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January 28, 2005
Mail Stop 0409
Edward K. Aldag, Jr.
Chairman, President, Chief Executive Officer and Secretary
Medical Properties Trust, Inc.
1000 Urban Center Drive, Suite 501
Birmingham, Alabama 35242
Re: Medical Properties Trust, Inc.
Amendment No. 1 to
Registration Statement on Form S-11, Filed January 6, 2005
Registration No. 333-119957
Dear Mr. Aldag:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We note your response to prior comment 1. It is our position
that
all applicable Guide 5 requirements, including prior performance
tables, must be included in the prospectus if the prospectus
relates
to a "blind pool" offering. If you do not identify specified uses
for a substantial portion of the offering proceeds, we would
consider
this a "blind pool" offering.
2. We note your response to prior comments 3-5. Please provide
all
responsive information a reasonable time prior to printing the
preliminary prospectus for our review and comment.
3. We note your responses to comments 7, 85, 91 and 98 and will
await
the inclusion of the requested information in your next amendment.
Please supplementally advise us how you have addressed these
comments
in your next response letter.
Summary
Competitive Strengths, page 5
4. We note your response to prior comment 10 regarding your
focused
investment strategy as well as your property portfolio summary on
page 2. We also refer to the fourth and sixth summary risk factor
bullets. Considering that your portfolio is significantly
concentrated by tenant and property type, please advise how you
determined that you offer a more diversified portfolio strategy
than
your competitors.
Summary Risk Factors, page 5
5. We refer to the last bullet on page 6. The prospectus has
disclosed certain conflicts of interest of Friedman Billings
Ramsey,
your lead underwriter, beyond the customary underwriting
commissions
and discounts. These include prior investment banking and
advisory
relationships, contractual rights to provide these services to you
in
the future and significant stock ownership for which there is
currently no liquid market. Please summarize these potential
conflicts in one risk factor and identify the potential risks to
investors resulting from these conflicts of interest.
6. Please revise this section as well as the cover page to briefly
discuss the risk factor presented on page 32 regarding the fact
that
your loans to Vibra could be recharacterized as equity which could
adversely affect your status as a REIT.
Risk Factors, page 16
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, page 15
7. We note your disclosure that implies that you have not earned
revenues nor do you have access to financing. In light of the
rental
revenues you receive and the $75 million credit facility you
entered
into, it is not clear what this disclosure refers to. Please
revise
or advise.
Our facilities are currently leased to only two tenants, and
failure
of either of these tenants to meet its obligations to us would
have a
material adverse effect on our revenues and our ability to make
distributions to our stockholders, page 18
8. Please disclose the limits on the guarantees.
Our tenants and prospective tenants may have an option to purchase
the facilities we lease to them which could disrupt our
operations,
page 19
9. Please revise the heading of this risk factor to make clear
that
your current tenants do have the option to repurchase the
facilities
leased to them. In addition, please revise the discussion to
tailor
this risk to the specific repurchase options your tenants have.
Provisions of Maryland law, our charter and our bylaws may prevent
or
deter changes in management and third-party acquisition proposals
that you may believe to be in your best interest, depress our
stock
price or cause dilution, page 27
10. In drafting your charter it appears you determined to make
your
ownership limitation more restrictive than that required to ensure
compliance with the REIT ownership rules. Consequently, it is not
appropriate to characterize your charter ownership limitations as
"assisting" in complying with the REIT rules. Please revise
accordingly.
We may experience conflicts of interest with our officers and
directors, which could result in our officers and directors acting
other than in our best interest, page 28
11. We have reviewed the revisions you made in response to prior
comment 35. Please further revise to indicate the basis for your
estimate that the potential investment in this property could be
as
much as $20 million. Specifically, please disclose that you had
prior negotiations regarding this property.
Distribution Policy, page 41
12. Please disclose the percentage of your 2004 dividends that
represented a return of capital.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 45
Reconciliation of Non-GAAP Financial Measures, page 49
13. We have read and considered your response to comment 21. The
statement that your "leases generally have significant contractual
escalations of base rents and therefore result in recognition of
rental income that is not collected until future periods and costs
that are deferred" should be expanded to include the substantive
reason why AFFO provides useful information to investors. Please
expand to disclose the substantive reason(s) why you believe that
AFFO and your adjustments for these recurring items provides
useful
information to investors.
Liquidity and Capital Resources, page 50
14. Please clarify whether the loans you state will be necessary
to
acquire the Acquisition Facilities are limited to drawdowns from
your
existing credit facility. If not, please disclose whether or not
you
have loan commitments for the additional required indebtedness and
the amount, if any, for which you do not have commitments.
Our Business
Our Company, page 53
15. Please disclose, if true, that you are in compliance with all
the
material financial covenants required under your credit facility
with
Merrill Lynch.
Our Portfolio, page 67
16. Please revise the table to conform to any changes made to your
pro forma financials, including with respect to the contractual
base
rent of your development properties.
Vibra Facilities, page 68
17. Please supplementally advise us whether the purpose of the
appraisal was to determine replacement value or if the appraisal
also
determined market value. If the appraisal determined a market
value
for the facilities, please disclose whether the price paid was
more
or less than this value.
18. Please disclose that the Vibra working capital loans
originally
matured in October 1, 2004, but have been extended twice and are
now
scheduled for repayment on January 31, 2005. In addition, please
disclose the circumstances of the extensions, including whether
Vibra
has notified you, or if you are aware of, financial or operational
issues that have limited Vibra`s ability to repay the loans.
Purchase Option, page 74
19. Please clarify whether the fair market valuation used in the
event Stealth exercises the option in the 12 months following
construction is the same as the appraisal valuation used following
expiration of the lease.
20. Please briefly describe the mechanics of the appraisal
process,
including who selects the appraiser and who pays the costs.
Right of First Offer to Purchase, page 75
21. Please briefly describe the restrictions, if any, on your
right
to sell the property in the event Stealth elects not to purchase
the
property at your stated terms.
Management, page 77
Executive Compensation, page 82
22. We note that your compensation committee has not yet
determined
your 2003 and 2004 bonuses. Please supplementally advise us the
estimated aggregated total bonus amounts and when you expect they
will be paid.
Registration Rights and Lock-Up Agreements, page 90
23. Please disclose that you have filed the resale registration
statement.
24. Please supplementally advise us how the underwriters will
require
shareholders that are not participating in the offering to agree
to a
60 day lock-up. For example, will the selling shareholders enter
into an agreement that requires this?
United States Federal Income Tax Considerations, page 112
25. Since the tax opinion will be issued in 2005, please direct
your
counsel to revise its opinion to provide in substance that
commencing
with your tax year ended December 31, 2004 you have been organized
in
conformity with the requirements of qualification as a REIT, and
that
you have satisfied, and your proposed method of operations as
described in the prospectus will enable you to continue to
satisfy,
the REIT requirements.
Underwriting, page 132
26. Please briefly describe the expenses to be paid by the selling
stockholders.
Legal Matters, page 135
27. Please reference the REIT qualification and debt
characterization
opinions that will be delivered by your counsel.
Unaudited Pro Forma Consolidated Financial Information
Adjustments for Unaudited Pro Forma Balance Sheet as of
September 30, 2004
28. We have read and considered your response to comment 83 and
84.
You state that your cost controls provide you a high level of
assurance that the cost of the Houston development will not
materially differ from the contracted amounts. However, the timing
and effects of the construction of property prior to completion
appears to be a forecast or projection of costs, and as such the
impact of these transactions are generally too uncertain to meet
the
criteria under Article 11 of Regulation S-X to be factually
supportable. Please explain or revise accordingly.
Adjustments for Unaudited Pro Forma Statement of Operations for
the
Nine Months Ended September 30, 2004
29. Reference is made to Note 4 where you state rental income is
based on the monthly base rent as stated in the lease agreement
for
each property. Please advise us supplementally and expand your
disclosures if necessary, to clarify the recognition of rental
income
as disclosed is consistent with the recognition of rental income
on a
straight-line basis in accordance with SFAS 13.
Adjustments for Unaudited Pro Forma Balance Sheet as of
December 31, 2003
30. Upon reviewing your response to comment 89, we continue to
believe the presentation of a pro forma balance sheet for a period
earlier than the latest balance sheet included in the filing is
not
consistent with the guidance in Article 11 of Regulation S-X.
While
certain disclosures related to balance sheet accounts would still
be
required (i.e. purchase price allocation, etc.), pro forma balance
sheet information in the pro forma financial statements or
selected
financial data for periods not specified in Regulation S-X may be
confusing to investors. Please revise accordingly in your next
amendment.
Financial Statements
Consolidated Balance Sheets, page F-13
31. Given the significance, consider disclosing the balance for
each
major class of depreciable real estate asset on the face of your
financial statements to provide transparency. Reference is made
to
Rule 5-02 of Regulation S-X.
Note 3 - Property Acquisitions and Loans, page F-21
32. We read and considered your response to comment 93 and note
your
representation that the management fee variable interests will
absorb
a majority of the expected losses because it is subordinated to
the
payment of interest and principal on the loans. Please address
the
following comments:
* Tell us how you determined the management fees represented
variable
interests in accordance with paragraphs B18-B21 of FIN 46(R).
* Explain what cash flows were considered in evaluating which
party
has the majority of the economics. In this regard, we note MPT is
the primary source of capital for Vibra, and MPT will receive
revenues from the leases (base rents and percentage rents) as well
as
loan arrangements with Vibra. Clarify how these cash flows were
considered when determining another party (Vibra Management, LLC)
is
the primary beneficiary. Quantify these amounts in relation to
the
management fee to be received by Vibra Management, LLC.
* What analysis was performed to determine who would receive the
majority of the expected residual returns? Your response only
addresses the expected losses.
* Supplementally disclose to us the rights you have as the lender
under the loan agreements. We note that you have extended the
maturity date of the acquisition loans until January 1, 2005, have
these amounts been collected?
* Clarify whether you have any contractual obligations to provide
working capital loans to Vibra.
* What is the nature of financial support or investments provided
to
Vibra from other parties, and quantify the amounts as appropriate.
Contrast the financial investment by other parties with that of
MPT.
* We note the guarantees under the loans are limited to $5 million
for Mr. Hollinger. Are there any limitations of the other
guarantors? Advise us on the ability of the guarantors to perform
under guarantees in the event of default.
..
33. Explain the ownership structure of Vibra Management LLC, the
management company, and its relationship to Vibra.
Note 4 - Loans Payable, page F-22
34. Based on your response to comment 92, we note that you
recorded
the value of the warrants issued in conjunction with the private
placement based on their intrinsic value. Tell us supplementally
your basis in GAAP for valuing warrants issued to nonemployees
using
the intrinsic value method rather than an option-pricing model as
prescribed under SFAS 123.
35. The guidance referenced in your response to comment 96 allows
you
to provide financial information of the tenant or another party
that
guarantees the lease payments upon meeting certain criteria. This
should be based on financial information that will be most
relevant
to investors in assessing the creditworthiness of the transaction.
As such, we reissue our previous comment to have you clarify why
the
financial statements of a newly formed tenant with a limited
operating history would be more meaningful than financial
statements
of the guarantor or revise accordingly. Clearly explain what
factors
you used in assessing the credit risk associated with your
investment
decisions in these properties. In your response, please
separately
address each of the guarantors disclosed in your document (i.e.
principal owner of Vibra, The Hollinger Group and Vibra
Management,
LLC).
Exhibits
36. We note your response to prior comment 101. Please be aware
that
we will need sufficient time to review the legality, REIT and debt
characterization opinions. Please consider providing us with
draft
copies of such opinions with your next amendment.
Directed Share Program
37. Please revise the legend on page 2 of the materials to reflect
that there is a selling shareholder component to this offering.
38. Please revise the fourth paragraph to make clear that a
potential
purchaser may decline to accept shares when they are contacted by
FBR
after the registration statement has become effective.
* * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Andrew Mew at (202) 942-2913 or Cicely
Luckey,
Reviewing Staff Accountant, at (202) 942-1975 if you have
questions
regarding comments on the financial statements and related
matters.
Please contact Michael McTiernan, Attorney-Advisor, at (202) 824-
5445, or me at (202) 942-1971 with any other questions.
Sincerely,
Owen Pinkerton
Senior Counsel
cc: Thomas O. Kolb, Esq. (via facsimile)
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
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Medical Properties Trust, Inc.
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