirect
compensation exceptions under the Stark Law, however, no
assurance can be given that our leases will satisfy these Stark
Law exception requirements. Unlike the Anti-Kickback Statute
Safe Harbor Regulations, a financial arrangement which
implicates the Stark Law must meet the requirements of an
applicable exception to avoid a violation of the Stark Law. This
may lead to obstacles in permitting local physicians to invest
in our facilities or restrict the types of lease arrangements we
may enter into if we wish to include such physicians as
investors.
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State Self-Referral Laws. In addition to the
Anti-Kickback Statute and the Stark Law, state anti-kickback and
self-referral laws could limit physician ownership or investment
in us, restrict the types of leases we may enter into if such
physician investment is permitted or require physician
disclosure of our ownership or financial interest to patients
prior to referrals.
Recent Regulatory and Legislative
Developments. The DRA was signed by President
Bush on February 8, 2006, and is expected to reduce
Medicare spending by $6.0 billion over the next five years
and cut Medicaid spending by $5.0 billion over the same
time frame. A clerical error during the legislative process,
however, raises some concerns over the validity of the DRA
because the United States House of Representatives never voted
on the version approved by the Senate and ultimately signed by
the President. Legal challenges may arise as a result of this
technicality, challenging the DRA. Nonetheless, CMS has already
begun implementing portions of the DRA. Medicare Part A
pays for hospital inpatient operating and capital related costs
associated with acute care hospital inpatient stays on a
prospective basis. Pursuant to this inpatient prospective
payment system, or IPPS, CMS categorizes each patient case
according to a list of diagnosis-related groups, or DRGs. Each
DRG has an assigned payment that is based upon the expected
amount of hospital resources necessary to treat a patient in
that DRG. On August 22, 2007, CMS published a Final Rule
with comment period for IPPS for fiscal year 2008. The Final
Rule includes a 3.5% increase in payment rates, a number of
changes to the DRGs and enhancements to the voluntary quality
reporting program. Hospitals are required to submit certain
clinical data on ten quality measures in order to receive full
payment for fiscal year 2008. CMS expects aggregate payments to
IPPS hospitals to increase by $3.8 billion over the
previous year. The changes are expected to increase payment to
those hospitals treating more severely ill and costlier patients.
CMS continues to make changes to its prospective payment system
for inpatient rehabilitation facilities, or IRFs. The Final Rule
updates payment rates and modifies certain payment policies.
Under the Final Rule, approximately 1,220 IRFs will receive
increased Medicare payments of approximately $150 million.
The Final Rule also includes a 3.2% market basket increase and
increases the outlier threshold for cases with unusually high
costs from $5,534 in fiscal year 2007 to $7,362 for fiscal year
2008. In addition, the Final Rule updates the IRF prospective
payment system wage index.
On May 7, 2004, CMS issued a Final Rule to revise the
classification criterion, commonly known as the
75 percent rule, used to classify a hospital or
hospital unit as an IRF. The compliance threshold is used to
distinguish an IRF from an acute care hospital for purposes of
payment under the Medicare IRF prospective payment system. The
Final Rule implements a three-year period to analyze claims and
patient assessment data to determine whether CMS will continue
to use a compliance threshold that is lower than 75% or not. For
cost reporting periods beginning on or after July 1, 2004,
and before July 1, 2005, the compliance threshold will be
50% of the IRFs total patient population. The compliance
threshold will increase to 60% of the IRFs total patient
population for cost reporting periods beginning on or after
July 1, 2005 and before July 1, 2006, to 65% for cost
reporting periods beginning on or after July 1, 2006 and
before July 1, 2007, and to 75% for cost reporting periods
after July 1, 2007. The Deficit Reduction Act of 2005
extends the phase-in period of the 75 percent
rule for one additional year. The 60% threshold remains in
effect until June 30, 2007. In fiscal year 2007, the
threshold is 65% and beginning in fiscal year 2008, the
threshold is 75%. On December 29, 2007, President Bush
signed legislation permanently freezing at 60% the threshold
amount. Also, currently, IRFs, in addition to considering a
patients primary diagnosis, are able to consider
comorbidities for purposes of determining compliance with the
75 percent rule. However, for cost reporting periods
beginning on or after July 1, 2008, IRFs will no longer be
able to consider comorbidities when making such determinations.
On December 8, 2003, President Bush signed into law the
Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, or the Act, which contains sweeping changes to the
federal health insurance program for the elderly and disabled.
The Act includes provisions affecting program payment for
inpatient and outpatient hospital services. In total, the
Congressional Budget Office estimates that hospitals will
receive $24.8 billion over ten years in additional funding
due to the Act.
Rural hospitals, which may include regional or community
hospitals, one of our targeted types of facilities, will benefit
most from the reimbursement changes in the Act. Some examples of
these reimbursement changes include (i) providing that
payment for all hospitals, regardless of geographic location,
will be based on the same,
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higher standardized amount which was previously available only
for hospitals located in large urban areas, (ii) reducing
the labor share of the standardized amount from 71% to 62% for
hospitals with an applicable wage index of less than 1.0,
(iii) giving hospitals the ability to seek a higher wage
index based on the number of hospital employees who take
employment out of the county in which the hospital is located
with an employer in a neighboring county with a higher wage
index, and (iv) improving critical access hospital program
conditions of participation requirements and reimbursement.
Medicare disproportionate share hospital, or DSH, payment
adjustments for hospitals that are not large urban or large
rural hospitals will be calculated using the DSH formula for
large urban hospitals, up to a 12% cap in 2004 for all hospitals
other than rural referral centers, which are not subject to the
cap. The Act provides that sole community hospitals, as defined
in 42 U.S.C. §1395ww(d)(5)(D)(iii), located in rural
areas, rural hospitals with 100 or fewer beds, and certain
cancer and childrens hospitals shall receive Transitional
Outpatient Payments, or TOPs, such that these facilities will be
paid as much under the Medicare outpatient prospective payment
system, or OPPS, as they were paid prior to implementation of
OPPS. As of January 1, 2004 all TOPs for community mental
health centers and all other hospitals were otherwise
discontinued. The hold harmless TOPs provided for
under the Act will continue for qualifying rural hospitals for
services furnished through December 31, 2005 and for sole
community hospitals for cost reporting periods beginning on or
after January 1, 2004 and ending on December 31, 2005.
Hold harmless TOPs payments continue permanently for cancer and
childrens hospitals.
The Act also requires CMS to provide supplemental payments to
acute care hospitals that are located more than 25 road miles
from another acute care hospital and have low inpatient volumes,
defined to include fewer than 800 discharges per fiscal year,
effective on or after October 1, 2004. Total supplemental
payments may not exceed 25% of the otherwise applicable
prospective payment rate.
Finally, the Act assures inpatient hospitals that submit certain
quality measure data a full inflation update equal to the
hospital market basket percentage increase for fiscal years 2005
through 2007. The market basket percentage increase refers to
the anticipated rate of inflation for goods and services used by
hospitals in providing services to Medicare patients. For fiscal
year 2005, the market basket percentage increase for hospitals
paid under the inpatient prospective payment system is 3.3%. For
those inpatient hospitals that do not submit such quality data,
the Act provides for an update of market basket minus
0.4 percentage points. The DRA expands the provision of the
Act tying inpatient reimbursement to hospitals reporting
on certain quality measures. Hospitals not submitting the data
will not receive the full market basket update. The DRA requires
the Secretary of Health and Human Services to add other quality
measures to be reported on by hospitals. Beginning in fiscal
year 2007, the market basket updates for hospitals that fail to
provide the quality data will be reduced by 2%. CMS has reported
that a significant majority of hospitals will receive the full
market basket update for fiscal year 2008 because they have met
the quality reporting requirements.
The Act also imposed an 18 month moratorium limiting the
availability of the whole hospital exception, or
Whole Hospital Exception, under the Stark Law for specialty
hospitals and prohibited physicians investing in rural specialty
hospitals from invoking an alternative Stark Law exception for
physician ownership or investment in rural providers. The
moratorium began upon enactment of the Act and expired
June 8, 2005. Under the Whole Hospital Exception, the Stark
Law permits a physician to refer a Medicare or Medicaid patient
to a hospital in which the physician has an ownership or
investment interest so long as the physician maintains staff
privileges at the hospital and the physicians ownership or
investment interest is in the hospital as a whole, rather than a
subdivision of the facility. Following expiration of the
moratorium, CMS issued a statement that it will not issue
provider agreements for new specialty hospitals or authorize
initial state surveys of new specialty hospitals while it
undertakes a review of its procedures for enrolling such
facilities in the Medicare program. CMS anticipates completing
this review by January 2006. The suspension on enrollment does
not apply to specialty hospitals that submitted enrollment
applications prior to June 9, 2005 or requested an advisory
opinion about the applicability of the moratorium.
The moratorium imposed by the Act expired on June 8, 2005.
However, that moratorium was retroactively extended by the
passage of the DRA which requires the Secretary of Health and
Human Services to develop a strategic and implementing plan for
physician investment in specialty hospitals that addresses the
issues of proportionality of investment return, bona fide
investment, annual disclosure of investments, and the provision
of medical assistance (Medicaid) and charity care. The report is
due six months after the date of enactment, but this deadline
may be extended by two months. The DRA also directs CMS to
continue the moratorium on enrollment of
6
specialty hospitals until the earlier of the date the report is
submitted or six months after enactment of the DRA. The final
report was published on August 8, 2006, at which time the
moratorium expired. Despite the expiration of the moratorium,
specialty hospitals are expected to remain under heightened
scrutiny.
Any acquisition or development of specialty hospitals must
comply with the current application and interpretation of the
Stark Law. CMS may clarify or modify its definition of specialty
hospital, which may result in physicians who own interests in
our tenants being forced to divest their ownership or the
enrollment of the hospital for participation in the Medicare
Program may be delayed. Although the specialty hospital
moratorium under the Act limited, and the proposed Budget
Reconciliation Conference Agreement would have limited physician
ownership or investment in specialty hospitals as
defined by CMS, they do not limit a physicians ability to
hold an ownership or investment interest in facilities which may
be leased to hospital operators or other healthcare providers,
assuming the lease arrangement conforms to the requirements of
an applicable exception under the Stark Law. We intend to
structure all of our leases, including leases containing
percentage rent arrangements, to comply with applicable
exceptions under the Stark Law and to comply with the
Anti-Kickback Statute. We believe that strong arguments can be
made that percentage rent arrangements, when structured
properly, should be permissible under the Stark Law and the
Anti-Kickback Statute; however, these laws are subject to
continued regulatory interpretation and there can be no
assurance that such arrangements will continue to be
permissible. Accordingly, although we do not currently have any
percentage rent arrangements where physicians own an interest in
our facilities, we may be prohibited from entering into
percentage rent arrangements in the future where physicians own
an interest in our facilities. In the event we enter into such
arrangements at some point in the future and later find the
arrangements no longer comply with the Stark Law or
Anti-Kickback Statute, we or our tenants may be subject to
penalties under the statutes.
The California Department of Health Services recently adopted
regulations, codified as Sections 70217, 70225 and 70455 of
Title 22 of the California Code of Regulations, or CCR,
which establish minimum, specific, numerical licensed
nurse-to-patient
ratios for specified units of general acute care hospitals.
These regulations are effective January 1, 2004. The
minimum staffing ratios set forth in 22 CCR 70217(a) co-exist
with existing regulations requiring that hospitals have a
patient classification system in place. The licensed
nurse-to-patient
ratios constitute the minimum number of registered nurses,
licensed vocational nurses, and, in the case of psychiatric
units, licensed psychiatric technicians, who shall be assigned
to direct patient care and represent the maximum number of
patients that can be assigned to one licensed nurse at any one
time. Over the past several years many hospitals have, in
response to managed care reimbursement contracts, cut costs by
reducing their licensed nursing staff. The California
Legislature responded to this trend by requiring a minimum
number of licensed nurses at the bedside. Due to this new
regulatory requirement, any acute care facilities we target for
acquisition or development in California may be required to
increase their licensed nursing staff or decrease their
admittance rates as a result. Governor Schwarzenegger issued two
emergency regulations in an attempt to suspend the ratios in
emergency rooms and delay for three years staffing requirements
in general medical units. However, this action was appealed and
on June 7, 2005, the Superior Court overturned the two
emergency regulations. The Schwarzenegger administration
appealed that ruling; however, the Governor withdrew the appeal
in November 2005. In addition, California also recently adopted
cuts to the states Medicaid program referred to as
Medi-Cal totaling $1.6 billion. Reimbursement rates for
providers are expected to be cut by 10 percent and are
expected to produce $47.6 million in savings for the state.
Long-term care hospitals, one of the types of facilities we are
targeting, are defined generally as hospitals that have an
average Medicare inpatient length of stay greater than
25 days. On January 27, 2006, CMS published a proposed
rule provides for no increase in the Medicare payment rates for
long-term care hospitals for patient discharges between
July 1, 2006 and June 30, 2007. CMS is also proposing
to adopt the Rehabilitation, Psychiatric and Long-Term Care
(RPL) market basket to replace the excluded hospital
with capital market basket that is currently used as the measure
of inflation for calculating the annual update to the long-term
care hospital prospective payment rate. The RPL market basket is
based on the operating and capital costs of inpatient
rehabilitation facilities, inpatient psychiatric facilities, and
long-term care hospitals. CMS is also proposing to revise the
labor-related share based on the RPL market basket from 72.855%
(based on the excluded hospital with capital market basket) to
75.923%. CMS is accepting comments on the proposed rule until
March 20, 2006. We do not know whether the proposed rule
will be adopted without change.
7
The Balanced Budget Act of 1997, or BBA, mandated implementation
of a prospective payment system for skilled nursing facilities.
Under this prospective payment system, and for cost reporting
periods beginning on or after July 1, 1998, skilled nursing
facilities (SNFs) are paid a prospective payment rate adjusted
for case mix and geographic variation in wages formulated to
cover all costs, including routine, ancillary and capital costs.
In 1999 and 2000 the BBA was refined to provide for, among other
revisions, a 20% add-on for 12 high acuity non-therapy Resource
Utilization Grouping categories, or RUG categories, and a 6.7%
add-on for all 14 rehabilitation RUG categories. These
categories may expire when CMS releases its refinements to the
current RUG payment system. On August 4, 2005, CMS
published a Final Rule updating skilled nursing facility payment
rates for fiscal year 2006. The Final Rule eliminates the
temporary add-on payments that Congress directed in the Balanced
Budget Refinement Act of 1999 and introduces nine (9) new
payment categories. The Final Rule also permanently increases
rates for all RUGs to reflect variations in non-therapy
ancillary costs. Further, fiscal year 2006 payment rates include
a market basket update increase of 3.1%, a slight increase over
what had been anticipated in the Proposed Rule. In addition, the
Final Rule contains policy changes including the adoption of new
labor market area definitions which are based on the new Core
Based Statistical Areas announced by the Office of Management
and Budget, or OMB, late in 2000. The Deficit Reduction Act of
2005 reduces payments to skilled nursing faculties for certain
bad debt attributable to Medicare coinsurance for beneficiaries
who are not dual eligibles. On August 3, 2007, CMS
published a final rule regarding prospective payment system for
SNFs. Pursuant to the final rule, SNFs will receive an increase
of 3.3%, which amounts to approximately $690 million in
fiscal year 2008. The final rule also revises the SNF
market-basket, moving the base year from 1997 to 2004. On
December 29, 2007, President Bush signed legislation that
contained an extension to June 30, 2008 of the nursing home
therapy cap exception.
Beginning January 1, 2007, the Deficit Reduction Act of
2005 caps payment rates for services provided in ambulatory
surgery centers at the amounts paid for the same services in
hospital outpatient departments under the OPPS. This provision
is effective until the Secretary of Health and Human Services
establishes a revised payment system for ambulatory surgery
centers as required by the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003. In January 2008, CMS
proposed paying long term care hospitals approximately
$4.44 billion under the PPS for RY 2009. This includes a
proposed increase of 2.6% compared with RY 2008. Under the final
rule for RY 2008, CMS had lowered payments by 3.8%. CMS is
proposing to change the annual update schedule to coincide with
other classification systems, thus, as proposed, the RY 2009
would be effective for 15 months, from July 1, 2008
through September 30, 2009.
In addition to the legislation and regulations discussed above,
on January 12, 2005, the Medicare Payment Advisory
Committee, or MedPAC, made extensive recommendations to Congress
and the Secretary of Health and Human Services including
proposing revisions to DRG payments to more fully capture
differences in severity of illnesses in an attempt to more
equally pay for care provided at general acute care hospitals as
compared to specialty hospitals. Furthermore, MedPAC made
significant recommendations regarding paying healthcare
providers relative to their performance and to the outcomes of
the care they provided. MedPAC recommendations have historically
provided strong indications regarding future directions of both
the regulatory and legislative process.
Insurance
We have purchased general liability insurance (lessors
risk) that provides coverage for bodily injury and property
damage to third parties resulting from our ownership of the
healthcare facilities that are leased to and occupied by our
tenants. Our leases with tenants also require the tenants to
carry general liability, professional liability, all risks, 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 26 employees as of March 1, 2008. 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.
8
Available
Information
Our website address is www.medicalpropertiestrust.com and
provides access in the Investor Relations section,
free of charge, to our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
including exhibits, and all amendments to these reports as soon
as reasonably practicable after such material is electronically
filed with or furnished to the Securities and Exchange
Commission. Also available on our website, free of charge, are
our Corporate Governance Guidelines, the charters of our Ethics,
Nominating and Corporate Governance, Audit and Compensation
Committees and our Code of Ethics and Business Conduct. If you
are not able to access our website, the information is available
in print free of charge to any shareholder who should request
the information directly from us at
(205) 969-3755.
RISKS
RELATED TO OUR BUSINESS AND GROWTH STRATEGY
We
were formed in August 2003 and have a limited operating history;
our management has a limited history of operating a REIT and a
public company and may therefore have difficulty in successfully
and profitably operating our business.
We were organized in 2003 and thus have a limited operating
history. We first elected REIT status for our taxable year ended
December 31, 2004. We are subject to the risks generally
associated with the formation of any new business, including
unproven business models, uncertain market acceptance and
competition with established businesses. Our management has
limited experience in operating a REIT and a public company.
Therefore, you should be especially cautious in drawing
conclusions about the ability of our management team to execute
our business plan.
We
expect to continue to experience rapid growth and may not be
able to adapt our management and operational systems to
integrate the net-leased facilities we have acquired and are
developing or those that we may acquire or develop in the future
without unanticipated disruption or expense.
We are currently experiencing a period of rapid growth. We
cannot assure you that we will be able to adapt our management,
administrative, accounting and operational systems, or hire and
retain sufficient operational staff, to integrate and manage the
facilities we have acquired and are developing and those that we
may acquire or develop. Our failure to successfully integrate
and manage our current portfolio of facilities or any future
acquisitions or developments could have a material adverse
effect on our results of operations and financial condition and
our ability to make distributions to our stockholders.
We may
be unable to access capital, which would slow our
growth.
Our business plan contemplates growth through acquisitions and
development of facilities. As a REIT, we are required to make
cash distributions, which reduce our ability to fund
acquisitions and developments with retained earnings. We are
dependent on acquisition financings and access to the capital
markets for cash to make investments in new facilities. Due to
market or other conditions, such as the dislocations in the
credit markets beginning in 2007, there may be times when we
will have limited access to capital from the equity and debt
markets. During such periods, virtually all of our available
capital will be required to meet existing commitments and to
reduce existing debt. We may not be able to obtain additional
equity or debt capital or dispose of assets on favorable terms,
if at all, at the time we need additional capital to acquire
healthcare properties on a competitive basis or to meet our
obligations. Our ability to grow through acquisitions and
developments will be limited if we are unable to obtain debt or
equity financing, which could have a material adverse effect on
our results of operations and our ability to make distributions
to our stockholders.
Dependence
on our tenants for payments of rent and interest may adversely
impact our ability to make distributions to our
stockholders.
We expect to continue to qualify as a REIT and, accordingly, as
a REIT operating in the healthcare industry, we are not
permitted by current tax law to operate or manage the businesses
conducted in our facilities.
9
Accordingly, we rely almost exclusively on rent payments from
our tenants under leases or interest payments from operators
under mortgage loans we have made to them for cash with which to
make distributions to our stockholders. We have no control over
the success or failure of these tenants businesses.
Significant adverse changes in the operations of any facility,
or the financial condition of any tenant, operator or guarantor,
could have a material adverse effect on our ability to collect
rent and interest payments and, accordingly, on our ability to
make distributions to our stockholders. Facility management by
our tenants and their compliance with state and federal
healthcare laws could have a material impact on our
tenants operating and financial condition and, in turn,
their ability to pay rent and interest to us.
It may
be costly to replace defaulting tenants and we may not be able
to replace defaulting tenants with suitable replacements on
suitable terms.
Failure on the part of a tenant to comply materially with the
terms of a lease could give us the right to terminate our lease
with that tenant, repossess the applicable facility, cross
default certain other leases and loans with that tenant and
enforce the payment obligations under the lease. The process of
terminating a lease with a defaulting tenant and repossessing
the applicable facility may be costly and require a
disproportionate amount of managements attention. In
addition, defaulting tenants or their affiliates may initiate
litigation in connection with a lease termination or
repossession against us or our subsidiaries. For example, in
connection with our termination of leases relating to the
Houston Town and Country Hospital and Medical Office Building in
late 2006, we were subsequently named as one of a number of
defendants in lawsuits filed by various affiliates of the
defaulting tenant. Resolution of these types of lawsuits in a
manner materially adverse to us may adversely affect our
financial condition and results of operations. If a
tenant-operator defaults and we choose to terminate our lease,
we then would be required to find another tenant-operator. The
transfer of most types of healthcare facilities is highly
regulated, which may result in delays and increased costs in
locating a suitable replacement tenant. The sale or lease of
these properties to entities other than healthcare operators may
be difficult due to the added cost and time of refitting the
properties. If we are unable to re-let the properties to
healthcare operators, we may be forced to sell the properties at
a loss due to the repositioning expenses likely to be incurred
by non-healthcare purchasers. Alternatively, we may be required
to spend substantial amounts to adapt the facility to other
uses. There can be no assurance that we would be able to find
another tenant in a timely fashion, or at all, or that, if
another tenant were found, we would be able to enter into a new
lease on favorable terms. Defaults by our tenants under our
leases may adversely affect the timing of and our ability to
make distributions to our stockholders.
Our
revenues are dependent upon our relationship with, and success
of, Vibra and Prime.
As of December 31, 2007, we owned 25 facilities which were
being operated by eight operators, and we had mortgage loans to
two operators. Vibra Healthcare, LLC, or Vibra, leased eight of
our facilities, representing 21.6% of the original total cost of
our operating facilities and mortgage loans as of
December 31, 2007, and affiliates of Prime Healthcare
Services, Inc. leased or mortgaged nine facilities, representing
39.6% of the original total cost of our operating facilities and
mortgage loans as of December 31, 2007. Total revenue from
Vibra and Prime, including rent, percentage rent and interest,
was approximately $30.1 million and $24.9 million,
respectively, or 31.3% and 25.9%, respectively, of total revenue
from continuing operations in the year ended December 31,
2007.
In 2007, we completed transactions with Prime for approximately
$243.0 million. We may pursue additional transactions with
Vibra or Prime in the future. Our relationship with Vibra and
Prime, 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 Vibra and Prime to make rent and
loan payments to us, and their failure or delay to meet these
obligations would have a material adverse effect on our
financial condition and results of operations.
Accounting
rules may require consolidation of entities to which we have
made loans and other adjustments to our financial
statements.
The Financial Accounting Standards Board, or FASB, issued FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of Accounting Research
Bulletin No. 51 (ARB No. 51), in January
2003, and a further interpretation of FIN 46 in December
2003
(FIN 46-R,
and collectively FIN 46). FIN 46 clarifies
10
the application of ARB No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties, referred to as variable
interest entities. FIN 46 generally requires consolidation
by the party that has a majority of the risk
and/or
rewards, referred to as the primary beneficiary. FIN 46
applies immediately to variable interest entities created after
January 31, 2003. Under certain circumstances, generally
accepted accounting principles may require us to account for
loans to thinly capitalized companies as equity investments. The
resulting accounting treatment of certain income and expense
items may adversely affect our results of operations, and
consolidation of balance sheet amounts may adversely affect any
loan covenants.
The
bankruptcy or insolvency of our tenants under our leases could
seriously harm our operating results and financial
condition.
Some of our tenants, including North Cypress Medical Center
Operating Company, Bucks County Oncoplastic Institute, Monroe
Hospital and Vibra, 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 could 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
facilities are currently leased to only eight tenants, five of
which were recently organized and have limited or no operating
histories, and failure of any of these tenants and the
guarantors of their leases to meet their obligations to us would
have a material adverse effect on our revenues and our ability
to make distributions to our stockholders.
Our existing facilities are currently leased to Vibra, Post
Acute, Prime, Healthcare Partners of America (HPA), Gulf States,
North Cypress, Bucks County Oncoplastic Institute
(BCO) and Monroe Hospital or their subsidiaries or
affiliates. If any of our tenants were to experience financial
difficulties, the tenant may not be able to pay its rent. Vibra,
North Cypress, BCO and Monroe Hospital were recently organized
and have limited or no operating histories.
Our
business is highly competitive and we may be unable to compete
successfully.
We compete for development opportunities and opportunities to
purchase healthcare facilities with, among others:
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private investors;
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healthcare providers, including physicians;
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other REITs;
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real estate partnerships;
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financial institutions; and
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local developers.
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Many of these competitors have substantially greater financial
and other resources than we have and may have better
relationships with lenders and sellers. Competition for
healthcare facilities from competitors may adversely affect our
ability to acquire or develop healthcare facilities and the
prices we pay for those facilities. If we are unable to acquire
or develop facilities or if we pay too much for facilities, our
revenue and earnings growth and financial
11
return could be materially adversely affected. Certain of our
facilities and additional facilities we may acquire or develop
will face competition from other nearby facilities that provide
services comparable to those offered at our facilities and
additional facilities we may acquire or develop. Some of those
facilities are owned by governmental agencies and supported by
tax revenues, and others are owned by tax-exempt corporations
and may be supported to a large extent by endowments and
charitable contributions. Those types of support are not
available to our facilities and additional facilities we may
acquire or develop. In addition, competing healthcare facilities
located in the areas served by our facilities and additional
facilities we may acquire or develop may provide healthcare
services that are not available at our facilities and additional
facilities we may acquire or develop. From time to time,
referral sources, including physicians and managed care
organizations, may change the healthcare facilities to which
they refer patients, which could adversely affect our rental
revenues.
Our
use of debt financing will subject us to significant risks,
including refinancing risk and the risk of insufficient cash
available for distribution to our stockholders.
As of December 31, 2007, we had $480.5 million of debt
outstanding. As of March 1, 2008, we have approximately
$402.7 million of debt outstanding. We may borrow from
other lenders in the future, or we may issue debt securities in
public or private offerings and our organizational documents do
not limit the amount of debt we may incur.
Most of our current debt is, and we anticipate that much of our
future debt will be,
non-amortizing
and payable in balloon payments. Therefore, we will likely need
to refinance at least a portion of that debt as it matures.
There is a risk that we may not be able to refinance
then-existing debt or that the terms of any refinancing will not
be as favorable as the terms of the then-existing debt. If
principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new
equity capital or sales of facilities, our cash flow may not be
sufficient to repay all maturing debt in years when significant
balloon payments come due. Additionally, we may incur
significant penalties if we choose to prepay the debt.
Failure
to hedge effectively against interest rate changes may adversely
affect our results of operations and our ability to make
distributions to our stockholders.
As of December 31, 2007, we had approximately
$220.8 million in variable interest rate debt ($142.8
million at March 1, 2008). We may seek to manage our
exposure to interest rate volatility by using interest rate
hedging arrangements that involve risk, including the risk that
counterparties may fail to honor their obligations under these
arrangements, that these arrangements may not be effective in
reducing our exposure to interest rate changes and that these
arrangements may result in higher interest rates than we would
otherwise have. Moreover, no hedging activity can completely
insulate us from the risks associated with changes in interest
rates. Failure to hedge effectively against interest rate
changes may materially adversely affect our results of
operations and our ability to make distributions to our
stockholders.
Most
of our current tenants have, and prospective tenants may have,
an option to purchase the facilities we lease to them which
could disrupt our operations.
Most of our current tenants have, and some prospective tenants
will have, the option to purchase the facilities we lease to
them. We cannot assure you that the formulas we have developed
for setting the purchase price will yield a fair market value
purchase price. Any purchase not at fair market value may
present risks of challenge from healthcare regulatory
authorities.
In the event our tenants and prospective tenants determine to
purchase the facilities they lease either during the lease term
or after their expiration, the timing of those purchases will be
outside of our control and we may not be able to re-invest the
capital on as favorable terms, or at all. Our inability to
effectively manage the turn-over of our facilities could
materially adversely affect our ability to execute our business
plan and our results of operations.
12
RISKS
RELATING TO REAL ESTATE INVESTMENTS
Our
real estate and mortgage investments are and will continue to be
concentrated in healthcare facilities, 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 in healthcare facilities. A downturn in the real estate
industry could materially adversely affect the value of our
facilities. A downturn in the healthcare industry could
negatively affect our tenants ability to make lease or
loan payments to us and, consequently, our ability to meet debt
service obligations or make distributions to our stockholders.
These adverse effects could be more pronounced than if we
diversified our investments outside of real estate or outside of
healthcare facilities.
Our
facilities may not have efficient alternative uses, which could
impede our ability to find replacement tenants in the event of
termination or default under our leases.
All of the facilities in our current portfolio are and all of
the facilities we expect to acquire or develop in the future
will be net-leased healthcare facilities. If we or our tenants
terminate the leases for these facilities or if these tenants
lose their regulatory authority to operate these facilities, we
may not be able to locate suitable replacement tenants to lease
the facilities for their specialized uses. Alternatively, we may
be required to spend substantial amounts to adapt the facilities
to other uses. Any loss of revenues or additional capital
expenditures occurring as a result could have a material adverse
effect on our financial condition and results of operations and
could hinder our ability to meet debt service obligations or
make distributions to our stockholders.
Illiquidity
of real estate investments could significantly impede our
ability to respond to adverse changes in the performance of our
facilities and harm our financial condition.
Real estate investments are relatively illiquid. 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.
Development
and construction risks could adversely affect our ability to
make distributions to our stockholders.
We have completed development and construction of four
facilities which are now in operation. We expect to develop
additional facilities in the future. Our development and related
construction activities may subject us to the following risks:
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we may have to compete for suitable development sites;
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our ability to complete construction is dependent on there being
no title, environmental or other legal proceedings arising
during construction;
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we may be subject to delays due to weather conditions, strikes
and other contingencies beyond our control;
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we may be unable to obtain, or suffer delays in obtaining,
necessary zoning, land-use, building, occupancy healthcare
regulatory and other required governmental permits and
authorizations, which could result in increased costs, delays in
construction, or our abandonment of these projects;
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we may incur construction costs for a facility which exceed our
original estimates due to increased costs for materials or labor
or other costs that we did not anticipate; and
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we may not be able to obtain financing on favorable terms, which
may render us unable to proceed with our development activities.
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We expect to fund our development projects over time. The time
frame required for development and construction of these
facilities means that we may have to wait years for a
significant cash return. In addition, our tenants may not be
able to obtain managed care provider contracts in a timely
manner or at all. Because we are required to make cash
distributions to our stockholders, if the cash flow from
operations or refinancings is not sufficient, we may be forced
to borrow additional money to fund distributions. We cannot
assure you that future development projects will not be subject
to delays and cost overruns. Risks associated with our
development projects may reduce anticipated rental revenue which
could affect the timing of, and our ability to make,
distributions to our stockholders.
Our
facilities may not achieve expected results or we may be limited
in our ability to finance future acquisitions, which may harm
our financial condition and operating results and our ability to
make the distributions to our stockholders required to maintain
our REIT status.
Acquisitions and developments entail risks that investments will
fail to perform in accordance with expectations and that
estimates of the costs of improvements necessary to acquire and
develop facilities will prove inaccurate, as well as general
investment risks associated with any new real estate investment.
We anticipate that future acquisitions and developments will
largely be financed through externally generated funds such as
borrowings under credit facilities and other secured and
unsecured debt financing and from issuances of equity
securities. Because we must distribute at least 90% of our REIT
taxable income, excluding net capital gain, each year to
maintain our qualification as a REIT, our ability to rely upon
income from operations or cash flow from operations to finance
our growth and acquisition activities will be limited.
Accordingly, if we are unable to obtain funds from borrowings or
the capital markets to finance our acquisition and development
activities, our ability to grow would likely be curtailed,
amounts available for distribution to stockholders could be
adversely affected and we could be required to reduce
distributions, thereby jeopardizing our ability to maintain our
status as a REIT.
Newly-developed or newly-renovated facilities do not have the
operating history that would allow our management to make
objective pricing decisions in acquiring these facilities The
purchase prices of these facilities will be based in part upon
projections by management as to the expected operating results
of the facilities, subjecting us to risks that these facilities
may not achieve anticipated operating results or may not achieve
these results within anticipated time frames.
If we
suffer losses that are not covered by insurance or that are in
excess of our insurance coverage limits, we could lose
investment capital and anticipated profits.
We have purchased general liability insurance (lessors
risk) that provides coverage for bodily injury and property
damage to third parties resulting from our ownership of the
healthcare facilities that are leased to and occupied by our
tenants. Our leases generally require our tenants to carry
general liability, professional liability, loss of earnings, all
risk and extended coverage insurance in amounts sufficient to
permit the replacement of the facility in the event of a total
loss, subject to applicable deductibles. However, there are
certain types of losses, generally of a catastrophic nature,
such as earthquakes, floods, hurricanes and acts of terrorism,
which may be uninsurable or not insurable at a price we or our
tenants can afford. Inflation, changes in building codes and
ordinances, environmental considerations and other factors also
might make it impracticable to use insurance proceeds to replace
a facility after it has been damaged or destroyed. Under such
circumstances, the insurance proceeds we receive might not be
adequate to restore our economic position with respect to the
affected facility. If any of these or similar events occur, it
may reduce our return from the facility and the value of our
investment.
Capital
expenditures for facility renovation may be greater than
anticipated and may adversely impact rent payments by our
tenants and our ability to make distributions to
stockholders.
Facilities, particularly those that consist of older structures,
have an ongoing need for renovations and other capital
improvements, including periodic replacement of furniture,
fixtures and equipment. Although our leases require our tenants
to be primarily responsible for the cost of such expenditures,
renovation of facilities involves certain risks, including the
possibility of environmental problems, construction cost
overruns and delays, uncertainties as to market demand or
deterioration in market demand after commencement of renovation
and the emergence of unanticipated competition from other
facilities. All of these factors could adversely impact rent and
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loan payments by our tenants, could have a material adverse
effect on our financial condition and results of operations and
could adversely affect our ability to make distributions to our
stockholders.
All of
our healthcare facilities are subject to property taxes that may
increase in the future and adversely affect our
business.
Our facilities are subject to real and personal property taxes
that may increase as property tax rates change and as the
facilities are assessed or reassessed by taxing authorities. Our
leases generally provide that the property taxes are charged to
our tenants as an expense related to the facilities that they
occupy. As the owner of the facilities, however, we are
ultimately responsible for payment of the taxes to the
government. If property taxes increase, our tenants may be
unable to make the required tax payments, ultimately requiring
us to pay the taxes. If we incur these tax liabilities, our
ability to make expected distributions to our stockholders could
be adversely affected.
As the
owner and lessor of real estate, we are subject to risks under
environmental laws, the cost of compliance with which and any
violation of which could materially adversely affect
us.
Our operating expenses could be higher than anticipated due to
the cost of complying with existing and future environmental and
occupational health and safety laws and regulations. Various
environmental laws may impose liability on a current or prior
owner or operator of real property for removal or remediation of
hazardous or toxic substances. Current or prior owners or
operators may also be liable for government fines and damages
for injuries to persons, natural resources and adjacent
property. These environmental laws often impose liability
whether or not the owner or operator knew of, or was responsible
for, the presence or disposal of the hazardous or toxic
substances. The cost of complying with environmental laws could
materially adversely affect amounts available for distribution
to our stockholders and could exceed the value of all of our
facilities. In addition, the presence of hazardous or toxic
substances, or the failure of our tenants to properly manage,
dispose of or remediate such substances, including medical waste
generated by physicians and our other healthcare tenants, may
adversely affect our tenants or our ability to use, sell or rent
such property or to borrow using such property as collateral
which, in turn, could reduce our revenue and our financing
ability. We have obtained on all facilities we have acquired or
developed or on which we have made mortgage loans and intend to
obtain on all future facilities we acquire Phase I environmental
assessments. However, even if the Phase I environmental
assessment reports do not reveal any material environmental
contamination, it is possible that material environmental
contamination and liabilities may exist of which we are unaware.
Although the leases for our facilities and our mortgage loans
generally require our operators to comply with laws and
regulations governing their operations, including the disposal
of medical waste, and to indemnify us for certain environmental
liabilities, the scope of their obligations may be limited. We
cannot assure you that our tenants would be able to fulfill
their indemnification obligations and, therefore, any material
violation of environmental laws could have a material adverse
affect on us. In addition, environmental and occupational health
and safety laws are constantly evolving, and changes in laws,
regulations or policies, or changes in interpretations of the
foregoing, could create liabilities where none exists today.
Our
interests in facilities through ground leases expose us to the
loss of the facility upon breach or termination of the ground
lease and may limit our use of the facility.
We have acquired interests in three 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 in Marlton, New Jersey limits use of the
property to operation of a 76 bed rehabilitation hospital. 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.
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RISKS
RELATING TO THE HEALTHCARE INDUSTRY
Reductions
in reimbursement from third-party payors, including Medicare and
Medicaid, could adversely affect the profitability of our
tenants and hinder their ability to make rent payments to
us.
Sources of revenue for our tenants and operators may include the
federal Medicare program, state Medicaid programs, private
insurance carriers and health maintenance organizations, among
others. Efforts by such payors to reduce healthcare costs will
likely continue, which may result in reductions or slower growth
in reimbursement for certain services provided by some of our
tenants. In addition, the failure of any of our tenants to
comply with various laws and regulations could jeopardize their
ability to continue participating in Medicare, Medicaid and
other government-sponsored payment programs.
The healthcare industry continues to face various challenges,
including increased government and private payor pressure on
healthcare providers to control or reduce costs. We believe that
our tenants will continue to experience a shift in payor mix
away from
fee-for-service
payors, resulting in an increase in the percentage of revenues
attributable to managed care payors, government payors and
general industry trends that include pressures to control
healthcare costs. Pressures to control healthcare costs and a
shift away from traditional health insurance reimbursement have
resulted in an increase in the number of patients whose
healthcare coverage is provided under managed care plans, such
as health maintenance organizations and preferred provider
organizations. In addition, due to the aging of the population
and the expansion of governmental payor programs, we anticipate
that there will be a marked increase in the number of patients
relying on healthcare coverage provided by governmental payors.
These changes could have a material adverse effect on the
financial condition of some or all of our tenants, which could
have a material adverse effect on our financial condition and
results of operations and could negatively affect our ability to
make distributions to our stockholders.
A significant number of our tenants operate long-term acute care
hospitals, or LTACHs. The United States Department of Health and
Human Services, Centers for Medicare and Medicaid Services, or
CMS, recently proposed a 0.71 percent increase to the LTACH
prospective payment system rates for 2008. However, in light of
concerns raised by an analysis of recent LTACH case mix data,
CMS also proposed a budget neutrality requirement for annual
payment updates.
In addition to the proposed payment changes, CMS is proposing
changes to its policy known as the 25 percent
rule. That rule takes into account the percentage of
patients that were admitted to the LTACH from its co-located
host hospital (usually a general acute care hospital). Under the
current policy, if an LTACH that is a hospital-within-a-hospital
or satellite facility that has more than a certain percentage
(generally 25 percent) of its discharges admitted from the
co-located host hospital for the cost reporting period, then the
payment to the LTACH would be adjusted downward. CMS adopted a
final rule that extends the 25 percent rule and implements
a payment adjustment for LTACH and satellites (including
grandfathered facilities) that applies to Medicare discharges
that were admitted from a referring hospital that is not
co-located with it. Implementation of the 25 percent rule
will extend over a three year period,. For cost reporting
periods beginning on or after July 1, 2007 and before
July 1, 2008 (the first transition year), the threshold is
no less than the lesser of 75 percent or the percentage of
Medicare discharges that had been admitted to the LTACH or
satellite facility during its RY 2005 cost reporting period from
that referring hospital. CMS will continue to explore
implementing a recommendation from MedPAC to develop facility
and patient level criteria for LTACHs. If adopted as proposed,
these changes could have a material adverse effect on the
financial condition of some of our tenants, which could have a
material adverse effect on our financial condition and results
of operations and could negatively affect our ability to make
distributions to our stockholders.
The
healthcare industry is heavily regulated and existing and new
laws or regulations, changes to existing laws or regulations,
loss of licensure or certification or failure to obtain
licensure or certification could result in the inability of our
tenants to make lease payments to us.
The healthcare industry is highly regulated by federal, state
and local laws, and is directly affected by federal conditions
of participation, state licensing requirements, facility
inspections, state and federal reimbursement policies,
regulations concerning capital and other expenditures,
certification requirements and other such laws, regulations and
rules. In addition, establishment of healthcare facilities and
transfers of operations of healthcare facilities are subject to
regulatory approvals not required for establishment of or
transfers of other types of
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commercial operations and real estate. Sanctions for failure to
comply with these regulations and laws include, but are not
limited to, loss of or inability to obtain licensure, fines and
loss of or inability to obtain certification to participate in
the Medicare and Medicaid programs, as well as potential
criminal penalties. The failure of any tenant to comply with
such laws, requirements and regulations could affect its ability
to establish or continue its operation of the facility or
facilities and could adversely affect the tenants ability
to make lease payments to us which could have a material adverse
effect on our financial condition and results of operations and
could negatively affect our ability to make distributions to our
stockholders. In addition, restrictions and delays in
transferring the operations of healthcare facilities, in
obtaining new third-party payor contracts including Medicare and
Medicaid provider agreements, and in receiving licensure and
certification approval from appropriate state and federal
agencies by new tenants may affect our ability to terminate
lease agreements, remove tenants that violate lease terms, and
replace existing tenants with new tenants. Furthermore, these
matters may affect a new tenants ability to obtain
reimbursement for services rendered, which could adversely
affect their ability to pay rent to us and to pay principal and
interest on their loans from us.
Our
tenants are subject to fraud and abuse laws, the violation of
which by a tenant may jeopardize the tenants ability to
make lease and loan payments to us.
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, the Balanced Budget Act of 1997
strengthened the federal anti-fraud and abuse laws to provide
for stiffer penalties for violations. Violations of these laws
may result in the imposition of criminal and civil penalties,
including possible exclusion from federal and state healthcare
programs. Imposition of any of these penalties upon any of our
tenants could jeopardize any tenants ability to operate a
facility or to make lease and loan payments, thereby potentially
adversely affecting us.
In the past several years, federal and state governments have
significantly increased investigation and enforcement activity
to detect and eliminate fraud and abuse in the Medicare and
Medicaid programs. In addition, legislation has been adopted at
both state and federal levels which severely restricts the
ability of physicians to refer patients to entities in which
they have a financial interest. It is anticipated that the trend
toward increased investigation and enforcement activity in the
area of fraud and abuse, as well as self-referrals, will
continue in future years and could adversely affect our
prospective tenants and their operations, and in turn their
ability to make lease and loan payments to us.
Vibra has accepted, and prospective tenants may accept, an
assignment of the previous operators Medicare provider
agreement. Vibra and other new-operator tenants that take
assignment of Medicare provider agreements might be subject to
federal or state regulatory, civil and criminal investigations
of the previous owners operations and claims submissions.
While we conduct due diligence in connection with the
acquisition of such facilities, these types of issues may not be
discovered prior to purchase. Adverse decisions, fines or
recoupments might negatively impact our tenants financial
condition.
Certain
of our lease arrangements may be subject to fraud and abuse or
physician self-referral laws.
Local physician investment in our operating partnership or our
subsidiaries that own our facilities could subject our lease
arrangements to scrutiny under fraud and abuse and physician
self-referral laws. Under the Stark Law, and regulations adopted
thereunder, if our lease arrangements do not satisfy the
requirements of an applicable exception, that noncompliance
could adversely affect the ability of our tenants to bill for
services provided to Medicare beneficiaries pursuant to
referrals from physician investors and subject us and our
tenants to fines, which could impact their ability to make lease
and loan payments to us. On March 26, 2004, CMS issued
Phase II final rules under the Stark Law, which, together
with the 2001 Phase I final rules, set forth CMS current
interpretation and application of the Stark Law prohibition on
referrals of designated health services, or DHS. These rules
provide us additional guidance on application of the Stark Law
through the implementation of bright-line tests,
including additional regulations regarding the indirect
compensation exception, but do not eliminate the risk that our
lease arrangements and business strategy of physician investment
may violate the Stark Law. Finally, the Phase II rules
implemented an
18-month
moratorium on physician ownership or investment in specialty
hospitals imposed by the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003. The moratorium
imposed by the
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Medicare Prescription Drug, Improvement and Modernization Act of
2003, or MMA, expired on June 8, 2005. However, that
moratorium was retroactively extended by the passage of the
Deficit Reduction Act of 2005, or the DRA, which requires the
Secretary of Health and Human Services to develop a strategic
and implementing plan for physician investment in specialty
hospitals that addresses the issues of proportionality of
investment return, bona fide investment, annual disclosure of
investments, and the provision of medical assistance (Medicaid)
and charity care. The final report was published on
August 8, 2006, at which time the moratorium expired.
However, we expect that specialty hospitals will continue to be
closely scrutinized by Congress and various federal and state
agencies. Further, despite the expiration of the specialty
hospital moratorium, in its final report, CMS expressed its
intention to (i) revise the Medicare payment system to
address incentives to physician investors; (ii) require
disclosure of physician investment and compensation
arrangements; (iii) continue to enforce the fraud and abuse
laws; and (iv) continue to enforce prior violations of the
MMA moratorium. 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. On September 7,
2007, CMS published Phase III regulations which modify
certain aspects of the Stark Law regulations. Subsequently, the
effective dates of a portion of those regulations was extended.
In addition, CMS proposed additional changes to existing Stark
Law regulations as part of the IPPS regulations.
State
certificate of need laws may adversely affect our development of
facilities and the operations of our tenants.
Certain healthcare facilities in which we invest may also be
subject to state laws which require regulatory approval in the
form of a certificate of need prior to initiation of certain
projects, including, but not limited to, the establishment of
new or replacement facilities, the addition of beds, the
addition or expansion of services and certain capital
expenditures. State certificate of need laws are not uniform
throughout the United States and are subject to change. We
cannot predict the impact of state certificate of need laws on
our development of facilities or the operations of our tenants.
In addition, certificate of need laws often materially impact
the ability of competitors to enter into the marketplace of our
facilities. Finally, in limited circumstances, loss of state
licensure or certification or closure of a facility could
ultimately result in loss of authority to operate the facility
and require re-licensure or new certificate of need
authorization to re-institute operations. As a result, a portion
of the value of the facility may be related to the limitation on
new competitors. In the event of a change in the certificate of
need laws, this value may markedly decrease.
RISKS
RELATING TO OUR ORGANIZATION AND STRUCTURE
Maryland
law and Medical Properties charter and bylaws contain
provisions which may prevent or deter changes in management and
third-party acquisition proposals that you may believe to be in
your best interest, depress the price of Medical Properties
common stock or cause dilution.
Medical Properties charter contains ownership limitations
that may restrict business combination opportunities, inhibit
change of control transactions and reduce the value of Medical
Properties common stock. To qualify as a REIT under the Internal
Revenue Code of 1986, as amended, or the Code, no more than 50%
in value of Medical Properties outstanding stock, after
taking into account options to acquire stock, may be owned,
directly or indirectly, by five or fewer persons during the last
half of each taxable year. Medical Properties charter
generally prohibits direct or indirect ownership by any person
of more than 9.8% in value or in number, whichever is more
restrictive, of outstanding shares of any class or series of our
securities, including Medical Properties common stock.
Generally, Medical Properties common stock owned by affiliated
owners will be aggregated for purposes of the ownership
limitation. The ownership limitation could have the effect of
delaying, deterring or preventing a change in control or other
transaction in which holders of common stock might receive a
premium for their common stock over the then-current market
price or which such holders otherwise might believe to be in
their best interests. The ownership limitation provisions also
may make Medical Properties common stock an unsuitable
investment vehicle for any person seeking to obtain, either
alone or with others as a group, ownership of more than 9.8% of
either the value or number of the outstanding shares of Medical
Properties common stock.
Medical Properties charter and bylaws contain provisions
that may impede third-party acquisition proposals that may be in
your best interests. Medical Properties charter and bylaws
also provide that our directors may only
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be removed by the affirmative vote of the holders of two-thirds
of Medical Properties common stock, that stockholders are
required to give us advance notice of director nominations and
new business to be conducted at our annual meetings of
stockholders and that special meetings of stockholders can only
be called by our president, our board of directors or the
holders of at least 25% of stock entitled to vote at the
meetings. These and other charter and bylaw provisions may delay
or prevent a change of control or other transaction in which
holders of Medical Properties common stock might receive a
premium for their common stock over the then-current market
price or which such holders otherwise might believe to be in
their best interests.
We
depend on key personnel, the loss of any one of whom may
threaten our ability to operate our business
successfully.
We depend on the services of Edward K. Aldag, Jr., R.
Steven Hamner, Emmett E. McLean, Michael G. Stewart and William
G. Mc Kenzie to carry out our business and investment strategy.
If we were to lose any of these executive officers, it may be
more difficult for us to locate attractive acquisition targets,
complete our acquisitions and manage the facilities that we have
acquired or developed. Additionally, as we expand, we will
continue to need to attract and retain additional qualified
officers and employees. The loss of the services of any of our
executive officers, or our inability to recruit and retain
qualified personnel in the future, could have a material adverse
effect on our business and financial results.
Our
UPREIT structure may result in conflicts of interest between
Medical Properties stockholders and the holders of our
operating partnership units.
We are organized as an UPREIT, which means that we hold our
assets and conduct substantially all of our operations through
an operating limited partnership, and may issue operating
partnership units to third parties. Persons holding operating
partnership units would have the right to vote on certain
amendments to the partnership agreement of our operating
partnership, as well as on certain other matters. Persons
holding these voting rights may exercise them in a manner that
conflicts with the interests of our stockholders. Circumstances
may arise in the future, such as the sale or refinancing of one
of our facilities, when the interests of limited partners in our
operating partnership conflict with the interests of our
stockholders. As the sole member of the general partner of the
operating partnership, Medical Properties has fiduciary duties
to the limited partners of the operating partnership that may
conflict with fiduciary duties Medical Properties officers
and directors owe to its stockholders. These conflicts may
result in decisions that are not in your best interest.
TAX RISKS
ASSOCIATED WITH OUR STATUS AS A REIT
Loss
of our tax status as a REIT would have significant adverse
consequences to us and the value of Medical Properties common
stock.
We believe that we qualify as a REIT for federal income tax
purposes and have elected to be taxed as a REIT under the
federal income tax laws commencing with our taxable year that
began on April 6, 2004 and ended on December 31, 2004.
The REIT qualification requirements are extremely complex, and
interpretations of the federal income tax laws governing
qualification as a REIT are limited. Accordingly, there is no
assurance that we will be successful in operating so as to
qualify as a REIT. At any time, new laws, regulations,
interpretations or court decisions may change the federal tax
laws relating to, or the federal income tax consequences of,
qualification as a REIT. It is possible that future economic,
market, legal, tax or other considerations may cause our board
of directors to revoke the REIT election, which it may do
without stockholder approval.
If we lose or revoke our REIT status, we will face serious tax
consequences that will substantially reduce the funds available
for distribution because:
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we would not be allowed a deduction for distributions to
stockholders in computing our taxable income; therefore we would
be subject to federal income tax at regular corporate rates and
we might need to borrow money or sell assets in order to pay any
such tax;
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we also could be subject to the federal alternative minimum tax
and possibly increased state and local taxes; and
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unless we are entitled to relief under statutory provisions, we
also would be disqualified from taxation as a REIT for the four
taxable years following the year during which we ceased to
qualify.
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As a result of all these factors, a failure to achieve or a loss
or revocation of our REIT status could have a material adverse
effect on our financial condition and results of operations and
would adversely affect the value of our common stock.
Failure
to make required distributions would subject us to
tax.
In order to qualify as a REIT, each year we must distribute to
our stockholders at least 90% of our REIT taxable income,
excluding net capital gain. To the extent that we satisfy the
distribution requirement, but distribute less than 100% of our
taxable income, we will be subject to federal corporate income
tax on our undistributed income. In addition, we will incur a 4%
nondeductible excise tax on the amount, if any, by which our
distributions in any year are less than the sum of (1) 85%
of our ordinary income for that year; (2) 95% of our
capital gain net income for that year; and (3) 100% of our
undistributed taxable income from prior years.
We may be required to make distributions to stockholders at
disadvantageous times or when we do not have funds readily
available for distribution. Differences in timing between the
recognition of income and the related cash receipts or the
effect of required debt amortization payments could require us
to borrow money or sell assets to pay out enough of our taxable
income to satisfy the distribution requirement and to avoid
corporate income tax and the 4% excise tax in a particular year.
In the future, we may borrow to pay distributions to our
stockholders and the limited partners of our operating
partnership. Any funds that we borrow would subject us to
interest rate and other market risks.
Complying
with REIT requirements may cause us to forego otherwise
attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning, among other things, the
sources of our income, the nature and diversification of our
assets, the amounts we distribute to our stockholders and the
ownership of our stock. In order to meet these tests, we may be
required to forego attractive business or investment
opportunities. Overall, no more than 20% of the value of our
assets may consist of securities of one or more taxable REIT
subsidiaries, and no more than 25% of the value of our assets
may consist of securities that are not qualifying assets under
the test requiring that 75% of a REITs assets consist of
real estate and other related assets. Further, a taxable REIT
subsidiary may not directly or indirectly operate or manage a
healthcare facility. For purposes of this definition a
healthcare facility means a hospital, nursing
facility, assisted living 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 rental income from that tenant might not be qualifying
income under the REIT rules and we could lose our REIT
status.
In connection with the acquisition of the Vibra Facilities, our
taxable REIT subsidiary made a loan to Vibra in an aggregate
amount of approximately $41.4 million to acquire the
operations at the Vibra Facilities. As of March 1, 2008,
that loan had been reduced to approximately $29.4 million.
Our taxable REIT subsidiary also made a loan of approximately
$6.2 million to Vibra and its subsidiaries for working
capital purposes, which has been paid in full. The acquisition
loan bears interest at an annual rate of 10.25%. Our operating
partnership loaned the funds to our taxable REIT subsidiary to
make these loans. The loan from our operating partnership to our
taxable REIT subsidiary bears interest at an annual rate of
9.25%.
Our taxable REIT subsidiary has made and will make loans to
tenants to acquire operations or for other purposes. The
Internal Revenue Service, or IRS, may take the position that
certain loans to tenants should be treated as equity interests
rather than debt, and that our rental income from such tenant
should not be treated as qualifying income for purposes of the
REIT gross income tests. If the IRS were to successfully treat a
loan to a particular tenant as equity interests, the tenant
would be a related party tenant with respect to our
company and the rent that we receive from the tenant would not
be qualifying income for purposes of the REIT gross income
tests. As a result, we could lose our REIT status. In addition,
if the IRS were to successfully treat a particular loan as
interests held by our operating partnership rather than by our
taxable REIT subsidiary, we could fail the 5% asset test, and if
the IRS further successfully treated the loan as other than
straight debt, we could fail the 10% asset test with respect to
such interest. As a result of the failure of either test, could
lose our REIT status, which would subject us to corporate level
income tax and adversely affect our ability to make
distributions to our stockholders.
20
RISKS
RELATED TO AN INVESTMENT IN OUR COMMON STOCK
The
market price and trading volume of our common stock may be
volatile.
The market price of our common stock may be highly volatile and
be subject to wide fluctuations. In addition, the trading volume
in our common stock may fluctuate and cause significant price
variations to occur. If the market price of our common stock
declines significantly, you may be unable to resell your shares
at or above your purchase price.
We cannot assure you that the market price of our common stock
will not fluctuate or decline significantly in the future. Some
of the factors that could negatively affect our share price or
result in fluctuations in the price or trading volume of our
common stock include:
|
|
|
|
|
actual or anticipated variations in our quarterly operating
results or distributions;
|
|
|
|
changes in our funds from operations or earnings estimates or
publication of research reports about us or the real estate
industry;
|
|
|
|
increases in market interest rates that lead purchasers of our
shares of common stock to demand a higher yield;
|
|
|
|
changes in market valuations of similar companies;
|
|
|
|
adverse market reaction to any increased indebtedness we incur
in the future;
|
|
|
|
additions or departures of key management personnel;
|
|
|
|
actions by institutional stockholders;
|
|
|
|
local conditions such as an oversupply of, or a reduction in
demand for, rehabilitation hospitals, long-term acute care
hospitals, ambulatory surgery centers, medical office buildings,
specialty hospitals, skilled nursing facilities, regional and
community hospitals, womens and childrens hospitals
and other single-discipline facilities;
|
|
|
|
speculation in the press or investment community; and
|
|
|
|
general market and economic conditions.
|
Future
sales of common stock may have adverse effects on our stock
price.
We cannot predict the effect, if any, of future sales of common
stock, or the availability of shares for future sales, on the
market price of our common stock. Sales of substantial amounts
of common stock, or the perception that these sales could occur,
may adversely affect prevailing market price for our common
stock. We may issue from time to time additional common stock or
units of our operating partnership in connection with the
acquisition of facilities and we may grant additional demand or
piggyback registration rights in connection with these
issuances. Sales of substantial amounts of common stock or the
perception that these sales could occur may adversely affect the
prevailing market price for our common stock. In addition, the
sale of these shares could impair our ability to raise capital
through a sale of additional equity securities.
An
increase in market interest rates may have an adverse effect on
the market price of our securities.
One of the factors that investors may consider in deciding
whether to buy or sell our securities is our distribution rate
as a percentage of our price per share of common stock, relative
to market interest rates. If market interest rates increase,
prospective investors may desire a higher distribution or
interest rate on our securities or seek securities paying higher
distributions or interest. The market price of our common stock
likely will be based primarily on the earnings that we derive
from rental income with respect to our facilities and our
related distributions to stockholders, and not from the
underlying appraised value of the facilities themselves. As a
result, interest rate fluctuations and capital market conditions
can affect the market price of our common stock. In addition,
rising interest rates would result in increased interest expense
on our variable-rate debt, thereby adversely affecting cash flow
and our ability to service our indebtedness and make
distributions.
21
|
|
ITEM 1B.
|
Unresolved
Staff Comments
|
None
At December 31, 2007, our portfolio consisted of
28 properties: 25 facilities which we own are leased
to eight tenants with the remainder in the form of mortgage
loans to two operators, totaling an aggregate of approximately
3.3 million square feet and 3,453 licensed beds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Percentage of
|
|
|
Total
|
|
State
|
|
Revenue
|
|
|
Total Revenue
|
|
|
Investment
|
|
|
California
|
|
$
|
41,835,572
|
|
|
|
43.4
|
%
|
|
$
|
501,016,031
|
|
Colorado
|
|
|
1,398,953
|
|
|
|
1.5
|
%
|
|
|
9,502,455
|
|
Indiana
|
|
|
5,289,316
|
|
|
|
5.5
|
%
|
|
|
50,211,656
|
|
Kentucky
|
|
|
6,886,681
|
|
|
|
7.2
|
%
|
|
|
45,595,371
|
|
Louisiana
|
|
|
2,222,137
|
|
|
|
2.3
|
%
|
|
|
17,562,684
|
|
Massachusetts
|
|
|
4,551,598
|
|
|
|
4.7
|
%
|
|
|
29,934,621
|
|
New Jersey
|
|
|
6,299,852
|
|
|
|
6.5
|
%
|
|
|
41,569,113
|
|
Oregon
|
|
|
1,866,904
|
|
|
|
1.9
|
%
|
|
|
24,447,351
|
|
Pennsylvania
|
|
|
5,749,929
|
|
|
|
6.0
|
%
|
|
|
45,515,767
|
|
Texas
|
|
|
20,186,421
|
|
|
|
21.0
|
%
|
|
|
158,307,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,287,363
|
|
|
|
100.0
|
%
|
|
$
|
923,662,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
Type of Property
|
|
Properties
|
|
|
Square Feet
|
|
|
Licensed Beds
|
|
|
Community Hospital
|
|
|
15
|
|
|
|
2,383,434
|
|
|
|
2,623
|
|
Long-term Acute Care Hospital
|
|
|
9
|
|
|
|
594,238
|
|
|
|
567
|
|
Rehabilitation Hospital
|
|
|
4
|
|
|
|
335,492
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
3,313,164
|
|
|
|
3,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3.
|
Legal
Proceedings
|
None.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
22
PART II
|
|
ITEM 5.
|
Market
for Registrants Common Equity, Related Stockholder Matter,
and Issuer Purchases of Equity Securities
|
Medical Properties common stock is traded on the New York
Stock Exchange under the symbol MPW. The following
table sets forth the high and low sales prices for the common
stock for the periods indicated, as reported by the New York
Stock Exchange Composite Tape, and the distributions declared by
us with respect to each such period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Distribution
|
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
11.23
|
|
|
|
9.40
|
|
|
|
0.21
|
|
Second Quarter
|
|
|
12.50
|
|
|
|
10.25
|
|
|
|
0.25
|
|
Third Quarter
|
|
|
13.93
|
|
|
|
11.25
|
|
|
|
0.26
|
|
Fourth Quarter
|
|
|
15.65
|
|
|
|
13.12
|
|
|
|
0.27
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
16.70
|
|
|
|
14.44
|
|
|
|
0.27
|
|
Second Quarter
|
|
|
15.25
|
|
|
|
12.16
|
|
|
|
0.27
|
|
Third Quarter
|
|
|
13.88
|
|
|
|
10.86
|
|
|
|
0.27
|
|
Fourth Quarter
|
|
|
13.99
|
|
|
|
9.80
|
|
|
|
0.27
|
|
On March 13, 2008, the closing price for our common stock,
as reported on the New York Stock Exchange, was $12.08. As of
March 13, 2008, there were 82 holders of record of our
common stock. This figure does not reflect the beneficial
ownership of shares held in nominee name.
On August 1, 2007, the Company announced that its Board
authorized the Company to repurchase up to 3.0 million of
its Common Stock. The stock may be repurchased by the Company
from time to time on the open market or in privately negotiated
transactions between August 1, 2007 and July 31, 2008.
The extent to which the Company repurchases its shares and the
timing of such purchases will depend upon price, corporate and
regulatory requirements, market conditions and other corporate
considerations.
The following table provides information as of December 31,
2007 with respect to the shares of common stock repurchased by
the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total #
|
|
|
(d) Maximum
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
# of Shares
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
that May Yet
|
|
|
|
(a) Total #
|
|
|
(b) Average
|
|
|
Part of Publicly
|
|
|
be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Under the
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
October 1- October 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1-November 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1-December 31,
2007
|
|
|
25,000
|
|
|
$
|
10.46
|
|
|
|
25,000
|
|
|
|
2,975,000
|
|
Total
|
|
|
25,000
|
|
|
$
|
10.46
|
|
|
|
25,000
|
|
|
|
2,975,000
|
|
23
|
|
ITEM 6.
|
Selected
Financial Data
|
The following table sets forth selected financial and operating
information on a historical basis for the years ended
December 31, 2007, 2006, 2005, and 2004, and for the period
from inception (August 27, 2003) to December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
Inception
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(August 27, 2003)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
to
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
December 31, 2003
|
|
|
OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
96,287,363
|
|
|
$
|
50,471,432
|
|
|
$
|
30,452,545
|
|
|
$
|
10,893,459
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
|
|
1,478,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
15,791,840
|
|
|
|
10,190,850
|
|
|
|
8,016,992
|
|
|
|
5,150,786
|
|
|
|
992,418
|
|
Interest expense
|
|
|
28,236,502
|
|
|
|
4,417,955
|
|
|
|
1,521,169
|
|
|
|
32,769
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
40,009,949
|
|
|
|
29,672,741
|
|
|
|
18,822,785
|
|
|
|
4,576,349
|
|
|
|
(1,023,276
|
)
|
Income from discontinued operations
|
|
|
1,229,690
|
|
|
|
486,957
|
|
|
|
817,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
41,239,639
|
|
|
|
30,159,698
|
|
|
|
19,640,347
|
|
|
|
4,576,349
|
|
|
|
(1,023,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per diluted common share
|
|
|
0.84
|
|
|
|
0.75
|
|
|
|
0.58
|
|
|
|
0.24
|
|
|
|
(0.63
|
)
|
Income from discontinued operations per diluted common share
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted common share
|
|
|
0.86
|
|
|
|
0.76
|
|
|
|
0.61
|
|
|
|
0.24
|
|
|
|
(0.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares diluted
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
19,312,634
|
|
|
|
1,630,435
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
$
|
19,640,347
|
|
|
$
|
4,576,349
|
|
|
$
|
(1,023,276
|
)
|
Depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
|
|
1,478,470
|
|
|
|
|
|
Gain on sale of real estate sold
|
|
|
(4,061,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations
|
|
|
49,790,643
|
|
|
|
36,864,622
|
|
|
|
23,823,078
|
|
|
|
6,054,819
|
|
|
$
|
(1,023,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations per diluted common share
|
|
|
1.03
|
|
|
|
0.93
|
|
|
|
0.74
|
|
|
|
0.31
|
|
|
|
(0.63
|
)
|
Dividends declared per diluted common share
|
|
|
0.94
|
|
|
|
0.99
|
|
|
|
0.62
|
|
|
|
0.21
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
BALANCE SHEET DATA
|
Real estate assets at cost
|
|
$
|
657,904,249
|
|
|
$
|
558,124,367
|
|
|
$
|
337,102,392
|
|
|
$
|
151,690,293
|
|
|
$
|
166,301
|
|
Other loans and investments
|
|
|
265,758,273
|
|
|
|
150,172,830
|
|
|
|
85,813,486
|
|
|
|
50,224,069
|
|
|
|
|
|
Cash and equivalents
|
|
|
94,215,134
|
|
|
|
4,102,873
|
|
|
|
59,115,832
|
|
|
|
97,543,677
|
|
|
|
100,000
|
|
Total assets
|
|
|
1,051,660,686
|
|
|
|
744,756,745
|
|
|
|
495,452,717
|
|
|
|
306,506,063
|
|
|
|
468,133
|
|
Debt
|
|
|
480,525,166
|
|
|
|
304,961,898
|
|
|
|
65,010,178
|
|
|
|
56,000,000
|
|
|
|
100,000
|
|
Other liabilities
|
|
|
57,937,525
|
|
|
|
95,021,876
|
|
|
|
71,991,531
|
|
|
|
17,777,619
|
|
|
|
1,389,779
|
|
Minority interests
|
|
|
77,552
|
|
|
|
1,051,835
|
|
|
|
2,173,866
|
|
|
|
1,000,000
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
513,120,443
|
|
|
|
343,721,136
|
|
|
|
356,277,142
|
|
|
|
231,728,444
|
|
|
|
(1,021,646
|
)
|
Total liabilities and stockholders equity(deficit)
|
|
|
1,051,660,686
|
|
|
|
744,756,745
|
|
|
|
495,452,717
|
|
|
|
306,506,063
|
|
|
|
468,133,063
|
|
25
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We were incorporated in Maryland on August 27, 2003
primarily for the purpose of investing in and owning net-leased
healthcare facilities across the United States. We also make
real estate mortgage loans and other loans to our tenants. We
have operated as a 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. Our existing
tenants are, and our prospective tenants will generally be,
healthcare operating companies and other healthcare providers
that use substantial real estate assets in their operations. We
offer financing for these operators real estate through
100% lease and mortgage financing and generally seek lease and
loan terms typically for 15 years with a series of shorter
renewal terms at the option of our tenants and borrowers. We
also have included and intend to include in our lease and loan
agreements annual contractual rate increases that in the current
market range from 1.5% to 3.5%. Our existing portfolio
escalators range from 0% to 2.5%. Most of our leases and loans
also include rate increases based on the general rate of
inflation if greater than the minimum contractual increases. In
addition to the base rent, our leases require our tenants to pay
all operating costs and expenses associated with the facility.
Some leases also require our tenants to pay percentage rents
which are based on the level of those tenants net revenues
from their operations.
We selectively make loans to certain of our operators through
our taxable REIT subsidiary, which they use for acquisitions and
working capital. We consider our lending business an important
element of our overall business strategy for two primary
reasons: (1) it provides opportunities to make
income-earning investments that yield attractive risk-adjusted
returns in an industry in which our management has expertise,
and (2) by making debt capital available to certain
qualified operators, we believe we create for our company a
competitive advantage over other buyers of, and financing
sources for, healthcare facilities. For purpose of Statement of
Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, we conduct business operations in one segment.
At December 31, 2007, our portfolio consisted of
28 properties: 25 healthcare facilities which we own are
leased to eight tenants with the remainder in the form of
mortgage loans secured by interests in health care real estate.
We had one acquisition loan outstanding, the proceeds of which
our tenant used for the acquisition of six hospital operating
companies. The facilities we owned and the facilities that
secured our mortgage loans were in ten states, had a carrying
cost of approximately $820.2 million (including the
balances of our mortgage loans) and comprised approximately
78.0% of our total assets. Our acquisition and other loans of
approximately $85.1 million represented approximately 8.1%
of our total assets. We do not expect such non-mortgage loans at
any time to exceed 20% of our total assets. We also had cash and
temporary investments of approximately $94.2 million that
represented approximately 9.0% of our total assets. Subsequent
to December 31, 2007, we used approximately
$83.0 million of such cash to repay our revolving credit
facilities.
Our revenues are derived from rents we earn pursuant to the
lease agreements with our tenants and from interest income from
loans to our tenants and other facility owners. Our tenants and
borrowers operate in the healthcare industry, generally
providing medical, surgical and rehabilitative care to patients.
The capacity of our tenants to pay our rents and interest is
dependent upon their ability to conduct their operations at
profitable levels. We believe that the business environment of
the industry segments in which our tenants operate is generally
positive for efficient operators. However, our tenants
operations are subject to economic, regulatory and market
conditions that may affect their profitability. Accordingly, we
monitor certain key factors, changes to which we believe may
provide early indications of conditions that may affect the
level of risk in our lease and loan portfolio.
Key factors that we consider in underwriting prospective tenants
and borrowers and in monitoring the performance of existing
tenants and borrowers include the following:
|
|
|
|
|
the historical and prospective operating margins (measured by a
tenants earnings before interest, taxes, depreciation,
amortization and facility rent) of each tenant or borrower and
at each facility;
|
|
|
|
the ratio of our tenants and borrowers operating
earnings both to facility rent and to facility rent plus other
fixed costs, including debt costs;
|
26
|
|
|
|
|
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;
|
|
|
|
unforeseen 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; and
|
|
|
|
competition from other financing sources.
|
At March 1, 2008, we had 26 employees. Over the next
12 months, we expect to add four to six additional
employees.
Critical
Accounting Policies
In order to prepare financial statements in conformity with
accounting principles generally accepted in the United States,
we must make estimates about certain types of transactions and
account balances. We believe that our estimates of the amount
and timing of lease revenues, credit losses, fair values and
periodic depreciation of our real estate assets, stock
compensation expense, and the effects of any derivative and
hedging activities have significant effects on our financial
statements. Each of these items involves estimates that require
us to make subjective judgments. We rely on our experience,
collect historical and current market data, and develop relevant
assumptions to arrive at what we believe to be reasonable
estimates. Under different conditions or assumptions, materially
different amounts could be reported related to the accounting
policies described below. In addition, application of these
accounting policies involves the exercise of judgment on the use
of assumptions as to future uncertainties and, as a result,
actual results could materially differ from these estimates. Our
accounting estimates include the following:
Revenue Recognition. Our revenues, which are
comprised largely of rental income, include rents that each
tenant pays in accordance with the terms of its respective lease
reported on a straight-line basis over the initial term of the
lease. Since some of our leases provide for rental increases at
specified intervals, straight-line basis accounting requires us
to record as an asset, and include in revenues, straight-line
rent that we will only receive if the tenant makes all rent
payments required through the expiration of the term of the
lease.
Accordingly, our management must determine, in its judgment, to
what extent the straight-line rent receivable applicable to each
specific tenant is collectible. We review each tenants
straight-line rent receivable on a quarterly basis and take into
consideration the tenants payment history, the financial
condition of the tenant, business conditions in the industry in
which the tenant operates, and economic conditions in the area
in which the facility is located. In the event that the
collectibility of straight-line rent with respect to any given
tenant is in doubt, we are required to record an increase in our
allowance for uncollectible accounts or record a direct
write-off of the specific rent receivable, which would have an
adverse effect on our net income for the year in which the
reserve is increased or the direct write-off is recorded and
would decrease our total assets and stockholders equity.
At that time, we stop accruing additional straight-line rent
income.
Our development projects normally allow us to earn what we term
construction period rent. We record the accrued
construction period rent as a receivable and as deferred revenue
during the construction period. We recognize earned revenue on
the straight-line method as the construction period rent is paid
to us by the lessee/operator, usually beginning when the
lessee/operator takes physical possession of the facility.
We make loans to certain tenants and from time to time may make
construction or mortgage loans to facility owners or other
parties. We recognize interest income on loans as earned based
upon the principal amount
27
outstanding. These loans are generally secured by interests in
real estate, receivables, the equity interests of a tenant, or
corporate and individual guarantees. As with straight-line rent
receivables, our management must also periodically evaluate
loans to determine what amounts may not be collectible.
Accordingly, a provision for losses on loans receivable is
recorded when it becomes probable that the loan will not be
collected in full. The provision is an amount which reduces the
loan to its estimated net receivable value based on a
determination of the eventual amounts to be collected either
from the debtor or from the collateral, if any. At that time, we
discontinue recording interest income on the loan to the tenant.
Investments in Real Estate. We record
investments in real estate at cost, and we capitalize
improvements and replacements when they extend the useful life
or improve the efficiency of the asset. While our tenants are
generally responsible for all operating costs at a facility, to
the extent that we incur costs of repairs and maintenance, we
expense those costs as incurred. We compute depreciation using
the straight-line method over the estimated useful life of
40 years for buildings and improvements, five to seven
years for equipment and fixtures, and the shorter of the useful
life or the remaining lease term for tenant-owned improvements
and leasehold interests.
We are required to make subjective assessments as to the useful
lives of our facilities for purposes of determining the amount
of depreciation expense to record on an annual basis with
respect to our investments in real estate improvements. These
assessments have a direct impact on our net income because, if
we were to shorten the expected useful lives of our investments
in real estate improvements, we would depreciate these
investments over fewer years, resulting in more depreciation
expense and lower net income on an annual basis.
We have adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which
establishes a single accounting model for the impairment or
disposal of long-lived assets, including discontinued
operations. SFAS No. 144 requires that the operations
related to facilities that have been sold, or that we intend to
sell, be presented as discontinued operations in the statement
of operations for all periods presented, and facilities and
related assets we intend to sell be designated as held for
sale on our balance sheet.
When circumstances such as adverse market conditions indicate a
possible impairment of the value of a facility, we review the
recoverability of the facilitys carrying value. The review
of recoverability is 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 the
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 are
required to make subjective assessments as to whether there are
impairments in the values of our investments in real estate.
Purchase Price Allocation. We record
above-market and below-market in-place lease values, if any, for
the facilities we own which are based on the present value
(using an interest rate which reflects the risks associated with
the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases
and (ii) managements estimate of fair market lease
rates for the corresponding in-place leases, measured over a
period equal to the remaining non-cancelable term of the lease.
We amortize any resulting capitalized above-market lease values
as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. We amortize any
resulting capitalized below-market lease values as an increase
to rental income over the initial term and any fixed-rate
renewal periods in the respective leases. The Companys
strategy to date has been the simultaneous acquisition of
facilities and the origination of new long-term leases at market
rates. Future acquisitions, in some cases, may be for properties
with in-place leases which may require the evaluation of
above-market and below-market lease values.
We measure the aggregate value of other intangible assets to be
acquired based on the difference between (i) the property
valued with new or existing leases adjusted to market rental
rates and (ii) the property valued as if vacant.
Managements estimates of value are made using methods
similar to those used by independent appraisers (e.g.,
discounted cash flow analysis). Factors considered by management
in its analysis include an estimate of carrying costs during
hypothetical expected
lease-up
periods considering current market conditions, and costs to
execute similar leases. We also consider information obtained
about each targeted facility as a result of our pre-acquisition
due diligence, marketing, and leasing activities in estimating
the fair value of the tangible and intangible assets acquired.
In estimating carrying costs, management also includes real
estate taxes, insurance and other operating
28
expenses and estimates of lost rentals at market rates during
the expected
lease-up
periods, which we expect to range primarily from three to
18 months, depending on specific local market conditions.
Management also estimates costs to execute similar leases
including leasing commissions, legal costs, and other related
expenses to the extent that such costs are not already incurred
in connection with a new lease origination as part of the
transaction.
The total amount of other intangible assets to be acquired, if
any, is further allocated to in-place lease values and customer
relationship intangible values based on managements
evaluation of the specific characteristics of each prospective
tenants lease and our overall relationship with that
tenant. Characteristics to be considered by management in
allocating these values include the nature and extent of our
existing business relationships with the tenant, growth
prospects for developing new business with the tenant, the
tenants credit quality, and expectations of lease
renewals, including those existing under the terms of the lease
agreement, among other factors.
We amortize the value of in-place leases to expense over the
initial term of the respective leases, which are typically
15 years. The value of customer relationship intangibles is
amortized to expense over the initial term and any renewal
periods in the respective leases, but in no event will the
amortization period for intangible assets exceed the remaining
depreciable life of the building. Should a tenant terminate its
lease, the unamortized portion of the in-place lease value and
customer relationship intangibles are charged to expense.
Accounting for Derivative Financial Investments and Hedging
Activities. We account for our derivative and
hedging activities, if any, using SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137 and
SFAS No. 149, which requires all derivative
instruments to be carried at fair value on the balance sheet.
Derivative instruments designated in a hedge relationship to
mitigate exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash
flow hedges. We expect to formally document all relationships
between hedging instruments and hedged items, as well as our
risk-management objective and strategy for undertaking each
hedge transaction. We plan to review periodically the
effectiveness of each hedging transaction, which involves
estimating future cash flows. Cash flow hedges, if any, will be
accounted for by recording the fair value of the derivative
instrument on the balance sheet as either an asset or liability,
with a corresponding amount recorded in other comprehensive
income within stockholders equity. Amounts will be
reclassified from other comprehensive income to the income
statement in the period or periods the hedged forecasted
transaction affects earnings. Derivative instruments designated
in a hedge relationship to mitigate exposure to changes in the
fair value of an asset, liability, or firm commitment
attributable to a particular risk, which we expect to affect the
Company primarily in the form of interest rate risk or
variability of interest rates, are considered fair value hedges
under SFAS No. 133.
In 2006, we entered into derivative contracts as part of our
offering of Exchangeable Senior Notes due 2011 (the
exchangeable notes). The contracts are generally
termed capped call or call spread
contracts. These contracts are financial instruments which are
separate from the exchangeable notes themselves, but affect the
overall potential number of shares which will be issued by us to
satisfy the conversion feature in the exchangeable notes. The
exchangeable notes can be exchanged into shares of our common
stock when our stock price exceeds $16.51 per share, which is
the equivalent of 60.5566 shares per $1,000 note. The
number of shares actually issued upon conversion is equivalent
to the amount by which our stock price exceeds $16.51 times the
60.5566 conversion rate. The capped call transaction
allowed us to effectively increase that exchange price from
$16.51 to $18.94. Therefore, our shareholders would not
experience dilution of their shares from any settlement or
conversion of the exchangeable notes until the price of our
stock exceeds $18.94 per share rather than $16.51 per share.
When evaluating this transaction, we have followed the guidance
in Emerging Issues Task Force (EITF)
No. 00-19
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock. EITF
No. 00-19
requires that contracts such as this capped call
which meet certain conditions must be accounted for as permanent
adjustments to equity rather than periodically adjusted to their
fair value as assets or liabilities. We have evaluated the terms
of these contracts and have determined that this capped
call must be recorded as a permanent adjustment to
stockholders equity. We have therefore shown the premium
paid in this transaction as a one-time adjustment in the
statement of stockholders equity.
The exchangeable notes themselves also contain the conversion
feature described above. SFAS No. 133 also states that
certain embedded derivative contracts must follow
the guidance of EITF
No. 00-19
and be evaluated as
29
though they also were a freestanding derivative
contract. Embedded derivative contracts such the conversion
feature in the notes should not be treated as a financial
instrument separate from the note if it meets certain conditions
in EITF
No. 00-19.
We have evaluated the conversion feature in the exchangeable
notes and have determined that it should not be reported
separately from the debt.
Variable Interest Entities. In January 2003,
the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In December 2003,
the FASB issued a revision to FIN 46, which is termed
FIN 46(R). FIN 46(R) clarifies the application of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements, and provides guidance on the
identification of entities for which control is achieved through
means other than voting rights, guidance on how to determine
which business enterprise should consolidate such an entity, and
guidance on when it should do so. This model for consolidation
applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest
or (2) the equity investment at risk is insufficient to
finance that entitys activities without receiving
additional subordinated financial support from other parties. An
entity meeting either of these two criteria is a variable
interest entity, or VIE. A VIE must be consolidated by any
entity which is the primary beneficiary of the VIE. If an entity
is not the primary beneficiary of the VIE, the VIE is not
consolidated. We periodically evaluate the terms of our
relationships with our tenants and borrowers to determine
whether we are the primary beneficiary and would therefore be
required to consolidate any tenants or borrowers that are VIEs.
Our evaluations of our transactions indicate that we have loans
receivable from two entities which we classify as VIEs. However,
because we are not the primary beneficiary of these VIEs, we do
not consolidate these entities in our financial statements.
Stock-Based Compensation. Prior to 2006, we
used the intrinsic value method to account for the issuance of
stock options under our equity incentive plan in accordance with
APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) became effective for
our annual and interim periods beginning January 1, 2006,
but had no material effect on the results of our operations.
During the years ended December 31, 2007 and 2006, we
recorded approximately $4.5 million and $3.1 million,
respectively, of expense for
share-based
compensation related to grants of restricted common stock,
deferred stock units and other
stock-based
awards. In 2006, we also granted
performance-based
restricted share awards. Because these awards will vest based on
the Companys performance, we must evaluate and estimate
the probability of achieving those performance targets. Any
changes in these estimates and probabilities must be recorded in
the period when they are changed. In 2007, the Compensation
Committee made awards which are earned only if the Company
achieves certain stock price levels, total shareholder return or
other market conditions. The 2007 awards were made pursuant to
the Companys 2007 Multi-Year Incentive Plan (MIP) adopted
by the Compensation Committee and consisted of three components:
service-based awards, core performance awards (CPRE), and
superior performance awards (SPRE). The service-based awards
vest annually and ratably over a seven-year period. We recognize
expense over the vesting period on the straight-line method for
service based awards. The CPRE and SPRE awards vest based on
what SFAS No. 123(R) terms market
conditions. Market conditions are vesting conditions which
are based on our stock price levels or our total shareholder
return (stock price and dividends) compared to an index of other
REIT stocks. The SPRE awards require additional service after
being earned, if they are in fact earned. For the CPRE awards,
the period over which the awards are earned is not fixed because
the awards provide for cumulative measures over multiple years.
SFAS No. 123(R) requires that we estimate the period
over which the awards will likely be earned, regardless of the
period over which the award allows as the maximum period over
which it can be earned. Also, because some awards have multiple
periods over which they can be earned, we must segregate
individual awards into tranches, based on their
vesting or estimated earning periods. These complexities
required us to use an independent consultant to model both the
value of the award and the various periods over which the each
tranche of an award will be earned. Our consultant 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 have begun recording
expense over the expected or derived vesting periods using the
calculated value of the awards. We must record expense over
these vesting periods even though the awards have not yet been
earned and, in fact, may never be earned. In some cases, if the
award is not earned, we will be required to reverse expenses
recognized in earlier periods. As a result, future stock-based
compensation expense may fluctuate based on the potential
reversal of previously recorded expense.
30
Disclosure
of Contractual Obligations
The following table summarizes known material contractual
obligations associated with investing and financing activities
as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Senior notes
|
|
|
9,630,775
|
|
|
|
19,261,550
|
|
|
|
17,825,825
|
|
|
|
156,904,466
|
|
|
|
203,622,616
|
|
Exchangeable notes
|
|
|
8,452,500
|
|
|
|
16,905,000
|
|
|
|
145,364,096
|
|
|
|
|
|
|
|
170,721,596
|
|
Revolving credit facility(1)
|
|
|
88,084,252
|
|
|
|
10,094,727
|
|
|
|
77,687,920
|
|
|
|
|
|
|
|
175,866,899
|
|
Term Note
|
|
|
5,139,626
|
|
|
|
10,144,019
|
|
|
|
67,586,331
|
|
|
|
|
|
|
|
82,869,976
|
|
Operating lease commitments(2)
|
|
|
820,886
|
|
|
|
1,675,297
|
|
|
|
1,728,843
|
|
|
|
31,001,675
|
|
|
|
35,226,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
112,128,039
|
|
|
$
|
58,080,593
|
|
|
$
|
310,193,015
|
|
|
$
|
187,906,141
|
|
|
$
|
668,307,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Assumes the balance and interest rates are those in effect at
December 31, 2007 and no principal payments are made until
the expiration of the facilities. |
|
(2) |
|
Some of our contractual obligations to make operating lease
payments are related to ground leases for which we are
reimbursed by our tenants. |
Liquidity
and Capital Resources
At December 31, 2007 we had cash and short-term investments
of approximately $94.2 million. In early January 2008 we
used approximately $83.0 million of cash to reduce the
balances under our revolving credit facilities. Subsequent to
the early January repayment, we have available under our credit
facilities approximately $120 million in borrowing
capacity. The terms of one of our credit facilities give us the
right to increase its total size from $220 million
presently to $350 million. However, any such expansion is
subject to pricing and other market conditions, and we believe
it is unlikely that lenders in the present market would commit
to additional capacity at pricing levels that we would find
acceptable.
Short-term Liquidity Requirements: We believe
that the $120 million available to us mentioned above is
sufficient to provide the resources necessary for operations,
distributions in compliance with REIT requirements and a limited
amount of acquisitions. In the event that we elect to make more
than a limited amount of acquisitions in the near term, we will
need to access additional capital. Based on current conditions
in the capital markets, we believe such capital will be
available; however, the capital markets have recently been
highly volatile and there is no assurance that we could obtain
acquisition capital at prices that we consider acceptable.
Long-term Liquidity Requirements: We believe
that cash flow from operating activities subsequent to 2007 and
available borrowing capacity will be sufficient to provide
adequate working capital and make required distributions to our
stockholders in compliance with our requirements as a REIT. To
maintain our growth plans, and because of the tax requirements
that we distribute a substantial portion of our earnings, we
will need combined access to capital. To the extent market
conditions or conditions specific to us make such capital
unavailable or unaffordable, we may be unable to execute our
growth strategies or we may be able to grow only at rates and
margins lower than what we have anticipated.
Investing
Activities
During 2007 we invested approximately $316 million, or
approximately 42% of our December 31, 2006 total assets, in
new hospital real estate assets. We received early pay-offs of
approximately $65 million in mortgage loans and
approximately $8 million in other loans. Our net increase
in assets during 2007, after consideration of the January 2008
credit facility reductions, was approximately $228 million,
or approximately 31%.
Results
of Operations
We began operations during the second quarter of 2004. Since
then, we have substantially increased our income earning
investments each year, and we expect to continue to materially
add to our investment portfolio,
31
subject to the capital markets and other conditions described in
this Annual Report on
Form 10-K.
Accordingly, we expect that future results of operations will
vary materially from our historical results. The results of
operations presented below for the year ended December 31,
2005, have been adjusted to reflect the operations of two
facilities which are recorded as discontinued operations at
December 31, 2007.
Year
Ended December 31, 2007 Compared to the Year Ended
December 31, 2006
Net income for the year ended December 31, 2007 was
$41,239,639 compared to net income of $30,159,698 for the year
ended December 31, 2006.
A comparison of revenues for the years ended December 31,
2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
|
|
|
Change
|
|
|
Base rents
|
|
$
|
54,232,567
|
|
|
|
56.3
|
%
|
|
$
|
29,806,171
|
|
|
|
59.1
|
%
|
|
$
|
24,426,396
|
|
Straight-line rents
|
|
|
11,079,704
|
|
|
|
11.5
|
%
|
|
|
5,952,442
|
|
|
|
11.8
|
%
|
|
|
5,127,262
|
|
Percentage rents
|
|
|
607,121
|
|
|
|
0.6
|
%
|
|
|
2,384,601
|
|
|
|
4.7
|
%
|
|
|
(1,777,480
|
)
|
Interest from loans
|
|
|
26,000,486
|
|
|
|
27.0
|
%
|
|
|
11,893,339
|
|
|
|
23.6
|
%
|
|
|
14,107,147
|
|
Fee income
|
|
|
4,367,485
|
|
|
|
4.6
|
%
|
|
|
434,879
|
|
|
|
0.8
|
%
|
|
|
3,932,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
96,287,363
|
|
|
|
100.0
|
%
|
|
$
|
50,471,432
|
|
|
|
100.0
|
%
|
|
$
|
45,815,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2007, was comprised
of rents (68.4%) and interest and fee income from loans (31.6%).
Our base and straight-line rents increased in 2007 due to the
acquisition of four facilities and opening of two developments
in 2007. Interest income from loans in the year ended
December 31, 2007, increased primarily due to origination
of two additional mortgage loans totaling $120,000,000 in the
first quarter of 2007 offset by the repayment of a
$40 million mortgage loan in the second quarter of 2007 and
a $25 million mortgage loan in the fourth quarter of 2007.
Our fee income increased in 2007 due to the receipt of
$3.8 million in mortgage loan pre-payment fees.
Vibra accounted for 31.3% and 55.0% of our gross revenues in
2007 and 2006, respectively. This includes percentage rents of
approximately $0.5 million and $2.4 million in 2007
and 2006, respectively. We expect that the portion of our total
revenues attributable to Vibra will decline in relation to our
total revenue, and based solely on our portfolio at
December 31, 2007, we estimate that Vibra will represent
18.5% of total revenue in 2008. At December 31, 2007,
assets leased and loaned to Vibra comprised 19.7% of our total
assets and 23.7% of our total investment.
Depreciation and amortization during the year ended
December 31, 2007 was $12,612,630, compared to $6,704,924
during the year ended December 31, 2006. All of this
increase is related to an increase in the number of rent
producing properties from 21 (cost
$437.4 million) at December 31, 2006 to 25
(cost $657.5 million) at December 31,
2007. We expect our depreciation and amortization expense to
continue to increase commensurate with our acquisition and
development activity.
General and administrative expenses during the years ended
December 31, 2007 and 2006, totaled $15,971,840 and
$10,190,850, respectively, which represents an increase of
55.0%. The increase is partially due to an increase of
approximately $1.4 million of non-cash share-based
compensation expense from stock-based awards made during 2007.
We expect non-cash share-based compensation to increase in 2008
because awards that were made in 2007 but do not vest until
certain performance hurdles are met must nonetheless be expensed
beginning in the year of the award based on our estimate of the
likelihood of achieving those performance hurdles.
Interest expense for the years ended December 31, 2007 and
2006 totaled $28,236,502 and $4,417,955, respectively. Interest
expense in 2007 and 2006 excludes interest of approximately
$1.3 million and $6.2 million, respectively, which was
capitalized as part of the cost of development projects under
construction during 2007 and 2006. Capitalized interest
decreased due to our final two developments under construction
being placed into service in April 2007, which represented
construction in process totaling $59.8 million at
December 31, 2006. Interest expense increased during 2007
due to the issuance of $263.0 million in fixed rate notes
in the second half of 2006 and the cessation of capitalization
of interest on approximately $155.3 million in development
projects that were
32
placed in service in 2006 and 2007. We expect interest expense
to increase during 2008 due to larger debt balances in 2008 than
in 2007.
Year
Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Net income for the year ended December 31, 2006 was
$30,159,698 compared to net income of $19,640,347 for the year
ended December 31, 2005.
A comparison of revenues for the years ended December 31,
2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Base rents
|
|
$
|
29,806,171
|
|
|
|
59.1
|
%
|
|
$
|
18,608,236
|
|
|
|
61.1
|
%
|
|
$
|
11,197,935
|
|
Straight-line rents
|
|
|
5,952,442
|
|
|
|
11.8
|
%
|
|
|
4,764,527
|
|
|
|
15.7
|
%
|
|
|
1,187,915
|
|
Percentage rents
|
|
|
2,384,601
|
|
|
|
4.7
|
%
|
|
|
2,259,230
|
|
|
|
7.4
|
%
|
|
|
125,371
|
|
Interest from loans
|
|
|
11,893,339
|
|
|
|
23.6
|
%
|
|
|
4,704,369
|
|
|
|
15.4
|
%
|
|
|
7,188,970
|
|
Fee income
|
|
|
434,879
|
|
|
|
0.8
|
%
|
|
|
116,183
|
|
|
|
0.4
|
%
|
|
|
318,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
50,471,432
|
|
|
|
100.0
|
%
|
|
$
|
30,452,545
|
|
|
|
100.0
|
%
|
|
$
|
20,018,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended December 31, 2006, was comprised
of rents (75.6%) and interest and fee income from loans (24.4%).
All of this revenue was derived from properties that we have
acquired since July 1, 2004. Our base and straight-line
rents increased in 2006 due to the acquisition of 10 facilities
and opening of two developments in 2006. Interest income from
loans in the year ended December 31, 2006, increased
primarily based on the timing and amount of the Alliance
mortgage loan made in 2005, and on the two mortgage loans made
in 2006.
Vibra accounted for 55.0% and 86.2% of our gross revenues in
2006 and 2005, respectively, This includes percentage rents of
approximately $2.4 million and $2.3 million in 2006
and 2005, respectively. In 2006, Vibra accounted for 61.5% of
our total rent revenues. We expect that the portion of our total
revenues attributable to Vibra will decline in relation to our
total revenue. At December 31, 2006, assets leased and
loaned to Vibra comprised 29.0% of our total assets and 33.4% of
our total investment.
Depreciation and amortization during the year ended
December 31, 2006 was $6,704,924, compared to $4,182,731
during the year ended December 31, 2005. The increase is
due to the timing and amount of acquisitions and developments in
2006 and 2005. We expect our depreciation and amortization
expense to continue to increase commensurate with our
acquisition and development activity.
General and administrative expenses during the years ended
December 31, 2006 and 2005, totaled $10,190,850 and
$8,016,992, respectively, which represents an increase of 27.1%.
The increase is due primarily to approximately $3.1 million
of non-cash share based compensation expense from restricted
shares and deferred stock units granted to employees, officers
and directors during 2006. We expect non-cash share based
compensation to increase in 2007 because shares that were
awarded in 2006 but do not vest until certain performance
hurdles are met must nonetheless be expensed beginning in the
year of the award based on our estimate of the likelihood of
achieving those performance hurdles.
Interest income (other than from loans) for the years ended
December 31, 2006 and 2005, totaled $515,038 and
$2,091,132, respectively. Interest income decreased due to the
timing and amount of offering proceeds temporarily invested in
short-term cash equivalent instruments in 2005.
Interest expense for the years ended December 31, 2006 and
2005 totaled $4,417,955 and $1,521,169, respectively. Interest
expense in 2006 and 2005 excludes interest of approximately
$6.2 million and $3.1 million, respectively, which was
capitalized as part of the cost of development projects under
construction during 2006 and 2005.
Discontinued
Operations
We entered into a contract for the disposition of two assets in
2006. On October 22, 2006, two of our subsidiaries
terminated their respective leases with Stealth, L.P.
(Stealth). The leases were for the hospital and
33
medical office building (MOB), respectively, operated together
by Stealth as Houston Town and County Hospital in Houston,
Texas. The leases were originally entered into in 2004, with the
lease for the hospital scheduled to expire in 2021 and that for
the MOB to expire in 2016. The leases required Stealth to make
monthly payments of rent, including annual escalations of rent,
and payments to fund repairs and improvements. The leases also
required Stealth to pay all operating expenses of the
facilities, including ad valorem taxes, insurance and utilities.
In 2006, we recorded revenue of approximately $7.4 million
from the leases and loans with Stealth. In connection with
entering into the leases with Stealth, we also made working
capital loans to Stealth in an aggregate amount, including
accrued interest and after applying offsetting credits, of
approximately $3.2 million. Subsequent to the lease
termination, we received the full proceeds of a letter of credit
issued to us by Stealth in the amount of $1.3 million,
which was used to reduce the amount outstanding under the loans.
Stealth had not obtained managed care provider contracts that we
believed were necessary for profitable operation of the hospital
along with other issues. Accordingly, and pursuant to our rights
under the leases, we terminated the leases and began
negotiations directly with other hospital systems to lease or
sell the facilities. These negotiations resulted in the ultimate
sale of the hospital and MOB in January 2007, for a sales price
of approximately $71.7 million, before expenses of the
sale. During the period from the lease termination to the date
of sale, the hospital was operated by a new third party operator
under contract to the hospital. We also made loans to the
operating company totaling approximately $4.4 million at
December 31, 2007, which we expect to recover from the net
revenues which the hospital and the MOB generated during the
interim period. The accompanying financial statements include
provisions to reduce such loans to their net realizable value.
The revenues and expenses from our leases and loans to Stealth
for the Houston Town and Country Hospital are shown in the
accompanying consolidated financial statements as 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 assume that the value of real estate diminishes
predictably over time.
As defined by the National Association of Real Estate Investment
Trusts, or NAREIT, FFO represents net income (loss) (computed in
accordance with GAAP), excluding gains (losses) on sales of real
estate, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint
ventures. We compute FFO in accordance with the NAREIT
definition. FFO should not be viewed as a substitute measure of
the Companys operating performance since it does not
reflect either depreciation and amortization costs or the level
of capital expenditures and leasing costs necessary to maintain
the operating performance of our properties, which are
significant economic costs that could materially impact our
results of operations.
The following table presents a reconciliation of FFO to net
income for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
|
19,640,347
|
|
Depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
Gain on sale of real estate sold
|
|
|
(4,061,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO
|
|
$
|
49,790,643
|
|
|
$
|
36,864,622
|
|
|
$
|
23,823,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Per diluted share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net income
|
|
$
|
.86
|
|
|
$
|
.76
|
|
|
$
|
.61
|
|
Depreciation and amortization
|
|
|
.26
|
|
|
|
.17
|
|
|
|
.13
|
|
Gain on sale of real estate sold
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO
|
|
$
|
1. 03
|
|
|
$
|
.93
|
|
|
$
|
.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 paid or
declared since January 1, 2005:
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Record Date
|
|
Date of Distribution
|
|
Distribution per Share
|
|
February 28, 2008
|
|
March 13, 2008
|
|
April 11, 2008
|
|
$
|
.27
|
|
August 16, 2007
|
|
September 14, 2007
|
|
October 19, 2007
|
|
$
|
.27
|
|
May 17, 2007
|
|
June 14, 2007
|
|
July 12, 2007
|
|
$
|
.27
|
|
February 15, 2007
|
|
March 29, 2007
|
|
April 12, 2007
|
|
$
|
.27
|
|
November 16, 2006
|
|
December 14, 2006
|
|
January 11, 2007
|
|
$
|
.27
|
|
August 18, 2006
|
|
September 14, 2006
|
|
October 12, 2006
|
|
$
|
.26
|
|
May 18, 2006
|
|
June 15, 2006
|
|
July 13, 2006
|
|
$
|
.25
|
|
February 16, 2006
|
|
March 15, 2006
|
|
April 12, 2006
|
|
$
|
.21
|
|
November 18, 2005
|
|
December 15, 2005
|
|
January 19, 2006
|
|
$
|
.18
|
|
August 18, 2005
|
|
September 15, 2005
|
|
September 29, 2005
|
|
$
|
.17
|
|
May 19, 2005
|
|
June 20, 2005
|
|
July 14, 2005
|
|
$
|
.16
|
|
March 4, 2005
|
|
March 16, 2005
|
|
April 15, 2005
|
|
$
|
.11
|
|
November 11, 2004
|
|
December 16, 2004
|
|
January 11, 2005
|
|
$
|
.11
|
|
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.
|
|
ITEM 7A
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Market risk includes risks that arise from changes in interest
rates, foreign currency exchange rates, commodity prices, equity
prices and other market changes that affect market sensitive
instruments. In pursuing our business plan, we expect that the
primary market risk to which we will be exposed is interest rate
risk.
In addition to changes in interest rates, the value of our
facilities will be subject to fluctuations based on changes in
local and regional economic conditions and changes in the
ability of our tenants to generate profits, all of which may
affect our ability to refinance our debt if necessary. The
changes in the value of our facilities would be reflected also
by changes in cap rates, which is measured by the
current base rent divided by the current market value of a
facility.
35
If market rates of interest on our variable rate debt increase
by 1%, the increase in annual interest expense on our variable
rate debt would decrease future earnings and cash flows by
approximately $1,428,000 per year. If market rates of interest
on our variable rate debt decrease by 1%, the decrease in
interest expense on our variable rate debt would increase future
earnings and cash flows by approximately $1,428,000 per year.
This assumes that the amount outstanding under our variable rate
debt remains approximately $142.8 million, the balance at
March 1, 2008.
We currently have no assets denominated in a foreign currency,
nor do we have any assets located outside of the United States.
Our 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 in since we sold
the exchangeable notes have adjusted our conversion price to
$16.51 per share which equates to 60.5566 shares per $1,000
note. Future changes to the conversion price will depend on our
level of dividends which cannot be predicted at this time. Any
adjustments for dividend increases until the notes are settled
in 2011 will affect the price of the notes and the number of
shares for which they will eventually be settled. At
December 31, 2007, the exchange rates are 60.5566 Company
common shares per $1,000 principal amount of the notes,
representing an exchange price of approximately $16.51 per
common share.
At the time we issued the exchangeable notes, we also entered
into a capped call or call spread transaction. The effect of
this transaction was to increase the conversion price from
$16.57 to $18.94. As a result, our shareholders will not
experience any dilution until our share price exceeds $18.94. If
our share price exceeds that price, the result would be that we
would issue additional shares of common stock. At a price of $20
per share, we would be required to issue an additional
434,000 shares. At $25 per share, we would be required to
issue an additional two million shares.
36
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medical Properties Trust, Inc.:
We have audited the accompanying consolidated balance sheets of
Medical Properties Trust, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the years in the three-year period ended
December 31, 2007. In connection with our audits of the
consolidated financial statements, we also have audited
financial statement schedules III and IV. These
consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Medical Properties Trust, Inc. and subsidiaries as
of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Medical Properties Trust, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated March 13, 2008 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
Birmingham, Alabama
March 13, 2008
37
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Real estate assets
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
69,247,711
|
|
|
$
|
33,809,594
|
|
Buildings and improvements
|
|
|
544,840,277
|
|
|
|
387,770,513
|
|
Construction in progress
|
|
|
435,110
|
|
|
|
57,432,264
|
|
Intangible lease assets
|
|
|
43,381,151
|
|
|
|
15,787,615
|
|
Mortgage loans
|
|
|
185,000,000
|
|
|
|
105,000,000
|
|
Real estate held for sale
|
|
|
|
|
|
|
63,324,381
|
|
|
|
|
|
|
|
|
|
|
Gross investment in real estate assets
|
|
|
842,904,249
|
|
|
|
663,124,367
|
|
Accumulated depreciation
|
|
|
(20,214,219
|
)
|
|
|
(10,758,514
|
)
|
Accumulated amortization
|
|
|
(2,498,514
|
)
|
|
|
(1,297,908
|
)
|
|
|
|
|
|
|
|
|
|
Net investment in real estate assets
|
|
|
820,191,516
|
|
|
|
651,067,945
|
|
Cash and cash equivalents
|
|
|
94,215,134
|
|
|
|
4,102,873
|
|
Interest and rent receivable
|
|
|
10,325,614
|
|
|
|
11,893,513
|
|
Straight-line rent receivable
|
|
|
23,637,435
|
|
|
|
12,686,976
|
|
Other loans
|
|
|
80,758,273
|
|
|
|
45,172,830
|
|
Other assets of discontinued operations
|
|
|
4,354,835
|
|
|
|
6,890,919
|
|
Other assets
|
|
|
18,177,879
|
|
|
|
12,941,689
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,051,660,686
|
|
|
$
|
744,756,745
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
|
$
|
480,525,166
|
|
|
$
|
304,961,898
|
|
Debt real estate held for sale
|
|
|
|
|
|
|
43,165,650
|
|
Accounts payable and accrued expenses
|
|
|
21,091,374
|
|
|
|
30,045,642
|
|
Liabilities of discontinued operations
|
|
|
|
|
|
|
341,216
|
|
Deferred revenue
|
|
|
20,839,338
|
|
|
|
14,615,609
|
|
Lease deposits and other obligations to tenants
|
|
|
16,006,813
|
|
|
|
6,853,759
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
538,462,691
|
|
|
|
399,983,774
|
|
Minority interests
|
|
|
77,552
|
|
|
|
1,051,835
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value. Authorized
10,000,000 shares; no shares outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value. Authorized
100,000,000 shares; issued and outstanding
52,133,207 shares at December 31, 2007 and
39,585,510 shares at December 31, 2006
|
|
|
52,133
|
|
|
|
39,586
|
|
Additional paid-in capital
|
|
|
540,501,058
|
|
|
|
356,678,018
|
|
Distributions in excess of net income
|
|
|
(27,170,405
|
)
|
|
|
(12,996,468
|
)
|
Treasury shares, at cost
|
|
|
(262,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
513,120,443
|
|
|
|
343,721,136
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
1,051,660,686
|
|
|
$
|
744,756,745
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
38
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed
|
|
$
|
54,839,688
|
|
|
$
|
32,190,772
|
|
|
$
|
20,867,466
|
|
Straight-line rent
|
|
|
11,079,704
|
|
|
|
5,952,442
|
|
|
|
4,764,527
|
|
Interest and fee income
|
|
|
30,367,971
|
|
|
|
12,328,218
|
|
|
|
4,820,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
96,287,363
|
|
|
|
50,471,432
|
|
|
|
30,452,545
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization
|
|
|
12,612,630
|
|
|
|
6,704,924
|
|
|
|
4,182,731
|
|
General and administrative
|
|
|
15,791,840
|
|
|
|
10,190,850
|
|
|
|
8,016,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,404,470
|
|
|
|
16,895,774
|
|
|
|
12,199,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
67,882,893
|
|
|
|
33,575,658
|
|
|
|
18,252,822
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
363,558
|
|
|
|
515,038
|
|
|
|
2,091,132
|
|
Interest expense
|
|
|
(28,236,502
|
)
|
|
|
(4,417,955
|
)
|
|
|
(1,521,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other (expense) income
|
|
|
(27,872,944
|
)
|
|
|
(3,902,917
|
)
|
|
|
569,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
40,009,949
|
|
|
|
29,672,741
|
|
|
|
18,822,785
|
|
Income from discontinued operations
|
|
|
1,229,690
|
|
|
|
486,957
|
|
|
|
817,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
$
|
19,640,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.58
|
|
Income from discontinued operations
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
47,717,026
|
|
|
|
39,537,877
|
|
|
|
32,343,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.84
|
|
|
$
|
0.75
|
|
|
$
|
0.58
|
|
Income from discontinued operations
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.86
|
|
|
$
|
0.76
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
For the Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Additional
|
|
|
Distributions
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
in Excess
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
of Net Income
|
|
|
Stock
|
|
|
Equity
|
|
|
Balance at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
26,082,862
|
|
|
|
26,083
|
|
|
|
233,626,690
|
|
|
|
(1,924,329
|
)
|
|
|
|
|
|
|
231,728,444
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,603
|
|
|
|
(10,852
|
)
|
|
|
|
|
|
|
171,751
|
|
Retirement of deferred stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(75,000
|
)
|
Restricted shares issued
|
|
|
|
|
|
|
|
|
|
|
52,220
|
|
|
|
52
|
|
|
|
1,174,952
|
|
|
|
|
|
|
|
|
|
|
|
1,175,004
|
|
Proceeds from exercise of warrant
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
35
|
|
|
|
325,465
|
|
|
|
|
|
|
|
|
|
|
|
325,500
|
|
Issuance of common stock (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
13,175,023
|
|
|
|
13,175
|
|
|
|
124,353,652
|
|
|
|
|
|
|
|
|
|
|
|
124,366,827
|
|
Distributions declared ($.62 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,055,731
|
)
|
|
|
|
|
|
|
(21,055,731
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,640,347
|
|
|
|
|
|
|
|
19,640,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
39,345,105
|
|
|
|
39,345
|
|
|
|
359,588,362
|
|
|
|
(3,350,565
|
)
|
|
|
|
|
|
|
356,277,142
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,631
|
|
|
|
(44,381
|
)
|
|
|
|
|
|
|
267,250
|
|
Restricted shares issued
|
|
|
|
|
|
|
|
|
|
|
240,405
|
|
|
|
241
|
|
|
|
3,068,015
|
|
|
|
|
|
|
|
|
|
|
|
3,068,256
|
|
Cost of call spread transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,289,990
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,289,990
|
)
|
Dividends declared ($.99 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,761,220
|
)
|
|
|
|
|
|
|
(39,761,220
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,159,698
|
|
|
|
|
|
|
|
30,159,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
39,585,510
|
|
|
|
39,586
|
|
|
|
356,678,018
|
|
|
|
(12,996,468
|
)
|
|
|
|
|
|
|
343,721,136
|
|
Deferred stock units issued to directors
|
|
|
|
|
|
|
|
|
|
|
10,598
|
|
|
|
11
|
|
|
|
54,155
|
|
|
|
(54,166
|
)
|
|
|
|
|
|
|
|
|
Restricted shares issued
|
|
|
|
|
|
|
|
|
|
|
299,299
|
|
|
|
298
|
|
|
|
4,483,279
|
|
|
|
|
|
|
|
|
|
|
|
4,483,577
|
|
Options exercised for cash
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
199,980
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Proceeds from offering (net of offering costs)
|
|
|
|
|
|
|
|
|
|
|
9,217,900
|
|
|
|
9,218
|
|
|
|
135,800,178
|
|
|
|
|
|
|
|
|
|
|
|
135,809,396
|
|
Proceeds from exercising forward sale agreement
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,000
|
|
|
|
43,285,448
|
|
|
|
|
|
|
|
|
|
|
|
43,288,448
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,343
|
)
|
|
|
(262,343
|
)
|
Dividends declared ($1.08 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,359,410
|
)
|
|
|
|
|
|
|
(55,359,410
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,239,639
|
|
|
|
|
|
|
|
41,239,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
52,133,307
|
|
|
$
|
52,133
|
|
|
$
|
540,501,058
|
|
|
$
|
(27,170,405
|
)
|
|
$
|
(262,343
|
)
|
|
$
|
513,120,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
40
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,239,639
|
|
|
$
|
30,159,698
|
|
|
$
|
19,640,347
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,172,548
|
|
|
|
8,318,303
|
|
|
|
4,567,675
|
|
Amortization of deferred financing costs
|
|
|
4,839,139
|
|
|
|
1,068,770
|
|
|
|
932,249
|
|
Straight-line rent revenue
|
|
|
(11,079,704
|
)
|
|
|
(6,876,051
|
)
|
|
|
(5,460,148
|
)
|
Share based payments
|
|
|
4,483,577
|
|
|
|
3,115,804
|
|
|
|
1,346,755
|
|
(Gain) loss from sale of real estate
|
|
|
(4,061,626
|
)
|
|
|
126,362
|
|
|
|
|
|
Deferred revenue and fee income
|
|
|
(1,157,538
|
)
|
|
|
(1,192,231
|
)
|
|
|
(270,727
|
)
|
Provision for uncollectible receivables and loans
|
|
|
1,666,827
|
|
|
|
3,313,061
|
|
|
|
|
|
Interest cost recorded as addition to debt
|
|
|
|
|
|
|
1,253,236
|
|
|
|
|
|
Rent and interest income added to loans
|
|
|
(8,893,742
|
)
|
|
|
(754,141
|
)
|
|
|
|
|
Other adjustments
|
|
|
400,425
|
|
|
|
208,310
|
|
|
|
(96,677
|
)
|
Decrease (increase) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and rent receivable
|
|
|
523,561
|
|
|
|
(285,717
|
)
|
|
|
(486,521
|
)
|
Other assets
|
|
|
2,450,668
|
|
|
|
(2,407,394
|
)
|
|
|
(2,312,681
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(12,854,715
|
)
|
|
|
6,982,887
|
|
|
|
4,700,558
|
|
Deferred revenue
|
|
|
566,061
|
|
|
|
107,390
|
|
|
|
1,420,030
|
|
Lease deposits and other obligations to tenants
|
|
|
5,534,497
|
|
|
|
(1,054,946
|
)
|
|
|
174,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
36,829,617
|
|
|
|
42,083,341
|
|
|
|
24,155,387
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired
|
|
|
(200,815,181
|
)
|
|
|
(121,408,474
|
)
|
|
|
(97,667,724
|
)
|
Proceeds from sale of real estate
|
|
|
68,203,041
|
|
|
|
7,642,332
|
|
|
|
|
|
Principal received on loans receivable
|
|
|
74,894,311
|
|
|
|
|
|
|
|
7,890,958
|
|
Investment in loans receivable
|
|
|
(128,986,298
|
)
|
|
|
(67,597,349
|
)
|
|
|
(45,999,178
|
)
|
Construction in progress
|
|
|
(12,165,669
|
)
|
|
|
(114,362,232
|
)
|
|
|
(78,778,843
|
)
|
Other investments
|
|
|
(1,310,936
|
)
|
|
|
(1,135,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(200,180,732
|
)
|
|
|
(296,861,522
|
)
|
|
|
(214,554,787
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
559,185,897
|
|
|
|
362,128,450
|
|
|
|
104,474,342
|
|
Payments of debt
|
|
|
(427,556,088
|
)
|
|
|
(118,607,528
|
)
|
|
|
(60,645,833
|
)
|
Deferred financing costs
|
|
|
(4,123,104
|
)
|
|
|
(1,237,947
|
)
|
|
|
(1,461,342
|
)
|
Distributions paid
|
|
|
(53,078,830
|
)
|
|
|
(36,105,732
|
)
|
|
|
(16,730,414
|
)
|
Proceeds from sale of common shares, net of offering costs
|
|
|
135,809,396
|
|
|
|
|
|
|
|
125,272,302
|
|
Sale of partnership units
|
|
|
|
|
|
|
|
|
|
|
1,137,500
|
|
Cost of call spread transactions
|
|
|
|
|
|
|
(6,289,990
|
)
|
|
|
|
|
Proceeds from forward equity sale
|
|
|
43,288,448
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
(262,343
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
200,000
|
|
|
|
(122,031
|
)
|
|
|
(75,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
253,463,376
|
|
|
|
199,765,222
|
|
|
|
151,971,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents for the year
|
|
|
90,112,261
|
|
|
|
(55,012,959
|
)
|
|
|
(38,427,845
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
4,102,873
|
|
|
|
59,115,832
|
|
|
|
97,543,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
94,215,134
|
|
|
$
|
4,102,873
|
|
|
$
|
59,115,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, including capitalized interest of $1,335,413 in
2007, $6,220,427 in 2006 and $3,107,966 in 2005
|
|
$
|
24,584,480
|
|
|
$
|
5,351,450
|
|
|
$
|
3,461,654
|
|
Supplemental schedule of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction period rent and interest receivable recorded as
deferred revenue
|
|
$
|
3,797,723
|
|
|
$
|
9,083,201
|
|
|
$
|
5,259,006
|
|
Real estate acquisitions and new loans receivable recorded as
lease and loan deposits
|
|
|
1,640,280
|
|
|
|
218,257
|
|
|
|
8,603,075
|
|
Real estate acquisitions and new loans receivable recorded as
deferred revenue
|
|
|
75,000
|
|
|
|
1,184,000
|
|
|
|
577,500
|
|
Construction and acquisition costs charged to loans and real
estate
|
|
|
4,971,306
|
|
|
|
1,455,395
|
|
|
|
774,479
|
|
Lease deposit applied to loan receivable
|
|
|
|
|
|
|
3,768,864
|
|
|
|
|
|
Loan receivable settled by acquisition of real estate
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
Construction in progress transferred to land and building
|
|
|
69,013,302
|
|
|
|
94,660,739
|
|
|
|
56,409,377
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred offering costs charged to proceeds from sale of common
stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
579,975
|
|
Distributions declared and paid in the following year
|
|
|
14,412,033
|
|
|
|
10,849,920
|
|
|
|
7,194,432
|
|
Other common stock transactions
|
|
|
54,475
|
|
|
|
264,302
|
|
|
|
10,904
|
|
Supplemental schedule of non-cash operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant deposits recorded in other assets
|
|
$
|
7,500,000
|
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
41
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Medical Properties Trust, Inc., a Maryland corporation (the
Company), was formed on August 27, 2003 under the General
Corporation Law of Maryland for the purpose of engaging in the
business of investing in and owning commercial real estate. The
Companys operating partnership subsidiary, MPT Operating
Partnership, L.P. (the Operating Partnership) through which it
conducts all of its operations, was formed in September 2003.
Through another wholly owned subsidiary, Medical Properties
Trust, LLC, the Company is the sole general partner of the
Operating Partnership.
The Companys 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. The Company also makes
mortgage and other loans to operators of similar facilities. The
Company manages its business as a single business segment as
defined in Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and
Related Information.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of Consolidation: Property holding
entities and other subsidiaries of which the Company owns 100%
of the equity or has a controlling financial interest evidenced
by ownership of a majority voting interest are consolidated. All
inter-company balances and transactions are eliminated. For
entities in which the Company owns less than 100% of the equity
interest, the Company consolidates the property if it has the
direct or indirect ability to make decisions about the
entities activities based upon the terms of the respective
entities ownership agreements. For these entities, the
Company records a minority interest representing equity held by
minority interests. For entities in which the Company owns less
than 100% and does not have the direct or indirect ability to
make decisions but does exert significant influence over the
entities activities, the Company records its ownership in
the entity using the equity method of accounting.
The Company periodically evaluates all of its transactions and
investments to determine if they represent variable interests in
a variable interest entity as defined by FASB Interpretation
No. 46 (revised December 2003)
(FIN 46-R),
Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. If the Company
determines that it has a variable interest in a variable
interest entity, the Company determines if it is the primary
beneficiary of the variable interest entity. The Company
consolidates each variable interest entity in which the Company,
by virtue of its transactions with or investments in the entity,
is considered to be the primary beneficiary. The Company
re-evaluates its status as primary beneficiary when a variable
interest entity or potential variable interest entity has a
material change in its variable interests.
Cash and Cash Equivalents: Certificates of
deposit and short-term investments with original maturities of
three months or less and money-market mutual funds are
considered cash equivalents. Cash and cash equivalents which
have been pledged as security for letters of credit are recorded
in other assets.
Deferred Costs: Costs incurred prior to the
completion of offerings of stock or other capital instruments
that directly relate to the offering are deferred and netted
against proceeds received from the offering. Costs incurred in
connection with anticipated financings and refinancing of debt
are capitalized as deferred financing costs in other assets and
amortized over the lives of the related loans as an addition to
interest expense. For debt with defined principal re-payment
terms, the deferred costs are amortized to produce a constant
effective yield on the loan
42
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
(interest method). For debt without defined principal repayment
terms, such as revolving credit agreements, the deferred costs
are amortized on the straight-line method over the term of the
debt. Costs that are specifically identifiable with, and
incurred prior to the completion of, probable acquisitions are
deferred and, to the extent not collected from the sellers
proceeds at acquisition, capitalized upon closing. The Company
begins deferring costs when the Company and the seller have
executed a letter of intent (LOI), commitment letter or similar
document or when the Company begins incurring costs, such as for
its due diligence procedures, for the purchase of the property
by the Company. Deferred acquisition costs are expensed when
management determines that the acquisition is no longer
probable. Leasing commissions and other leasing costs directly
attributable to tenant leases are capitalized as deferred
leasing costs and amortized on the straight-line method over the
terms of the related lease agreements. Costs identifiable with
loans made to lessees are recognized as a reduction in interest
income over the life of the loan by the interest method.
Revenue Recognition: The Company receives
income from operating leases based on the fixed, minimum
required rents (base rents) and from additional rent based on a
percentage of tenant revenues once the tenants revenue has
exceeded an annual threshold (percentage rents). Rent revenue
from base rents is recorded on the straight-line method over the
terms of the related lease agreements for new leases and the
remaining terms of existing leases for acquired properties. The
straight-line method records the periodic average amount of base
rent earned over the term of a lease, taking into account
contractual rent increases over the lease term. The
straight-line method has the effect of recording more rent
revenue from a lease than a tenant is required to pay during the
first half of the lease term. During the last half 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 statement of operations
is shown as two amounts. Billed rent revenue is the amount of
base rent actually billed to the customer each period as
required by the lease. Straight-line rent revenue is the
difference between base rent revenue earned based on the
straight-line method and the amount recorded as billed base rent
revenue. The Company records the difference between base rent
revenues earned and amounts due per the respective lease
agreements, as applicable, as an increase or decrease to
straight-line rent receivable. Percentage rents are recognized
in the period in which revenue thresholds are met. Rental
payments received prior to their recognition as income are
classified as rent received in advance. The Company 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 received.
The Company begins recording base rent income from its
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 its development
projects, the Company is generally entitled to accrue rent based
on the cost paid during the construction period (construction
period rent). The Company accrues construction period rent as a
receivable and deferred revenue during the construction period.
When the lessee takes physical possession of the facility, the
Company begins recognizing the accrued construction period rent
on the straight-line method over the remaining term of the lease.
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). Fees
from lending services are recorded as deferred revenue and
recognized as income over the life of the loan using the
interest method.
Acquired Real Estate Purchase Price
Allocation: The Company allocates the purchase
price of acquired properties to net tangible and identified
intangible assets acquired based on their fair values in
accordance with the provisions of SFAS No. 141,
Business Combinations. In making estimates of fair values
for purposes of allocating purchase prices, the Company utilizes
a number of sources, including independent appraisals that may
be obtained in connection with the acquisition or financing of
the respective property and other market data. The Company also
considers information obtained about each property as a result
of its pre-acquisition due diligence, marketing and leasing
activities in estimating the fair value of the tangible and
intangible assets acquired.
43
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The Company records above-market and below-market in-place lease
values, if any, for its facilities which are based on the
present value (using an interest rate which reflects the risks
associated with the leases acquired) of the difference between
(i) the contractual amounts to be paid pursuant to the
in-place leases and (ii) managements estimate of fair
market lease rates for the corresponding in-place leases,
measured over a period equal to the remaining non-cancelable
term of the lease. The Company amortizes any resulting
capitalized above-market lease values as a reduction of rental
income over the remaining non-cancelable terms of the respective
leases. The Company amortizes 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. The Companys strategy to date has been
the simultaneous acquisition of facilities and the origination
of new long-term leases at market rates. Future acquisitions, in
some cases, may be for properties with in-place leases which may
require the evaluation of above-market and below-market lease
values.
The Company measures the aggregate value of other intangible
assets acquired based on the difference between (i) the
property valued with new or in-place leases adjusted to market
rental rates and (ii) the property valued as if vacant.
Managements estimates of value are made using methods
similar to those used by independent appraisers (e.g.,
discounted cash flow analysis). Factors considered by management
in its analysis include an estimate of carrying costs during
hypothetical expected
lease-up
periods considering current market conditions, and costs to
execute similar leases. Management also considers information
obtained about each targeted facility as a result of
pre-acquisition due diligence, marketing and leasing activities
in estimating the fair value of the tangible and intangible
assets acquired. In estimating carrying costs, management also
includes real estate taxes, insurance and other operating
expenses and estimates of lost rentals at market rates during
the expected
lease-up
periods, which are expected to range primarily from three to
eighteen months, depending on specific local market conditions.
Management also estimates costs to execute similar leases
including leasing commissions, legal and other related expenses
to the extent that such costs are not already incurred in
connection with a new lease origination as part of the
transaction.
The total amount of other intangible assets acquired, if any, is
further allocated to in-place lease values and customer
relationship intangible values based on managements
evaluation of the specific characteristics of each prospective
tenants lease and our overall relationship with that
tenant. Characteristics to be considered by management in
allocating these values include the nature and extent of our
existing business relationships with the tenant, growth
prospects for developing new business with the tenant, the
tenants credit quality and expectations of lease renewals,
including those existing under the terms of the lease agreement,
among other factors.
The Company amortizes the value of in-place leases, if any, to
expense over the initial term of the respective leases, which
range primarily from ten to 15 years. The value of customer
relationship intangibles is amortized to expense over the
initial term and any renewal periods in the respective leases,
but in no event will the amortization period for intangible
assets exceed the remaining depreciable life of the building. If
a tenant terminates its lease, the unamortized portion of the
in-place lease value and customer relationship intangibles are
charged to expense.
Real Estate and Depreciation: Depreciation is
calculated on the straight-line method over the estimated useful
lives of the related assets, as follows:
|
|
|
Buildings and improvements
|
|
40 years
|
Tenant origination costs
|
|
Remaining terms of the related leases
|
Tenant improvements
|
|
Term of related leases
|
Furniture and equipment
|
|
3-7 years
|
Real estate is carried at depreciated cost. Expenditures for
ordinary maintenance and repairs are expensed to operations as
incurred. Significant renovations and improvements which improve
and/or
extend the useful life of the asset are capitalized and
depreciated over their estimated useful lives. In accordance
with SFAS No. 144, Accounting for the Impairment of
Long-Lived Assets and for Long- Lived Assets to Be Disposed Of
the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that
the
44
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets, including an
estimated liquidation amount, during the expected holding
periods are less than the carrying amounts of those assets.
Impairment losses are measured as the difference between
carrying value and fair value of assets. For assets held for
sale, impairment is measured as the difference between carrying
value and fair value, less cost of disposal. Fair value is based
on estimated cash flows discounted at a risk-adjusted rate of
interest. The Company classifies real estate assets as held for
sale when the Company has commenced an active program to sell
the assets, and in the opinion of the Companys management,
it is probable the asset will be sold within the next
12 months. The Company records the results of operations
from material property sales or planned sales (which include
real property, loans and any receivables) as discontinued
operations in the consolidated statements of operations for all
periods presented. Results of discontinued operations include
interest expense from debt which secures the property sold or
held for sale or which the company can otherwise reasonably
allocate to the property.
Construction in progress includes the cost of land, the cost of
construction of buildings, improvements and equipment, and costs
for design and engineering. Other costs, such as interest,
legal, property taxes and corporate project supervision, which
can be directly associated with the project during construction,
are also included in construction in progress.
Loans: Loans consists of mortgage loans,
working capital loans and other long-term loans. Interest income
from loans is recognized as earned based upon the principal
amount outstanding. Mortgage loans are secured by interests in
real property. Working capital and other long-term loans are
generally secured by interests in receivables and corporate and
individual guarantees.
Losses from Rent Receivables and Loans: A
provision for losses on rent receivables and loans is recorded
when it becomes probable that the receivable or loan will not be
collected in full. The provision is an amount which reduces the
rent or loan 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. At that time,
the Company discontinues recording interest income on the loan
or rent receivable from the tenant.
Net Income Per Share: The Company reports
earnings per share pursuant to SFAS No. 128,
Earnings Per Share. Basic net income per share is
computed by dividing net income available to common stockholders
by the weighted average number of common shares and contingently
issuable common shares outstanding during the period. Diluted
net income per share is computed by dividing net income
available to common shareholders by the weighted average number
of common shares outstanding during the period, adjusted for the
assumed conversion of all potentially dilutive outstanding
shares, warrants and options.
Income Taxes: The Company conducts its
business as a real estate investment trust (REIT) under
Sections 856 through 860 of the Internal Revenue Code. To
qualify as a REIT, the Company must meet certain organizational
and operational requirements, including a requirement to
currently distribute to shareholders at least 90% of its
ordinary taxable income. As a REIT, the Company generally is not
subject to federal income tax on taxable income that it
distributes to its shareholders. If the Company fails to qualify
as a REIT in any taxable year, it will then be subject to
federal income taxes on its taxable income at regular corporate
rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following
the year during which qualification is lost, unless the Internal
Revenue Service grants the Company relief under certain
statutory provisions. Such an event could materially adversely
affect the Companys net income and net cash available for
distribution to shareholders. However, the Company intends to
operate in such a manner so that the Company will remain
qualified as a REIT for federal income tax purposes.
The Companys financial statements include the operations
of a taxable REIT subsidiary, MPT Development Services, Inc.
(MDS) that is not entitled to a dividends paid deduction and is
subject to federal, state and local income taxes. MDS is
authorized to provide property development, leasing and
management services for third-party owned properties and makes
loans to lessees and operators.
45
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Stock-Based Compensation: The Company
currently sponsors the Second Amended and Restated Medical
Properties Trust, Inc. 2004 Equity Incentive Plan (the Equity
Incentive Plan) that was established in 2004. The Company
accounts for its stock-based awards under the recognition and
measurement provisions of SFAS No. 123(R),
Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock Based
Compensation. Awards of restricted stock, stock options and
other equity-based awards with service conditions are amortized
to compensation expense over the vesting periods which range
from three to five years, using the straight-line method. Awards
of deferred stock units vest when granted and are charged to
expense at the date of grant. Awards which contain market
conditions are amortized to compensation expense over the
derived vesting periods, which correspond to the periods over
which the Company estimates the awards will be earned, which
range from two to seven years, using the straight-line method.
Awards with performance conditions are amortized using the
straight-line method over the service period in which the
performance conditions are measured, adjusted for the
probability of achieving the performance conditions.
Derivative Financial Investments and Hedging
Activities. The Company accounts for its
derivative and hedging activities using SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS Nos. 137, 138 and 149
and interpreted, which requires all derivative instruments to be
carried at fair value on the balance sheet.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management
objective and strategy for undertaking the hedge. This process
includes specific identification of the hedging instrument and
the hedge transaction, the nature of the risk being hedged and
how the hedging instruments effectiveness in hedging the
exposure to the hedged transactions variability in cash
flows attributable to the hedged risk will be assessed. Both at
the inception of the hedge and on an ongoing basis, the Company
assesses whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash
flows or fair values of hedged items. The Company discontinues
hedge accounting if a derivative is not determined to be highly
effective as a hedge or has ceased to be a highly effective
hedge. The Company is not currently a party to any derivatives
contracts that require accounting under SFAS No. 133.
Emerging Issues Task Force (EITF)
No. 00-19
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
provides guidance on the accounting and reporting for
free-standing derivative financial instruments and for embedded
derivatives which are indexed to and settled in the
Companys stock. EITF
No. 00-19
provides criteria by which certain derivative financial
instruments should be reported as liabilities or equity. It also
provides guidance as to when embedded derivatives should be
separated or bifurcated from the host instrument.
The Company follows the provisions of this EITF to account for
the conversion feature and capped call transactions
related to its debt which is exchangeable for shares of the
Companys common stock.
In December 2006, the FASB ratified the consensus reached by the
EITF regarding
EITF 00-19-2,
Accounting for Registration Payment Arrangements. The
guidance specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate
agreement or included as a provision of a financial instrument
or other agreement, should be separately recognized and measured
in accordance with SFAS No. 5, Accounting for
Contingencies.
Fair Value of Financial Instruments: The
Company has various assets and liabilities that are considered
financial instruments. The Company estimates that the carrying
value of cash and cash equivalents, interest receivable and
accounts payable and accrued expenses approximates their fair
values. The Company estimates the fair value of unbilled rent
receivable based on expected payment dates, discounted at a rate
which the Company considers appropriate for such assets
considering their credit quality and maturity. The Company
estimates the fair value of loans based on the present value of
future payments, discounted at a rate which the Company
considers appropriate for such assets considering their credit
quality and maturity. The Company estimates that the carrying
value of the Companys revolving credit facility should
approximate fair value because the debt is variable rate and
adjusts daily with changes in the underlying interest rate
index. The Company determines the fair value of its
46
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
exchangeable notes based on quotes from securities dealers and
market makers. The Company estimates the fair value of its
senior notes based on the present value of future payments,
discounted at a rate which the Company considers appropriate for
such debt.
Reclassifications: Certain reclassifications
have been made to the 2006 consolidated financial statements to
conform to the 2007 consolidated financial statement
presentation. These reclassifications have no impact on
stockholders equity or net income.
New Accounting Pronouncements: The following
is a summary of recently issued accounting pronouncements which
have been issued but not adopted by the Company.
In June 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes-an interpretation
of FASB Statement No. 109 (FIN No. 48).
FIN No. 48 clarifies the accounting for uncertainty in
income taxes recognized in financial statements in accordance
with SFAS No. 109 Accounting for Income Taxes
and prescribes a recognition threshold and measurement
attribute of tax positions taken or expected to be taken on a
tax return. FIN No. 48 is effective for fiscal years
beginning after December 15, 2006. The Company adopted
FIN No. 48 on January 1, 2007. No amounts were
recorded for unrecognized tax benefits or related interest
expense and penalties as a result of the implementation of
FIN No. 48. The taxable periods ending
December 31, 2004 through December 31, 2007 remain
open to examination by the Internal Revenue Service and the tax
authorities of significant jurisdictions in which the Company
does business.
On July 25, 2007, the FASB authorized a FASB Staff Position
(the proposed FSP) that, if issued, would affect the
accounting for our exchangeable notes. If issued in the form
expected, the proposed FSP would require that the initial debt
proceeds from the sale of our exchangeable notes be allocated
between a liability component and an equity component. The
resulting debt discount would be amortized over the period the
debt is expected to be outstanding as additional interest
expense. The proposed FSP would be effective for fiscal years
beginning after December 15, 2007, and require retroactive
application. Because the proposed FSP is currently being
deliberated by the FASB and therefore subject to change, the
Company has not determined the effect of the proposed FSP on its
financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurement.
SFAS No. 157 requires prospective application for
fiscal years beginning after November 15, 2007. The Company
is currently evaluating the requirements of this statement and
has not yet determined its effect on the Companys future
acquisitions or consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS No. 159
permits all entities to choose to measure eligible items at fair
value at specified election dates. SFAS 159 is effective as
of the beginning of an entitys first fiscal year that
begins after November 15, 2007. On January 1, 2008 the
Company did not elect to apply the fair value option to any
specific financial assets or liabilities.
In December 2007, the FASB issued SFAS No. 141
(Revised), Business Combinations
(SFAS No. 141R).
SFAS No. 141R establishes principles and requirements
for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the
liabilities assumed (including intangibles), and any
noncontrolling interest in the acquiree. SFAS No. 141R
also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141R is effective for
fiscal years beginning after December 15, 2008. The Company
is currently evaluating the requirements of this statement and
has not yet determined its effect on the Companys future
acquisitions or consolidated financial statements.
47
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS No. 160). SFAS No. 160
establishes accounting and reporting standards for a parent
companys noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008. The Company is currently evaluating the requirements of
this statement and has not yet determined its effect on the
Companys future acquisitions or consolidated financial
statements.
|
|
3.
|
Real
Estate and Loans Receivable
|
Acquisitions
The Company has recorded the following assets from its
acquisitions in 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
27,206,641
|
|
|
$
|
7,685,622
|
|
Buildings
|
|
|
140,039,962
|
|
|
|
101,374,559
|
|
Intangible lease assets
|
|
|
29,351,852
|
|
|
|
6,478,579
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,598,455
|
|
|
$
|
115,538,760
|
|
|
|
|
|
|
|
|
|
|
In 2007, the Company used funds from its 2007 common stock
offering and from its revolving credit facilities to fund
acquisitions and developments. In 2006, the Company used funds
from its revolving credit facility as well as Senior and
Exchangeable Notes to fund acquisitions and developments. The
Company entered into 15 year leases with the operators of
the facilities, which in certain instances were also the sellers
of the facilities. Each lease has renewal options which are
generally for three five year periods. The leases also contain
base rent escalation provisions based on the greater of a fixed
percentage or general levels of inflation.
The Company recorded amortization expense related to intangible
lease assets of approximately $1,375,776 and $727,000 in 2007
and 2006, respectively, and expects to recognize amortization
expense from existing lease intangible assets of approximately
$2.9 million in each of the next five years. Capitalized
lease intangibles have a weighted average remaining life of
approximately 13 years.
Leasing
Operations
Minimum rental payments due in future periods under operating
leases which have non-cancelable terms extending beyond one year
at December 31, 2007, are as follows:
|
|
|
|
|
2008
|
|
$
|
68,695,777
|
|
2009
|
|
|
70,079,966
|
|
2010
|
|
|
71,498,734
|
|
2011
|
|
|
72,951,777
|
|
2012
|
|
|
74,439,934
|
|
Thereafter
|
|
|
731,420,804
|
|
|
|
|
|
|
|
|
$
|
1,089,086,992
|
|
|
|
|
|
|
For the years ended December 31, 2007 and 2006, Vibra
Healthcare, LLC accounted for approximately 31% and 55%,
respectively, of the Companys total revenues from
continuing operations and affiliates of Prime Healthcare
Services, Inc. accounted for 26% and 19%, respectively of the
Companys total revenues from continuing operations.
48
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
Loans
In conjunction with the Companys purchase of six
healthcare facilities in July and August 2004, the Company also
made loans aggregating $49.1 million to Vibra Healthcare,
LLC (Vibra). As of December 31, 2007, Vibra has reduced the
balance of the loans to approximately $29.5 million. The
Company has determined that Vibra is a variable interest entity.
The Company has also determined that it is not the primary
beneficiary of Vibra and, therefore, has not consolidated Vibra
in the Companys consolidated financial statements.
In 2006, the Company made two mortgage loans totaling
$65.0 million, secured by two general acute care hospitals
in California. The loans require the payment of interest only
during their 15 year terms with principal due in full at
maturity. Interest is paid monthly and increases each year based
on the annual change in the consumer price index. The loans may
be prepaid under certain specified conditions. In May 2007, the
Company received full payment on its mortgage loan on the Texas
facility and received a prepayment fee of approximately
$2.3 million. In November 2007, the Company received full
payment on its mortgage loan on a facility located in Inglewood,
California and received a prepayment fee of approximately
$1.5 million. The borrower sold the facility to an
affiliate of Prime in an unrelated transaction. The Company
subsequently purchased the facility from the Prime affiliate and
entered into a 15 year lease with the Prime affiliate.
In 2007, the Company made mortgage loans totaling
$145.0 million to affiliates of Prime, secured by interests
in Prime affiliated facilities located in California. The loans
require the payment of interest only, which escalates each year
based on changes in the consumer price index, during their
15 year terms with principal due in full at maturity. The
loans may be prepaid under certain specified conditions.
The following is a summary of debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of December 31,
|
|
|
2007
|
|
|
2006
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Balance
|
|
|
Interest Rate
|
|
Revolving credit facilities
|
|
$
|
154,985,897
|
|
|
6.100%
|
-8.000%
|
|
|
$
|
45,996,359
|
|
|
7.800%
|
Senior unsecured notes fixed rate through July and
October, 2011, due July and October, 2016
|
|
|
125,000,000
|
|
|
7.333%
|
-7.871%
|
|
|
|
125,000,000
|
|
|
7.333%-7.871%
|
Exchangeable senior notes due November, 2011
|
|
|
134,704,269
|
|
|
6.125%
|
|
|
|
|
133,965,539
|
|
|
6.125%
|
Term loan
|
|
|
65,835,000
|
|
|
6.830%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
480,525,166
|
|
|
|
|
|
|
$
|
304,961,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, maturities are as follows:
|
|
|
|
|
2008
|
|
$
|
83,660,000
|
|
2009
|
|
|
660,000
|
|
2010
|
|
|
660,000
|
|
2011
|
|
|
360,545,166
|
|
2012
|
|
|
35,000,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
480,525,166
|
|
|
|
|
|
|
49
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
In October, 2005, the Company signed a Credit Agreement for a
secured revolving credit facility to replace an existing term
loan. The agreement had a four year term and an interest rate of
the 30-day
LIBOR plus a spread ranging from 235 to 275 basis points
depending upon the Companys overall leverage ratio. The
Company terminated this Credit Agreement in November 2007 and
paid the outstanding balance in full. In addition, the Company
recorded a charge of approximately $2.6 million in
unamortized financing costs as additional interest expense for
the credit facility at the time of termination.
During the third quarter of 2006, the Company issued
$125.0 million of Senior Unsecured Notes (the
Notes). The Notes were placed in private
transactions exempt from registration under the Securities Act
of 1933, as amended, (the Securities Act). Notes
totaling $65.0 million will pay 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 the Company at any time
on or after July 30, 2011. The remaining Notes will 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 the Company at any time on or after
October 30, 2011.
In November 2006, the Companys Operating Partnership
issued and sold, in a private offering, $138.0 million of
Exchangeable Senior Notes (the Exchangeable Notes).
The Exchangeable Notes will pay interest semi-annually at a rate
of 6.125% per annum (with an effective yield of 6.86%) and
mature on November 15, 2011. The Exchangeable Notes have an
initial exchange rate of 60.3346 Company common shares per
$1,000 principal amount of the notes, representing an exchange
price of approximately $16.57 per common share. The initial
exchange rate is subject to adjustment under certain
circumstances. At December 31, 2007, the exchange rates are
60.5566 Company common shares per $1,000 principal amount of the
notes, representing an exchange price of approximately $16.51
per common share. The 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 the
Companys common shares for the remainder of the exchange
value in excess of the principal amount. Net proceeds from the
offering of the Exchangeable Notes were approximately
$134.0 million, after deducting the initial
purchasers discount.
Concurrently with the pricing of the Exchangeable Notes, the
Operating Partnership entered into a capped call
transaction with affiliates of the initial purchasers (the
option counterparties) in order to increase the
effective exchange price of the Exchangeable Notes to $18.94 per
common share. The capped call transaction is expected to reduce
the potential dilution with respect to the Companys common
stock upon exchange of the Exchangeable Notes to the extent the
then market value per share of the Companys common stock
does not exceed $18.94 during the observation period relating to
an exchange. The Company has reserved approximately
8.3 million shares which may be issued in the future to
settle the Exchangeable Notes. The premium of $6.3 million
paid for the capped call transaction has been
recorded as a permanent reduction to additional paid in capital
in the consolidated statement of stockholders equity.
In June, 2006, the Company exercised its option to convert the
two construction loans for the West Houston Town and County
Hospital and the adjacent medical office building to
thirty-month term loans. The loans bore interest at the
thirty-day
LIBOR plus 2.50%. The loans required monthly payments of
principal and interest with maturity in December, 2008 and were
secured by mortgages on the hospital and medical office
building. On January 17, 2007, the two properties securing these
loans were sold and the loans were paid in full. Therefore,
these loans are presented as Debt real estate
held-for-sale
as of December 31, 2006. The interest rate on these loans
as of December 31, 2006 was 7.838%.
In June, 2007, the Company signed a secured revolving bank
credit facility for up to $42 million. The terms are for
five years with interest at the
30-day LIBOR
plus 1.50%. The amount available under the facility will
decrease by $800,000 per year beginning in the third year. The
facility is secured by real estate with a book value of
50
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
approximately $60.8 million at December 31, 2007. This
facility had an outstanding balance of $35.0 million at
December, 31, 2007.
In November, 2007, the Company signed a Credit Agreement for a
revolving credit facility and a term loan. The revolving credit
facility has a four-year term and has an interest rate options
of (1) the
30-day LIBOR
plus a spread ranging from 150 to 225 basis points (6.58%
at December 31, 2007) depending upon the
Companys total leverage ratio or the higher of the
prime rate or federal funds rate plus a 0.5% spread,
plus a 1% margin (8.00% at December 31, 2007). The Credit
Facility is secured by (i) the equity interests of the
Company and certain of its subsidiaries and (ii) mortgage
loans payable to the Company. The Company may borrow up to
$154.0 million under the revolving credit facility. The
Company may also request to increase the available line of
credit to a maximum of $350.0 million by May 2009 by adding
more qualified properties to the borrowing base.
This facility had an outstanding balance of $119,985,897 and
$65,835,000 on the revolving credit facility and the term loan,
respectively, at December 31, 2007. The term loan has a
four-year term and has an interest rate of the
30-day LIBOR
plus a spread of 200 basis points (6.83% at
December 31, 2007). The Company makes quarterly principal
payments of $165,000 on the term loan.
Each of these debt agreements contains financial covenants which
are typical for each of the agreements. The Company was in
compliance with all such covenants at December 31, 2007.
Earnings and profits, which determine the taxability of
distributions to shareholders, will differ from net income
reported for financial reporting purposes due to differences in
cost basis, differences in the estimated useful lives used to
compute depreciation, and differences between the allocation of
the Companys net income and loss for financial reporting
purposes and for tax reporting purposes.
Total common distributions declared were $1.08 per common share
in 2007, $0.99 per common share in 2006 and $0.62 per common
share in 2005. Of the dividends declared in 2005, $0.536168 per
common share is treated as ordinary income for federal income
tax purposes for the year ended December 31, 2005. The
remaining distribution of $.083832 is treated as ordinary income
for federal income tax purposes in the year ending
December 31, 2006. Of the dividends declared in 2006,
$0.531249 per common share is treated as ordinary income for
federal income tax purposes for the year ended December 31,
2006, $0.181671 is treated as a return of capital and $0.007080
will be treated as total capital gain, all of which is
unrecaptured Sec. 1250 gain. The remaining distribution of $0.27
is treated as income for federal income tax purposes in the year
ending December 31, 2007. Of the dividends declared in
2007, $0.681994 per common share is treated as ordinary income
for federal income tax purposes for the year ended
December 31, 2006, $0.205648 is treated as a return of
capital and $0.192358 will be treated as total gain, $0.085269
of which is unrecaptured Sec. 1250 gain. The remaining
distribution of $0.27 declared November 16, 2007, and paid
January 11, 2008, is treated as income for federal income
tax purposes in the year ending December 31, 2007.
51
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following is a reconciliation of the weighted average shares
used in net income per common share basic to the
weighted average shares used in net income per common
share assuming dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average number of shares issued and outstanding
|
|
|
47,671,736
|
|
|
|
39,498,712
|
|
|
|
32,326,939
|
|
|
|
19,308,511
|
|
Vested deferred stock units
|
|
|
45,290
|
|
|
|
39,165
|
|
|
|
16,080
|
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic
|
|
|
47,717,026
|
|
|
|
39,537,877
|
|
|
|
32,343,019
|
|
|
|
19,310,833
|
|
Restricted stock and other share based awards
|
|
|
186,406
|
|
|
|
164,099
|
|
|
|
26,115
|
|
|
|
|
|
Common stock warrant
|
|
|
|
|
|
|
|
|
|
|
955
|
|
|
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted
|
|
|
47,903,432
|
|
|
|
39,701,976
|
|
|
|
32,370,089
|
|
|
|
19,312,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has adopted the Second Amended and Restated Medical
Properties Trust, Inc. 2004 Equity Incentive Plan (the Equity
Incentive Plan) which authorizes the issuance of common stock
options, restricted stock, restricted stock units, deferred
stock units, stock appreciation rights, performance units and
awards of interests in the Companys Operating Partnership.
The Equity Incentive Plan is administered by the Compensation
Committee of the Board of Directors. The Company has reserved
4,631,330 shares of common stock for awards under the
Equity Incentive Plan. The Equity Incentive Plan contains a
limit of 300,000 shares as the maximum number of shares of
common stock that may be awarded to an individual in any fiscal
year. Awards under the Equity Incentive Plan are subject to
forfeiture due to termination of employment prior to vesting. In
the event of a change in control of the Company, all outstanding
and unvested awards will immediately vest. The term of the
awards is set by the Compensation Committee, though Incentive
Stock Options may not have terms of more than ten years.
Forfeited awards are returned to the Equity Incentive Plan and
are then available to be re-issued as future awards.
SFAS No. 123(R), Share-Based Payment, became
effective for annual and interim periods beginning
January 1, 2006. The adoption of SFAS No. 123(R)
had no material effect on the results of operations during the
year ended December 31, 2006, nor in any prior period,
because substantially all of the Companys stock-based
compensation is in the form of restricted share and deferred
stock unit awards. The Companys policy for recording
expense from restricted share and deferred stock unit awards was
not affected by SFAS No. 123(R). Under
SFAS No. 123(R), the additional compensation expense
which the Company would have recorded for stock options in the
years ended December 31, 2006 and 2005 was not material.
A summary of option activity in 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise Price
|
|
Outstanding at January 1, 2007
|
|
|
100,000
|
|
|
$
|
10.00
|
|
Awarded
|
|
|
50,000
|
|
|
$
|
12.09
|
|
Exercised
|
|
|
(20,000
|
)
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
130,000
|
|
|
$
|
10.80
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
80,000
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
52
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The Company awarded 50,000 options in 2007 and 60,000 stock
options in 2005, with estimated grant date fair values of $1.36
per option and $1.86 per option, respectively. The options
awarded in 2005 became fully vested in 2007. The options awarded
in 2007 vest annually in equal amounts over three years from the
date of award and expire in 2012. The Company uses the
Black-Scholes pricing model to calculate the fair values of the
options awarded. In 2007, the following assumptions were used to
derive the fair values: an option term of four years; expected
volatility of 28.34%; a weighted average risk-free rate of
return of 4.62%; a dividend yield of 8.93%. The intrinsic value
of options exercised in 2007 and exercisable at
December 31, 2007, is approximately $97,000 and $15,000,
respectively. At December 31, 2007, the weighted average
remaining contractual term of options exercisable and
outstanding is approximately 4.2 years and 6.0 years,
respectively.
The Compensation Committee also awarded deferred stock units in
2005 and 2006 to each of the five independent directors. These
deferred stock units vested on the date of the award and were
recorded as a non-cash expense of $267,250 and $171,750 in 2006
and 2005, respectively. Deferred stock units may be exchanged
for common stock at any time after a three year holding period
from date of grant. During the holding period, deferred stock
units do not receive cash dividends, but receive an equivalent
amount of additional deferred stock units.
The Companys stock-based awards are in the form of
service-based awards and performance-based awards. The
service-based awards vest as the employee provides the required
service over periods of three to seven years. Service based
awards are valued at the average price per share of common stock
on the date of grant. In 2006 and 2007, the Compensation
Committee made awards which vest based on the Company achieving
certain performance levels, stock price levels, total
shareholder return or comparison to peer total return indices.
The 2006 awards are based on the Company achieving levels of
total shareholder return compared to an industry index. The 2007
awards were made under the Companys 2007 Management
Incentive Plan (MIP) adopted by the Compensation Committee and
consisted of three components: service-based awards, core
performance awards (CPRE), and superior performance awards
(SPRE). The service-based awards vest annually and ratably over
a seven-year period beginning December 31, 2007 . The CPRE
awards also vests annually and ratably over the same seven-year
period contingent upon the Companys achievement of a
simple 9% annual total return to shareholders (pro-rated to 7.5%
for the first vesting period ending December 31, 2007). In
years in which the annual total return exceeds 9%, the excess
return may be used to earn CPRE awards not earned in a prior
year. SPRE awards are earned based on achievement of specified
share price thresholds during the period beginning March 1,
2007 through December 31, 2010, and will then vest annually
and ratably over the subsequent three-year period
(2011-2013).
In the event that at the end of the measurement period, no SPRE
awards have been earned based on the criteria set forth above
but the Company has performed at or above the 50th percentile of
all real estate investment trusts included in the Morgan Stanley
REIT Index in terms of total return to shareholders over the
same period, 33.334% of the SPRE awards will be earned as of
December 31, 2010. All unvested 2007 MIP awards provide for
payment of dividends and other non-liquidating distributions,
except that the SPRE awards will pay dividends at 20% of the per
share dividend amount. The 2007 MIP awards were made in the form
of restricted shares and a new class of partnership units in the
Companys Operating Partnership (LTIP units).
The LTIP units which are earned may eventually be converted, at
the Companys election, into either shares of common stock
on a
one-for-one
basis or their equivalent in cash. The Company has valued its
LTIP awards at the same per unit value as a corresponding
restricted stock award. The Companys independent valuation
consultant determined the value of the 2007 MIP awards
CPRE and SPRE components using a Monte Carlo simulation. The
following assumptions were used to derive the fair values for
the SPRE and CPRE, respectively: term 3.4 years
and 6.4 years; expected (implied) volatility 27.00% and
26.00%; risk-free rate of return 4.55% and 4.65%; and,
dividends $1.08 in 2007, $1.10 in 2008, $1.13 in
2009, and 3% annual increase thereafter through 2013. No CPRE or
SPRE awards were earned in 2007.
53
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
The following summarizes restricted equity awards activity in
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Based
|
|
|
Vesting Based on Market/Performance
|
|
|
|
on Service
|
|
|
Conditions
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Shares
|
|
|
Value at Award Date
|
|
|
Outstanding at January 1, 2007
|
|
|
504,679
|
|
|
$
|
10.18
|
|
|
|
105,375
|
|
|
$
|
11.60
|
|
Awarded
|
|
|
532,750
|
|
|
$
|
12.41
|
|
|
|
1,275,000
|
|
|
$
|
6.39
|
|
Vested
|
|
|
(348,914
|
)
|
|
$
|
10.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(8,000
|
)
|
|
$
|
11.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
680,515
|
|
|
$
|
11.85
|
|
|
|
1,380,375
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value of stock-based awards is charged to compensation
expense over the vesting periods. In the years ended
December 31, 2007 and 2006, the Company recorded
approximately $4.5 million and $2.9 million,
respectively, of non-cash compensation expense for restricted
equity awards. The remaining unrecognized cost from restricted
equity awards at December 31, 2007, is approximately
$15.1 million and will be recognized over a weighted
average period of approximately 4.2 years. Restricted
equity awards which vested in 2007 had a value of approximately
$3.3 million on the vesting dates.
|
|
8.
|
Commitments
and Contingencies
|
Fixed minimum payments due under operating leases with
non-cancelable terms of more than one year at December 31,
2007 are as follows:
|
|
|
|
|
2008
|
|
|
820,886
|
|
2009
|
|
|
829,704
|
|
2010
|
|
|
845,593
|
|
2011
|
|
|
859,956
|
|
2012
|
|
|
868,887
|
|
Thereafter
|
|
|
31,001,675
|
|
|
|
|
|
|
|
|
$
|
35,226,701
|
|
|
|
|
|
|
The total amount to be received from non-cancellable subleases
at December 31, 2007, is approximately $16.8 million.
The Company is a party to various legal proceedings incidental
to its 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 the financial position, results of operations
or cash flows of the Company.
In the first quarter of 2007, the Company sold
12,217,900 shares of common stock at a price of $15.60 per
share, less an underwriting commission of five percent. Of the
shares sold, the underwriters borrowed from third parties and
sold 3,000,000 shares of Company common stock in connection
with forward sale agreements between the Company and affiliates
of the underwriters (the forward purchasers). The
Company did not initially receive any proceeds from the sale of
shares of Company common stock by the forward purchasers. In
December 2007, the Company settled the forward sale agreements
and received proceeds, net of underwriting commission of five
percent and other adjustments, of approximately
$43.3 million.
54
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
|
|
10.
|
Fair
Value of Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Book
|
|
|
Fair
|
|
|
Book
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Cash and cash equivalents
|
|
$
|
94,215,134
|
|
|
$
|
94,215,134
|
|
|
$
|
4,102,873
|
|
|
$
|
4,102,873
|
|
Interest and other receivables
|
|
|
10,325,614
|
|
|
|
10,397,961
|
|
|
|
11,893,513
|
|
|
|
12,110,029
|
|
Straight-line rent receivable
|
|
|
23,637,435
|
|
|
|
6,725,371
|
|
|
|
12,686,976
|
|
|
|
4,995,269
|
|
Loans
|
|
|
265,758,273
|
|
|
|
293,346,951
|
|
|
|
150,172,830
|
|
|
|
173,597,486
|
|
Debt
|
|
|
480,525,166
|
|
|
|
467,890,112
|
|
|
|
304,961,898
|
|
|
|
319,113,009
|
|
Accounts payable and accrued expenses
|
|
|
21,091,374
|
|
|
|
21,091,374
|
|
|
|
30,045,642
|
|
|
|
30,045,642
|
|
|
|
11.
|
Discontinued
Operations
|
In 2006, the Company terminated leases for a hospital and
medical office building (MOB) complex and
re-possessed the real estate. In January, 2007, the Company sold
the hospital and MOB complex for a sales price of approximately
$71.7 million and recorded a gain of approximately
$4.1 million, which is reported in results from
discontinued operations. During the period from the lease
termination to the date of sale, the hospital was leased to and
operated by a third party operator under contract to the
hospital. The Company has substantially funded through loans the
working capital requirements of the operator pending the
operators collection of patient receivables from Medicare
and other third party payors. The accompanying financial
statements include provisions to reduce such loans to their
estimated net realizable value, including a $1.5 million
provision recorded .
The following table presents the results of discontinued
operations for the years ended December 31, 2007 and 2006.:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
$
|
132,411
|
|
|
$
|
7,428,770
|
|
Net income
|
|
|
1,229,690
|
|
|
|
486,957
|
|
Earnings per share basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
55
MEDICAL
PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes To
Consolidated Financial
Statements (Continued)
|
|
12.
|
Quarterly
Financial Data (unaudited)
|
The following is a summary of the unaudited quarterly financial
information for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2007 Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
18,058,348
|
|
|
$
|
24,591,291
|
|
|
$
|
25,678,608
|
|
|
$
|
27,959,116
|
|
Income from continuing operations
|
|
$
|
6,045,783
|
|
|
$
|
13,496,613
|
|
|
$
|
12,061,780
|
|
|
$
|
8,405,774
|
|
Income (loss) from discontinued operations
|
|
$
|
4,158,169
|
|
|
$
|
(1,985,031
|
)
|
|
$
|
(415,134
|
)
|
|
$
|
(528,314
|
)
|
Net income
|
|
$
|
10,203,952
|
|
|
$
|
11,511,582
|
|
|
$
|
11,646,646
|
|
|
$
|
7,877,460
|
|
Net income per share basic
|
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
Weighted average shares outstanding basic
|
|
|
42,823,619
|
|
|
|
49,040,141
|
|
|
|
49,071,806
|
|
|
|
49,761,733
|
|
Net income per share diluted
|
|
$
|
0.24
|
|
|
$
|
0.23
|
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
Weighted average shares outstanding diluted
|
|
|
43,070,303
|
|
|
|
49,293,328
|
|
|
|
49,371,555
|
|
|
|
50,069,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Periods in 2006 Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Revenues
|
|
$
|
10,757,672
|
|
|
$
|
10,909,814
|
|
|
$
|
12,915,676
|
|
|
$
|
15,888,270
|
|
Income from continuing operations
|
|
$
|
7,059,218
|
|
|
$
|
6,958,362
|
|
|
$
|
7,817,498
|
|
|
$
|
7,837,663
|
|
Income (loss) from discontinued operations
|
|
$
|
918,392
|
|
|
$
|
956,709
|
|
|
$
|
856,049
|
|
|
$
|
(2,244,193
|
)
|
Net income
|
|
$
|
7,977,610
|
|
|
$
|
7,915,071
|
|
|
$
|
8,673,547
|
|
|
$
|
5,593,470
|
|
Net income per share basic
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.14
|
|
Weighted average shares outstanding basic
|
|
|
39,428,071
|
|
|
|
39,519,695
|
|
|
|
39,529,687
|
|
|
|
39,634,127
|
|
Net income per share diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
$
|
0.14
|
|
Weighted average shares outstanding diluted
|
|
|
39,501,723
|
|
|
|
39,757,723
|
|
|
|
39,857,355
|
|
|
|
39,937,776
|
|
56
|
|
ITEM 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls
and procedures.
As required by
Rule 13a-15(b),
under the Securities Exchange Act of 1934, as amended, we have
carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of the end of the period covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information
required to be disclosed by the Company in the reports that the
Company files with the SEC.
Changes
in Internal Controls over Financial Reporting
There has been no change in our internal control over financial
reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Managements
Report on Internal Control over Financial Reporting
The management of Medical Properties Trust, Inc. has prepared
the consolidated financial statements and other information in
our Annual report in accordance with accounting principles
generally accepted in the United States of America and is
responsible for its accuracy. The financial statements
necessarily include amounts that are based on managements
best estimates and judgments. In meeting its responsibility,
management relies on internal accounting and related control
systems. The internal control systems are designed to ensure
that transactions are properly authorized and recorded in our
financial records and to safeguard our assets from material loss
or misuse. Such assurance cannot be absolute because of inherent
limitations in any internal control system.
Management of Medical Properties Trust, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. The Companys
internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Companys annual
financial statements, management has undertaken an assessment of
the effectiveness of the Companys internal control over
financial reporting as of December 31,
57
2007. The assessment was based upon the framework described in
Integrated Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Managements assessment
included an evaluation of the design of internal control over
financial reporting and testing of the operational effectiveness
of internal control over financial reporting. We have reviewed
the results of the assessment with the Audit Committee of our
Board of Directors.
Based on our evaluation under the framework in Internal
Control Integrated Framework, management
concluded that internal control over financial reporting was
effective as of December 31, 2007. KPMG, under Auditing
Standard No. 5, does not express an opinion on
managements assessment as occurred under Auditing Standard
No. 2. Under Auditing Standard No. 5 management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. KPMGs
responsibility is to express an opinion on the effectiveness of
the Companys internal control over financial reporting
based on their audit.
58
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Medical Properties Trust, Inc.:
We have audited Medical Properties Trust, Inc. and
subsidiaries internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Medical Properties Trust, Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Medical Properties Trust, Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Medical Properties Trust, Inc. as
of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the years in the three-year period ended
December 31, 2007 and the related financial statement
schedules, and our report dated March 13, 2008, expressed
an unqualified opinion on those consolidated financial
statements and financial statement schedules.
Birmingham, Alabama
March 13, 2008
59
|
|
ITEM 9B.
|
Other
Information
|
None.
PART
III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item 10 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by this Item 11 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this Item 12 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by this Item 13 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services.
|
The information required by this Item 14 is incorporated by
reference to our definitive Proxy Statement for the 2008 Annual
Meeting of Stockholders, which will be filed by us with the
Commission not later than April 18, 2008.
PART IV
|
|
ITEM 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Financial Statements and Financial Statement
Schedules
|
|
|
|
|
Index of Financial Statements of Medical Properties Trust,
Inc. which are included in Part II, Item 8 of this
Annual Report on
Form 10-K:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
37
|
|
Consolidated Balance Sheets as of December 31, 2007 and 2006
|
|
|
38
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2006, 2005 and 2004
|
|
|
39
|
|
Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2007, 2006, 2005 and 2004
|
|
|
40
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007, 2006, 2005 and 2004
|
|
|
41
|
|
Notes to Consolidated Financial Statements
|
|
|
42
|
|
Index of Consolidated Financial Statement Schedules
|
|
|
|
|
Schedule III Real Estate and Accumulated
Depreciation
|
|
|
66
|
|
Schedule IV Mortgage Loan on Real Estate
|
|
|
68
|
|
60
(b) Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
3
|
.1(1)
|
|
Registrants Second Articles of Amendment and Restatement
|
|
3
|
.2(2)
|
|
Registrants Amended and Restated Bylaws
|
|
3
|
.3(3)
|
|
Articles of Amendment of Registrants Second Articles of
Amendment and Restatement
|
|
4
|
.1(1)
|
|
Form of Common Stock Certificate
|
|
4
|
.2(4)
|
|
Indenture, dated July 14, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
|
4
|
.3(5)
|
|
Indenture, dated November 6, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
|
4
|
.4(5)
|
|
Registration Rights Agreement among Registrant, MPT Operating
Partnership, L.P. and UBS Securities LLC and J.P. Morgan
Securities Inc., as representatives of the initial purchasers,
dated as of November 6, 2006
|
|
10
|
.1(11)
|
|
Second Amended and Restated Agreement of Limited Partnership of
MPT Operating Partnership, L.P.
|
|
10
|
.2(6)
|
|
Amended and Restated 2004 Equity Incentive Plan
|
|
10
|
.3(7)
|
|
Form of Stock Option Award
|
|
10
|
.4(7)
|
|
Form of Restricted Stock Award
|
|
10
|
.5(7)
|
|
Form of Deferred Stock Unit Award
|
|
10
|
.6(1)
|
|
Employment Agreement between Registrant and Edward K. Aldag,
Jr., dated September 10, 2003
|
|
10
|
.7(1)
|
|
First Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated March 8, 2004
|
|
10
|
.8(1)
|
|
Employment Agreement between Registrant and R. Steven Hamner,
dated September 10, 2003
|
|
10
|
.9(1)
|
|
Amended and Restated Employment Agreement between Registrant and
William G. McKenzie, dated September 10, 2003
|
|
10
|
.10(1)
|
|
Employment Agreement between Registrant and Emmett E. McLean,
dated September 10, 2003
|
|
10
|
.11(1)
|
|
Employment Agreement between Registrant and Michael G. Stewart,
dated April 28, 2005
|
|
10
|
.12(1)
|
|
Form of Indemnification Agreement between Registrant and
executive officers and directors
|
|
10
|
.13(8)
|
|
Credit Agreement dated October 27, 2005, among MPT
Operating Partnership, L.P., as borrower, and Merrill Lynch
Capital, a division of Merrill Lynch Business Financial
Services, Inc., as Administrative Agent and Lender, and
Additional Lenders from Time to Time a Party thereto
|
|
10
|
.14(1)
|
|
Third Amended and Restated Lease Agreement between 1300 Campbell
Lane, LLC and 1300 Campbell Lane Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.15(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between 1300 Campbell Lane, LLC and 1300 Campbell Lane Operating
Company, LLC, dated December 31, 2004
|
|
10
|
.16(1)
|
|
Second Amended and Restated Lease Agreement between 92 Brick
Road, LLC and 92 Brick Road, Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.17(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 92 Brick Road, LLC and 92 Brick Road, Operating Company,
LLC, dated December 31, 2004
|
|
10
|
.18(1)
|
|
Ground Lease Agreement between West Jersey Health System and
West Jersey/Mediplex Rehabilitation Limited Partnership, dated
July 15, 1993
|
|
10
|
.19(1)
|
|
Third Amended and Restated Lease Agreement between
San Joaquin Health Care Associates Limited Partnership and
7173 North Sharon Avenue Operating Company, LLC, dated
December 20, 2004
|
|
10
|
.20(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between San Joaquin Health Care Associates Limited
Partnership and 7173 North Sharon Avenue Operating Company, LLC,
dated December 31, 2004
|
|
10
|
.21(1)
|
|
Second Amended and Restated Lease Agreement between 8451 Pearl
Street, LLC and 8451 Pearl Street Operating Company, LLC, dated
December 20, 2004
|
61
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.22(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 8451 Pearl Street, LLC and 8451 Pearl Street Operating
Company, LLC, dated December 31, 2004
|
|
10
|
.23(1)
|
|
Second Amended and Restated Lease Agreement between 4499
Acushnet Avenue, LLC and 4499 Acushnet Avenue Operating Company,
LLC, dated December 20, 2004
|
|
10
|
.24(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 4499 Acushnet Avenue, LLC and 4499 Acushnet Avenue
Operating Company, LLC, dated December 31, 2004
|
|
10
|
.25(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bucks County Hospital, L.P., Bucks County
Oncoplastic Institute, LLC, Jerome S. Tannenbaum, M.D., M.
Stephen Harrison and DSI Facility Development, LLC, dated
March 3, 2005
|
|
10
|
.26(1)
|
|
Amendment to Purchase and Sale Agreement among MPT Operating
Partnership, L.P., MPT of Bucks County Hospital, L.P., Bucks
County Oncoplastic Institute, LLC, DSI Facility Development,
LLC, Jerome S. Tannenbaum, M.D., M. Stephen Harrison and G.
Patrick Maxwell, M.D., dated April 29, 2005
|
|
10
|
.27(1)
|
|
Lease Agreement between Bucks County Oncoplastic Institute, LLC
and MPT of Bucks County, L.P., dated September 16, 2005
|
|
10
|
.28(1)
|
|
Development Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
|
10
|
.29(1)
|
|
Funding Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
|
10
|
.30(1)
|
|
Purchase and Sale Agreement between MPT of North Cypress, L.P.
and North Cypress Medical Center Operating Company, Ltd., dated
as of June 1, 2005
|
|
10
|
.31(1)
|
|
Contract for Purchase and Sale of Real Property between North
Cypress Property Holdings, Ltd. and MPT of North Cypress, L.P.,
dated as of June 1, 2005
|
|
10
|
.32(1)
|
|
Sublease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
|
10
|
.33(1)
|
|
Net Ground Lease between North Cypress Property Holdings, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
|
10
|
.34(1)
|
|
Lease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
|
10
|
.35(1)
|
|
Net Ground Lease between Northern Healthcare Land Ventures, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
|
10
|
.36(1)
|
|
Construction Loan Agreement between North Cypress Medical Center
Operating Company, Ltd. and MPT Finance Company, LLC, dated
June 1, 2005
|
|
10
|
.37(1)
|
|
Purchase, Sale and Loan Agreement among MPT Operating
Partnership, L.P., MPT of Covington, LLC, MPT of Denham Springs,
LLC, Covington Healthcare Properties, L.L.C., Denham Springs
Healthcare Properties, L.L.C., Gulf States Long Term Acute Care
of Covington, L.L.C. and Gulf States Long Term Acute Care of
Denham Springs, L.L.C., dated June 9, 2005
|
|
10
|
.38(1)
|
|
Lease Agreement between MPT of Covington, LLC and Gulf States
Long Term Acute Care of Covington, L.L.C., dated June 9,
2005
|
|
10
|
.39(1)
|
|
Promissory Note made by Denham Springs Healthcare Properties,
L.L.C. in favor of MPT of Denham Springs, LLC, dated
June 9, 2005
|
|
10
|
.40(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Redding, LLC, Vibra Healthcare, LLC and Northern
California Rehabilitation Hospital, LLC, dated June 30, 2005
|
|
10
|
.41(1)
|
|
Lease Agreement between Northern California Rehabilitation
Hospital, LLC and MPT of Redding, LLC, dated June 30, 2005
|
|
10
|
.42(1)
|
|
Amendment No. 1 to Ground Lease Agreement between National
Medical Specialty Hospital of Redding, Inc. and Ocadian Care
Centers, Inc., dated November 29, 2001
|
|
10
|
.43(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bloomington, LLC, Southern Indiana Medical Park II,
LLC and Monroe Hospital, LLC, dated October 7, 2005
|
62
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
10
|
.44(1)
|
|
Lease Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
|
10
|
.45(1)
|
|
Development Agreement among Monroe Hospital, LLC, Monroe
Hospital Development, LLC and MPT of Bloomington, LLC, dated
October 7, 2005
|
|
10
|
.46(1)
|
|
Funding Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
|
10
|
.47(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Chino, LLC, Prime Healthcare Services, LLC, Veritas
Health Services, Inc., Prime Healthcare Services, Inc., Desert
Valley Hospital, Inc. and Desert Valley Medical Group, Inc.,
dated November 30, 2005
|
|
10
|
.48(1)
|
|
Lease Agreement among Veritas Health Services, Inc., Prime
Healthcare Services, LLC and MPT of Chino, LLC, dated
November 30, 2005
|
|
10
|
.49(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Sherman Oaks, LLC, Prime A Investments, L.L.C.,
Prime Healthcare Services II, LLC, Prime Healthcare Services,
Inc., Desert Valley Medical Group, Inc. and Desert Valley
Hospital, Inc., dated December 30, 2005
|
|
10
|
.50(1)
|
|
Lease Agreement between MPT of Sherman Oaks, LLC and Prime
Healthcare Services II, LLC, dated December 30, 2005
|
|
10
|
.51(9)
|
|
Forward Sale Agreement between Registrant and UBS AG, London
Branch, dated February 22, 2007
|
|
10
|
.52(9)
|
|
Forward Sale Agreement between Registrant and Wachovia Bank,
National Association, dated February 22, 2007
|
|
10
|
.53(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (LTIP Units)
|
|
10
|
.54(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (Restricted Shares)
|
|
10
|
.55(12)
|
|
Term Loan Credit Agreement among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JP Morgan Chase Bank,
N.A. as Administrative Agent, with J.P. Morgan Securities
Inc. and KeyBank National Association, as Joint Lead Arrangers
and Bookrunners
|
|
10
|
.56(10)
|
|
First Amendment to Term Loan Agreement
|
|
10
|
.57(13)
|
|
Revolving Credit and Term Loan Agreement, dated
November 30, 2007, among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JPMorgan Chase Bank, N.A.
as Administrative Agent, with J.P. Morgan Securities Inc.
and KeyBank National Association, as Joint Lead Arrangers and
Bookrunners
|
|
10
|
.58(13)
|
|
Second Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated September 29, 2006
|
|
10
|
.59(13)
|
|
First Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated September 29, 2006
|
|
10
|
.60(13)
|
|
First Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated September 29, 2006
|
|
10
|
.61(13)
|
|
First Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated September 29, 2006
|
|
10
|
.62(13)
|
|
First Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated September 29, 2006
|
|
10
|
.63(8)
|
|
Second Amended and Restated 2004 Equity Incentive Plan
|
|
21
|
.1(13)
|
|
Subsidiaries of Registrant
|
|
23
|
.1(13)
|
|
Consent of KPMG LLP
|
|
23
|
.2(13)
|
|
Consent of Moss Adams LLP
|
63
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
|
31
|
.1(13)
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
31
|
.2(13)
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
32
|
(13)
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350
|
|
99
|
.1(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of December 31, 2006 and 2005
|
|
99
|
.2(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of September 30, 2007
|
|
|
|
(1) |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-11
filed with the Commission on October 26, 2004, as amended
(File
No. 333-119957). |
|
(2) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended June 30, 2005, filed with the
Commission on July 26, 2005. |
|
(3) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2005, filed with the
Commission on November 10, 2005. |
|
(4) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on July 20, 2006. |
|
(5) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on November 13, 2006. |
|
(6) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
September 13, 2005. |
|
(7) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on October 18, 2005. |
|
(8) |
|
Incorporated by reference to Registrants definitive proxy
statement on Schedule 14A, filed with the Commission on
April 14, 2007. |
|
(9) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on February 28, 2007. |
|
(10) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2007, filed with the
Commission on November 9, 2007. |
|
(11) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 6, 2007. |
|
(12) |
|
Incorporated by reference to Registrants current report on
Form 8-K,
filed with the Commission on August 15, 2007. |
|
(13) |
|
Included in this
Form 10-K. |
|
(14) |
|
Since affiliates of Prime Healthcare Services, Inc. lease more
than 20% of our total assets under triple net leases, the
financial status of Prime may be considered relevant to
investors. Primes most recently available audited
consolidated financial statements (as of and for the years ended
December 31, 2006 and 2005) and Primes most recently
available financial statements (unaudited, as of and for the
period ended September 30, 2007) are attached as
Exhibit 99.1 and Exhibit 99.2, respectively, to this
Annual Report on
Form 10-K.
We have not participated in the preparation of Primes
financial statements nor do we have the right to dictate the
form of any financial statements provided to us by Prime. |
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEDICAL PROPERTIES TRUST, INC.
R. Steven Hamner
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 13, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Edward
K. Aldag, Jr.
Edward
K. Aldag, Jr.
|
|
Chairman of the Board, President, Chief Executive Officer and
Director (Principal Executive Officer)
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Virginia
A. Clarke
Virginia
A. Clarke
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ Sherry
A. Kellett
Sherry
A. Kellett
|
|
Director
|
|
March 13, 2008
|
|
|
|
|
|
/s/ R.
Steven Hamner
R.
Steven Hamner
|
|
Executive Vice President, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
|
|
March 13, 2008
|
|
|
|
|
|
/s/ G.
Steven Dawson
G.
Steven Dawson
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Director
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March 13, 2008
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/s/ Robert
E. Holmes
Robert
E. Holmes, Ph.D.
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Director
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March 13, 2008
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/s/ William
G. McKenzie
William
G. McKenzie
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Vice Chairman of the Board
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March 13, 2008
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L.
Glenn Orr, Jr.
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Director
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65
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2007
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Additions Subsequent to
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Acquisition
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Date Acquired
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Initial Costs
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Carrying
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Cost at December 31, 2007
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Accumulated
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Date of
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or
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Depreciable
|
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Location
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Type of Property
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Land
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Buildings
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Improvements
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Costs
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Land
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Buildings(1)
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Total
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Depreciation
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Construction
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Placed in Service
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Life (Years)
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Bowling Green, KY
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Rehabilitation hospital
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$
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3,070,000
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|
$
|
33,570,541
|
|
|
$
|
6,500
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|
$
|
|
|
|
$
|
3,070,000
|
|
|
$
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33,577,041
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|
|
$
|
36,647,041
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|
|
$
|
2,937,553
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|
|
1991
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July 1, 2004
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40
|
|
|
|
|
|
|
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|
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|
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Thornton, CO
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Rehabilitation hospital
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2,130,000
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|
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6,013,142
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|
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1,010,973
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2,130,000
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|
|
7,024,115
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|
|
9,154,115
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|
|
517,211
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|
|
1962
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|
|
August 17, 2004
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|
40
|
|
|
|
|
|
|
|
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Fresno, CA
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Rehabilitation hospital
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1,550,000
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16,363,153
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129,953
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|
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1,550,000
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|
|
16,493,106
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|
|
18,043,106
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|
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1,434,093
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|
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1990
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July 1, 2004
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40
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|
|
|
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Marlton, NJ
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Rehabilitation hospital
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30,903,050
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54,997
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|
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|
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30,958,047
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|
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30,958,047
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|
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2,704,760
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|
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1994
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July 1, 2004
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40
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|
|
|
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New Bedford, NJ
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Long term acute care hospital
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1,400,000
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|
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19,772,169
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|
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254,645
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|
|
|
|
|
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1,400,000
|
|
|
|
20,026,814
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|
|
|
21,426,814
|
|
|
|
1,653,624
|
|
|
|
1992
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|
|
August 17, 2004
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|
40
|
|
|
|
|
|
|
|
|
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|
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Covington, LA
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Long term acute care hospital
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821,429
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10,238,246
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|
|
13,843
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|
|
|
821,429
|
|
|
|
10,252,089
|
|
|
|
11,073,518
|
|
|
|
662,027
|
|
|
|
1985
|
|
|
June 8, 2005
|
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|
40
|
|
|
|
|
|
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|
|
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Denham Springs, LA
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Long term acute care hospital
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428,571
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5,340,130
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|
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|
|
48,842
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|
|
428,571
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|
|
|
5,388,972
|
|
|
|
5,817,543
|
|
|
|
280,994
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|
|
|
1965
|
|
|
June 8, 2005
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|
40
|
|
|
|
|
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Redding, CA
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Rehabilitation hospital
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19,952,023
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|
3,435,931
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|
|
1,629,144
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|
|
|
21,758,810
|
|
|
|
23,387,954
|
|
|
|
1,251,589
|
|
|
|
1993
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|
|
June 30, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
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Sherman Oaks, CA
|
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Acute care general hospital
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|
|
5,290,000
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|
|
13,586,688
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|
|
|
|
|
|
|
30,721
|
|
|
|
5,290,000
|
|
|
|
13,617,409
|
|
|
|
18,907,409
|
|
|
|
682,238
|
|
|
|
1956
|
|
|
December 30, 2005
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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|
|
Bloomington, IN
|
|
Acute care general hospital
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|
|
2,456,579
|
|
|
|
31,209,055
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|
|
|
|
|
|
|
408,651
|
|
|
|
2,576,163
|
|
|
|
31,498,122
|
|
|
|
34,074,285
|
|
|
|
1,068,831
|
|
|
|
2006
|
|
|
August 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Montclair, CA
|
|
Acute care general hospital
|
|
|
1,500,000
|
|
|
|
17,419,269
|
|
|
|
|
|
|
|
41,871
|
|
|
|
1,500,000
|
|
|
|
17,461,140
|
|
|
|
18,961,140
|
|
|
|
617,731
|
|
|
|
1971
|
|
|
August 9, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX
|
|
Long term acute care hospital
|
|
|
1,000,000
|
|
|
|
13,588,870
|
|
|
|
|
|
|
|
(52,834
|
)
|
|
|
1,000,000
|
|
|
|
13,536,036
|
|
|
|
14,536,036
|
|
|
|
450,670
|
|
|
|
2006
|
|
|
September 5, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington Beach, CA
|
|
Acute care general hospital
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
|
|
|
|
|
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
11,844,371
|
|
|
|
318,117
|
|
|
|
1965
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
La Palma, CA
|
|
Acute care general hospital
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
|
|
|
|
|
|
|
|
937,500
|
|
|
|
10,906,871
|
|
|
|
11,844,371
|
|
|
|
318,117
|
|
|
|
1971
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anaheim, CA
|
|
Acute care general hospital
|
|
|
1,875,000
|
|
|
|
21,813,742
|
|
|
|
|
|
|
|
8,273
|
|
|
|
1,875,000
|
|
|
|
21,822,015
|
|
|
|
23,697,015
|
|
|
|
636,391
|
|
|
|
1964
|
|
|
November 8, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luling, TX
|
|
Acute care general hospital
|
|
|
811,026
|
|
|
|
9,344,667
|
|
|
|
|
|
|
|
|
|
|
|
811,026
|
|
|
|
9,344,667
|
|
|
|
10,155,693
|
|
|
|
253,085
|
|
|
|
2003
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Antonio, TX
|
|
Rehabilitation hospital
|
|
|
|
|
|
|
10,197,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,197,664
|
|
|
|
10,197,664
|
|
|
|
276,187
|
|
|
|
1987
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victoria, TX
|
|
Acute care general hospital
|
|
|
624,596
|
|
|
|
7,196,605
|
|
|
|
|
|
|
|
|
|
|
|
624,596
|
|
|
|
7,196,605
|
|
|
|
7,821,201
|
|
|
|
194,908
|
|
|
|
1998
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
Acute care general hospital
|
|
|
4,757,393
|
|
|
|
56,237,712
|
|
|
|
|
|
|
|
1,259,246
|
|
|
|
5,464,103
|
|
|
|
56,790,248
|
|
|
|
62,254,351
|
|
|
|
1,478,028
|
|
|
|
2006
|
|
|
December 1, 2006
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bensalem, PA
|
|
Acute care general hospital
|
|
|
6,910,904
|
|
|
|
38,184,863
|
|
|
|
|
|
|
|
|
|
|
|
6,910,904
|
|
|
|
38,184,863
|
|
|
|
45,095,767
|
|
|
|
738,609
|
|
|
|
2006
|
|
|
March 19, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portland, OR
|
|
Long term acute care hospital
|
|
|
3,085,134
|
|
|
|
17,858,810
|
|
|
|
|
|
|
|
|
|
|
|
3,085,134
|
|
|
|
17,858,810
|
|
|
|
20,943,944
|
|
|
|
312,966
|
|
|
|
1963
|
|
|
April 18, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Diego, CA
|
|
Acute care general hospital
|
|
|
6,550,000
|
|
|
|
15,652,984
|
|
|
|
|
|
|
|
|
|
|
|
6,550,000
|
|
|
|
15,652,984
|
|
|
|
22,202,984
|
|
|
|
259,878
|
|
|
|
1901
|
|
|
May 9, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redding, CA
|
|
Acute care general hospital
|
|
|
1,555,092
|
|
|
|
53,862,966
|
|
|
|
|
|
|
|
|
|
|
|
1,555,092
|
|
|
|
53,862,966
|
|
|
|
55,418,058
|
|
|
|
573,257
|
|
|
|
1957
|
|
|
August 10, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
Acute care general hospital
|
|
|
3,501,549
|
|
|
|
34,529,923
|
|
|
|
|
|
|
|
|
|
|
|
3,501,549
|
|
|
|
34,529,923
|
|
|
|
38,031,472
|
|
|
|
360,046
|
|
|
|
1974
|
|
|
August 10, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inglewood, CA
|
|
Acute care general hospital
|
|
|
15,600,000
|
|
|
|
35,994,089
|
|
|
|
|
|
|
|
|
|
|
|
15,600,000
|
|
|
|
35,994,089
|
|
|
|
51,594,089
|
|
|
|
233,309
|
|
|
|
1950
|
|
|
November 1, 2007
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
66,792,273
|
|
|
$
|
540,644,103
|
|
|
$
|
1,457,068
|
|
|
$
|
5,194,544
|
|
|
$
|
69,247,711
|
|
|
$
|
544,840,277
|
|
|
$
|
614,087,988
|
|
|
$
|
20,214,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
COST
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
486,435,507
|
|
|
$
|
281,523,115
|
|
|
$
|
122,057,232
|
|
Acquisitions
|
|
|
167,246,603
|
|
|
|
109,060,181
|
|
|
|
102,898,770
|
|
Transfers from construction in progress
|
|
|
66,039,711
|
|
|
|
94,660,739
|
|
|
|
56,409,377
|
|
Additions
|
|
|
9,577,459
|
|
|
|
8,476,648
|
|
|
|
157,736
|
|
Dispositions
|
|
|
(115,211,292
|
)
|
|
|
(7,285,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
614,087,988
|
|
|
$
|
486,435,507
|
|
|
$
|
281,523,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
ACCUMULATED DEPRECIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
12,289,532
|
|
|
$
|
5,260,219
|
|
|
$
|
1,311,757
|
|
Depreciation
|
|
|
11,301,383
|
|
|
|
7,287,428
|
|
|
|
3,948,462
|
|
Depreciation on disposed properties
|
|
|
(3,376,696
|
)
|
|
|
(258,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
20,214,219
|
|
|
$
|
12,289,532
|
|
|
$
|
5,260,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The gross cost for federal income tax purposes is $657,469,139. |
67
SCHEDULE IV
MORTGAGE LOAN ON REAL ESTATE
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
|
Column B
|
|
|
Column C
|
|
Column D
|
|
Column E
|
|
|
Column F
|
|
|
Column G
|
|
|
Column H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subject to
|
|
|
|
|
|
|
Final
|
|
Periodic
|
|
|
|
|
Face
|
|
|
Carrying
|
|
|
Delinquent
|
|
|
|
Interest
|
|
|
Maturity
|
|
Payment
|
|
Prior
|
|
|
Amount of
|
|
|
Amount of
|
|
|
Principal or
|
|
Description
|
|
Rate
|
|
|
Date
|
|
Terms
|
|
Liens
|
|
|
Mortgages
|
|
|
Mortgages
|
|
|
Interest
|
|
|
Long-term first mortgage loan:
|
|
|
|
|
|
|
|
Payable in
monthly
installments
of interest
plus
principal
payable in
full at
maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel Freeman Marina Hospital
|
|
|
10.0
|
%
|
|
2021
|
|
|
|
|
(2
|
)
|
|
|
40,000,000
|
|
|
|
40,000,000
|
|
|
|
(3
|
)
|
Desert Valley Hospital
|
|
|
9.0
|
%
|
|
2022
|
|
|
|
|
(2
|
)
|
|
|
70,000,000
|
|
|
|
70,000,000
|
|
|
|
(3
|
)
|
Chino Valley Medical Center
|
|
|
9.0
|
%
|
|
2022
|
|
|
|
|
(2
|
)
|
|
|
50,000,000
|
|
|
|
50,000,000
|
|
|
|
(3
|
)
|
Paradise Valley Hospital
|
|
|
9.0
|
%
|
|
2022
|
|
|
|
|
(2
|
)
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185,000,000
|
|
|
$
|
185,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in eligible properties which serve as collateral for
our revolving credit facility. |
|
(2) |
|
There were no prior liens on loans as of December 31, 2007. |
|
(3) |
|
The mortgage loan was not delinquent with respect to principal
or interest. |
|
(4) |
|
Reconciliation of Mortgage Loans on Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of year
|
|
$
|
105,000,000
|
|
|
$
|
40,000,000
|
|
|
$
|
|
|
Additions during year:
|
|
|
|
|
|
|
|
|
|
|
|
|
New mortgage loans and additional advances on existing loans
|
|
|
145,000,000
|
|
|
|
65,000,000
|
|
|
|
46,000,000
|
|
Interest income added to principal
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000,000
|
|
|
|
105,000,000
|
|
|
|
46,000,000
|
|
Deductions during year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Settled through acquisition of real estate
|
|
|
25,000,000
|
|
|
|
|
|
|
|
6,000,000
|
|
Collection of principal
|
|
|
40,000,000
|
|
|
|
|
|
|
|
|
|
Foreclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
185,000,000
|
|
|
$
|
105,000,000
|
|
|
$
|
40,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
INDEX TO
EXHIBITS
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
3.1(1)
|
|
Registrants Second Articles of Amendment and Restatement
|
3.2(2)
|
|
Registrants Amended and Restated Bylaws
|
3.3(3)
|
|
Articles of Amendment of Registrants Second Articles of
Amendment and Restatement
|
4.1(1)
|
|
Form of Common Stock Certificate
|
4.2(4)
|
|
Indenture, dated July 14, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
4.3(5)
|
|
Indenture, dated November 6, 2006, among Registrant, MPT
Operating Partnership, L.P. and the Wilmington
Trust Company, as trustee
|
4.4(5)
|
|
Registration Rights Agreement among Registrant, MPT Operating
Partnership, L.P. and UBS Securities LLC and J.P. Morgan
Securities Inc., as representatives of the initial purchasers,
dated as of November 6, 2006
|
10.1(11)
|
|
Second Amended and Restated Agreement of Limited Partnership of
MPT Operating Partnership, L.P.
|
10.2(6)
|
|
Amended and Restated 2004 Equity Incentive Plan
|
10.3(7)
|
|
Form of Stock Option Award
|
10.4(7)
|
|
Form of Restricted Stock Award
|
10.5(7)
|
|
Form of Deferred Stock Unit Award
|
10.6(1)
|
|
Employment Agreement between Registrant and Edward K. Aldag,
Jr., dated September 10, 2003
|
10.7(1)
|
|
First Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated March 8, 2004
|
10.8(1)
|
|
Employment Agreement between Registrant and R. Steven Hamner,
dated September 10, 2003
|
10.9(1)
|
|
Amended and Restated Employment Agreement between Registrant and
William G. McKenzie, dated September 10, 2003
|
10.10(1)
|
|
Employment Agreement between Registrant and Emmett E. McLean,
dated September 10, 2003
|
10.11(1)
|
|
Employment Agreement between Registrant and Michael G. Stewart,
dated April 28, 2005
|
10.12(1)
|
|
Form of Indemnification Agreement between Registrant and
executive officers and directors
|
10.13(8)
|
|
Credit Agreement dated October 27, 2005, among MPT
Operating Partnership, L.P., as borrower, and Merrill Lynch
Capital, a division of Merrill Lynch Business Financial
Services, Inc., as Administrative Agent and Lender, and
Additional Lenders from Time to Time a Party thereto
|
10.14(1)
|
|
Third Amended and Restated Lease Agreement between 1300 Campbell
Lane, LLC and 1300 Campbell Lane Operating Company, LLC, dated
December 20, 2004
|
10.15(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between 1300 Campbell Lane, LLC and 1300 Campbell Lane Operating
Company, LLC, dated December 31, 2004
|
10.16(1)
|
|
Second Amended and Restated Lease Agreement between 92 Brick
Road, LLC and 92 Brick Road, Operating Company, LLC, dated
December 20, 2004
|
10.17(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 92 Brick Road, LLC and 92 Brick Road, Operating Company,
LLC, dated December 31, 2004
|
10.18(1)
|
|
Ground Lease Agreement between West Jersey Health System and
West Jersey/Mediplex Rehabilitation Limited Partnership, dated
July 15, 1993
|
10.19(1)
|
|
Third Amended and Restated Lease Agreement between
San Joaquin Health Care Associates Limited Partnership and
7173 North Sharon Avenue Operating Company, LLC, dated
December 20, 2004
|
10.20(1)
|
|
First Amendment to Third Amended and Restated Lease Agreement
between San Joaquin Health Care Associates Limited
Partnership and 7173 North Sharon Avenue Operating Company, LLC,
dated December 31, 2004
|
10.21(1)
|
|
Second Amended and Restated Lease Agreement between 8451 Pearl
Street, LLC and 8451 Pearl Street Operating Company, LLC, dated
December 20, 2004
|
10.22(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 8451 Pearl Street, LLC and 8451 Pearl Street Operating
Company, LLC, dated December 31, 2004
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
10.23(1)
|
|
Second Amended and Restated Lease Agreement between 4499
Acushnet Avenue, LLC and 4499 Acushnet Avenue Operating Company,
LLC, dated December 20, 2004
|
10.24(1)
|
|
First Amendment to Second Amended and Restated Lease Agreement
between 4499 Acushnet Avenue, LLC and 4499 Acushnet Avenue
Operating Company, LLC, dated December 31, 2004
|
10.25(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bucks County Hospital, L.P., Bucks County
Oncoplastic Institute, LLC, Jerome S. Tannenbaum, M.D., M.
Stephen Harrison and DSI Facility Development, LLC, dated
March 3, 2005
|
10.26(1)
|
|
Amendment to Purchase and Sale Agreement among MPT Operating
Partnership, L.P., MPT of Bucks County Hospital, L.P., Bucks
County Oncoplastic Institute, LLC, DSI Facility Development,
LLC, Jerome S. Tannenbaum, M.D., M. Stephen Harrison and G.
Patrick Maxwell, M.D., dated April 29, 2005
|
10.27(1)
|
|
Lease Agreement between Bucks County Oncoplastic Institute, LLC
and MPT of Bucks County, L.P., dated September 16, 2005
|
10.28(1)
|
|
Development Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
10.29(1)
|
|
Funding Agreement among DSI Facility Development, LLC, Bucks
County Oncoplastic Institute, LLC and MPT of Bucks County, L.P.,
dated September 16, 2005
|
10.30(1)
|
|
Purchase and Sale Agreement between MPT of North Cypress, L.P.
and North Cypress Medical Center Operating Company, Ltd., dated
as of June 1, 2005
|
10.31(1)
|
|
Contract for Purchase and Sale of Real Property between North
Cypress Property Holdings, Ltd. and MPT of North Cypress, L.P.,
dated as of June 1, 2005
|
10.32(1)
|
|
Sublease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
10.33(1)
|
|
Net Ground Lease between North Cypress Property Holdings, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
10.34(1)
|
|
Lease Agreement between MPT of North Cypress, L.P. and North
Cypress Medical Center Operating Company, Ltd., dated as of
June 1, 2005
|
10.35(1)
|
|
Net Ground Lease between Northern Healthcare Land Ventures, Ltd.
and MPT of North Cypress, L.P., dated as of June 1, 2005
|
10.36(1)
|
|
Construction Loan Agreement between North Cypress Medical Center
Operating Company, Ltd. and MPT Finance Company, LLC, dated
June 1, 2005
|
10.37(1)
|
|
Purchase, Sale and Loan Agreement among MPT Operating
Partnership, L.P., MPT of Covington, LLC, MPT of Denham Springs,
LLC, Covington Healthcare Properties, L.L.C., Denham Springs
Healthcare Properties, L.L.C., Gulf States Long Term Acute Care
of Covington, L.L.C. and Gulf States Long Term Acute Care of
Denham Springs, L.L.C., dated June 9, 2005
|
10.38(1)
|
|
Lease Agreement between MPT of Covington, LLC and Gulf States
Long Term Acute Care of Covington, L.L.C., dated June 9,
2005
|
10.39(1)
|
|
Promissory Note made by Denham Springs Healthcare Properties,
L.L.C. in favor of MPT of Denham Springs, LLC, dated
June 9, 2005
|
10.40(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Redding, LLC, Vibra Healthcare, LLC and Northern
California Rehabilitation Hospital, LLC, dated June 30, 2005
|
10.41(1)
|
|
Lease Agreement between Northern California Rehabilitation
Hospital, LLC and MPT of Redding, LLC, dated June 30, 2005
|
10.42(1)
|
|
Amendment No. 1 to Ground Lease Agreement between National
Medical Specialty Hospital of Redding, Inc. and Ocadian Care
Centers, Inc., dated November 29, 2001
|
10.43(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Bloomington, LLC, Southern Indiana Medical Park II,
LLC and Monroe Hospital, LLC, dated October 7, 2005
|
10.44(1)
|
|
Lease Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
10.45(1)
|
|
Development Agreement among Monroe Hospital, LLC, Monroe
Hospital Development, LLC and MPT of Bloomington, LLC, dated
October 7, 2005
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
10.46(1)
|
|
Funding Agreement between Monroe Hospital, LLC and MPT of
Bloomington, LLC, dated October 7, 2005
|
10.47(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Chino, LLC, Prime Healthcare Services, LLC, Veritas
Health Services, Inc., Prime Healthcare Services, Inc., Desert
Valley Hospital, Inc. and Desert Valley Medical Group, Inc.,
dated November 30, 2005
|
10.48(1)
|
|
Lease Agreement among Veritas Health Services, Inc., Prime
Healthcare Services, LLC and MPT of Chino, LLC, dated
November 30, 2005
|
10.49(1)
|
|
Purchase and Sale Agreement among MPT Operating Partnership,
L.P., MPT of Sherman Oaks, LLC, Prime A Investments, L.L.C.,
Prime Healthcare Services II, LLC, Prime Healthcare Services,
Inc., Desert Valley Medical Group, Inc. and Desert Valley
Hospital, Inc., dated December 30, 2005
|
10.50(1)
|
|
Lease Agreement between MPT of Sherman Oaks, LLC and Prime
Healthcare Services II, LLC, dated December 30, 2005
|
10.51(9)
|
|
Forward Sale Agreement between Registrant and UBS AG, London
Branch, dated February 22, 2007
|
10.52(9)
|
|
Forward Sale Agreement between Registrant and Wachovia Bank,
National Association, dated February 22, 2007
|
10.53(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (LTIP Units)
|
10.54(11)
|
|
Form of Medical Properties Trust, Inc. 2007 Multi-Year Incentive
Plan Award Agreement (Restricted Shares)
|
10.55(12)
|
|
Term Loan Credit Agreement among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JP Morgan Chase Bank,
N.A. as Administrative Agent, with J.P. Morgan Securities
Inc. and KeyBank National Association, as Joint Lead Arrangers
and Bookrunners
|
10.56(10)
|
|
First Amendment to Term Loan Agreement
|
10.57(13)
|
|
Revolving Credit and Term Loan Agreement, dated
November 30, 2007, among Medical Properties Trust, Inc.,
MPT Operating Partnership, L.P., as Borrower, the Several
Lenders from Time to Time Parties Thereto, KeyBank National
Association, as Syndication Agent, and JPMorgan Chase Bank, N.A.
as Administrative Agent, with J.P. Morgan Securities Inc.
and KeyBank National Association, as Joint Lead Arrangers and
Bookrunners
|
10.58(13)
|
|
Second Amendment to Employment Agreement between Registrant and
Edward K. Aldag, Jr., dated September 29, 2006
|
10.59(13)
|
|
First Amendment to Employment Agreement between Registrant and
R. Steven Hamner, dated September 29, 2006
|
10.60(13)
|
|
First Amendment to Employment Agreement between Registrant and
William G. McKenzie, dated September 29, 2006
|
10.61(13)
|
|
First Amendment to Employment Agreement between Registrant and
Emmett E. McLean, dated September 29, 2006
|
10.62(13)
|
|
First Amendment to Employment Agreement between Registrant and
Michael G. Stewart, dated September 29, 2006
|
10.63(8)
|
|
Second Amended and Restated 2004 Equity Incentive Plan
|
21.1(13)
|
|
Subsidiaries of Registrant
|
23.1(13)
|
|
Consent of KPMG LLP
|
23.2(13)
|
|
Consent of Moss Adams LLP
|
31.1(13)
|
|
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
31.2(13)
|
|
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
32(13)
|
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Title
|
|
99.1(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of December 31, 2006 and 2005
|
99.2(13)(14)
|
|
Consolidated Financial Statements of Prime Healthcare Services,
Inc. as of September 30, 2007
|
|
|
|
(1) |
|
Incorporated by reference to Registrants Registration
Statement on
Form S-11
filed with the Commission on October 26, 2004, as amended
(File
No. 333-119957). |
|
(2) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended June 30, 2005, filed with the
Commission on July 26, 2005. |
|
(3) |
|
Incorporated by reference to Registrants quarterly report
on
Form 10-Q
for the quarter ended September 30, 2005, filed with the
Commission on November 10, 2005. |
|
(4) |
|
Incorporated by reference to Registrants current report on
Form |