MEDICAL PROPERTIES TRUST, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2006
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-32559
MEDICAL PROPERTIES TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
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MARYLAND
(State or other jurisdiction
of incorporation or organization)
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20-0191742
(I. R. S. Employer
Identification No.) |
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1000 URBAN CENTER DRIVE, SUITE 501
BIRMINGHAM, AL
(Address of principal executive offices)
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35242
(Zip Code) |
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (205) 969-3755
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of August 9, 2006, the registrant had 40,195,564 shares of common stock, par value $.001,
outstanding.
MEDICAL PROPERTIES TRUST, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30,2006
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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June 30, 2006 |
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December 31, 2005 |
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(Unaudited) |
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Assets |
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Real estate assets |
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Land |
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$ |
34,512,464 |
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$ |
31,004,675 |
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Buildings and improvements |
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256,486,426 |
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250,518,440 |
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Construction in progress |
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96,931,759 |
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45,913,085 |
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Intangible lease assets |
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9,666,192 |
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9,666,192 |
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Mortgage loan |
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40,000,000 |
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40,000,000 |
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Gross investment in real estate assets |
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437,596,841 |
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377,102,392 |
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Accumulated depreciation |
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(8,444,279 |
) |
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(5,260,219 |
) |
Accumulated amortization |
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(944,818 |
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(622,612 |
) |
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Net investment in real estate assets |
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428,207,744 |
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371,219,561 |
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Cash and cash equivalents |
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1,833,614 |
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59,115,832 |
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Interest and rent receivable |
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11,190,702 |
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6,923,091 |
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Straight-line rent receivable |
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10,470,081 |
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7,909,213 |
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Loans receivable |
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49,848,111 |
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48,205,611 |
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Other assets |
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8,709,365 |
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7,800,238 |
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Total Assets |
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$ |
510,259,617 |
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$ |
501,173,546 |
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Liabilities and Stockholders Equity |
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Liabilities |
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Debt |
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$ |
101,453,178 |
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$ |
100,484,520 |
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Accounts payable and accrued expenses |
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26,736,716 |
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19,928,900 |
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Deferred revenue |
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13,947,179 |
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10,922,317 |
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Lease deposits and other obligations to tenants |
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10,313,533 |
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11,386,801 |
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Total liabilities |
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152,450,606 |
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142,722,538 |
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Minority interests |
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2,295,577 |
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2,173,866 |
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Stockholders equity |
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Preferred stock, $0.001 par value. Authorized 10,000,000 shares; no
shares outstanding |
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Common stock, $0.001 par value. Authorized 100,000,000 shares;
issued and outstanding - 39,471,670 shares at June 30, 2006, and
39,345,105 shares at December 31, 2005 |
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39,472 |
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39,345 |
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Additional paid in capital |
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361,408,197 |
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359,588,362 |
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Distributions in excess of net income |
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(5,934,235 |
) |
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(3,350,565 |
) |
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Total stockholders equity |
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355,513,434 |
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356,277,142 |
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Total Liabilities and Stockholders Equity |
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$ |
510,259,617 |
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$ |
501,173,546 |
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See accompanying notes to consolidated financial statements.
1
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues |
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Rent billed |
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$ |
9,233,759 |
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$ |
4,692,328 |
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$ |
18,169,855 |
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$ |
8,615,377 |
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Straight-line rent |
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1,259,411 |
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1,432,298 |
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2,560,868 |
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2,777,739 |
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Interest income from loans |
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2,671,201 |
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1,117,151 |
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5,125,915 |
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2,329,189 |
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Total revenues |
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13,164,371 |
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7,241,777 |
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25,856,638 |
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13,722,305 |
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Expenses |
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Real estate depreciation and amortization |
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1,762,400 |
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973,996 |
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3,506,267 |
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1,816,403 |
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General and administrative |
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2,855,142 |
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1,415,067 |
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5,400,013 |
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3,165,877 |
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Total operating expenses |
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4,617,542 |
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2,389,063 |
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8,906,280 |
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4,982,280 |
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Operating income |
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8,546,829 |
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4,852,714 |
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16,950,358 |
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8,740,025 |
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Other income (expense) |
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Interest income |
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62,486 |
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358,214 |
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238,547 |
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741,986 |
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Interest expense |
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(637,473 |
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(831,117 |
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(1,174,513 |
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(1,542,266 |
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Net other expense |
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(574,987 |
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(472,903 |
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(935,966 |
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(800,280 |
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Income before minority interests |
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7,971,842 |
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4,379,811 |
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16,014,392 |
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7,939,745 |
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Minority interests in
consolidated partnerships |
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(56,771 |
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(121,711 |
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Net income |
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$ |
7,915,071 |
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$ |
4,379,811 |
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$ |
15,892,681 |
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$ |
7,939,745 |
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Net income per share basic |
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$ |
0.20 |
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$ |
0.17 |
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$ |
0.40 |
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$ |
0.30 |
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Weighted average shares outstanding basic |
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39,519,695 |
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26,096,021 |
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39,480,684 |
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26,096,813 |
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Net income per share diluted |
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$ |
0.20 |
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$ |
0.17 |
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$ |
0.40 |
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$ |
0.30 |
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Weighted average shares outstanding diluted |
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39,757,723 |
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26,110,119 |
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39,633,158 |
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26,105,844 |
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See accompanying notes to consolidated financial statements.
2
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
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For the Six Months Ended June 30, |
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2006 |
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2005 |
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Operating activities |
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Net income |
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$ |
15,892,681 |
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$ |
7,939,745 |
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Adjustments to reconcile net income
to net cash provided by operating activities |
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Depreciation and amortization |
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3,629,981 |
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1,886,454 |
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Amortization of deferred financing costs |
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494,231 |
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449,762 |
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Straight-line rent revenue |
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(2,560,868 |
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(2,777,739 |
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Deferred fee revenue |
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(857,368 |
) |
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Share-based compensation |
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1,583,025 |
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122,766 |
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Other adjustments |
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149,209 |
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(129,768 |
) |
Increase in: |
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Interest and rent receivable |
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(765,775 |
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(775,523 |
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Other assets |
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(292,133 |
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(1,088,749 |
) |
Increase (decrease) in: |
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Accounts payable and accrued expenses |
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4,174,397 |
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(3,493,372 |
) |
Deferred revenue |
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147,894 |
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1,264,502 |
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Lease
deposits and other obligations to tenants |
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(1,100,766 |
) |
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70,493 |
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Net cash provided by operating activities |
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20,494,508 |
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3,468,571 |
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Investing activities |
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Real estate acquired |
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(9,475,775 |
) |
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(56,513,944 |
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Principal received on loans receivable |
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7,725,958 |
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Investment in loans receivable |
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(1,410,000 |
) |
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(4,934,772 |
) |
Construction in progress |
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(51,018,674 |
) |
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(26,420,931 |
) |
Equipment acquired |
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(1,233,729 |
) |
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(122,066 |
) |
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Net cash used for investing activities |
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(63,138,178 |
) |
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(80,265,755 |
) |
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Financing activities |
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Additions to debt |
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29,968,658 |
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19,000,000 |
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Payments of debt |
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(29,000,000 |
) |
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(1,795,833 |
) |
Deferred financing costs |
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(1,211 |
) |
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(1,786,178 |
) |
Restricted shares issued to employees in lieu of cash bonus |
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(75,000 |
) |
Distributions paid |
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(15,605,995 |
) |
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(2,869,116 |
) |
Proceeds from sale of partnership units |
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1,137,500 |
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Net cash provided by (used for) financing activities |
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(14,638,548 |
) |
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13,611,373 |
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Decrease in cash and cash equivalents for period |
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(57,282,218 |
) |
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(63,185,811 |
) |
Cash and cash equivalents at beginning of period |
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59,115,832 |
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97,543,677 |
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Cash and cash equivalents at end of period |
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$ |
1,833,614 |
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$ |
34,357,866 |
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Interest paid, including capitalized interest of $2,582,531 in 2006 and $1,003,779 in 2005 |
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$ |
3,262,813 |
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$ |
2,096,283 |
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Supplemental schedule of non-cash investing activities: |
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Unbilled rent receivables recorded as deferred revenue |
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$ |
3,501,836 |
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$ |
1,474,387 |
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Real estate and loans receivable recorded as lease and loan deposits |
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8,773,312 |
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Real estate and loans receivable recorded as deferred revenue |
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232,500 |
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|
389,309 |
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Supplemental schedule of non-cash financing activities: |
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Distributions declared, not paid |
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$ |
10,047,552 |
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$ |
4,186,377 |
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Additional paid-in capital from deferred stock units from sale of common stock |
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17,236 |
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|
126,475 |
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Shares issued in lieu of cash bonus |
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219,701 |
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Shares issued for vested common stock |
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105 |
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See accompanying notes to consolidated financial statements.
3
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization
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), 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 Company presently owns directly all of the limited
partnership interests in the Operating Partnership.
The Company succeeded to the business of Medical Properties Trust, LLC, a Delaware limited
liability company, which was formed in December 2002. On the day of formation, the Company issued
1,630,435 shares of common stock, and the membership interests of Medical Properties Trust, LLC
were transferred to the Company. Medical Properties Trust, LLC had no assets, but had incurred
liabilities for costs and expenses related to acquisition due diligence, a planned offering of
common stock, consulting fees and office overhead in an aggregate amount of approximately $423,000,
which was assumed by 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 considers this
to be a single business segment as defined in Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an Enterprise and Related Information.
On April 6, 2004, the Company completed the sale of 25.6 million shares of common stock in a
private placement to qualified institutional buyers and accredited investors. The Company received
$233.5 million after deducting offering costs. On July 7, 2005, the Company completed the sale of
11,365,000 shares of common stock in an initial public offering (IPO) at a price of $10.50 per
share. On August 5, 2005, the underwriters purchased an additional 1,810,023 shares at the same
offering price, less an underwriting commission of seven percent and expenses, pursuant to their
over-allotment option. The proceeds have been used to purchase properties, make mortgage loans, to
pay debt and accrued expenses, for working capital, and general corporate purposes.
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 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 Financial Accounting
Standards Board (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
4
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.
Unaudited Interim Consolidated Financial Statements: The accompanying unaudited interim
consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information, including rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for
the three months and six months ended June 30, 2006, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2006. These financial statements should be
read in conjunction with the consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended.
Reclassifications: Certain reclassifications have been made to the consolidated financial
statements to conform to the 2006 consolidated financial statement presentation. These
reclassifications have no impact on stockholders equity or net income.
3. Real Estate and Lending Activities
In January, 2006, the Company exercised an option to acquire previously leased land on which the
Company is developing a general acute care hospital. The Company also increased its investment in
land adjacent to one of its general acute care hospitals. These two transactions totaled
approximately $6.6 million.
For the three months ended June 30, 2006 and 2005, revenue from Vibra Healthcare, LLC accounted for
52.9% and 87.4%, respectively, of total revenue. For the six months ended June 30, 2006 and 2005,
revenue from Vibra Healthcare, LLC accounted for 53.7% and 91.7% of total revenue. For the three
months and six months ended June 30, 2006, the combined revenues of two other operators accounted
for 31.9% and 31.5%, respectively, of total revenue.
Transactions
Subsequent to June 30, 2006: In July, 2006, the Company made two mortgage loans totaling $65.0 million, each secured by a
general acute care hospital located 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 August, 2006, the Company acquired a general acute care hospital
located in California at a cost of $20.0 million and entered into an operating lease with the
operator. The lease has a 15 year fixed term and contains annual rent escalation at the greater
of a fixed percentage or the general increase in the consumer price index.
4. Debt
The following is a summary of debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006 |
|
|
As of December 31, 2005 |
|
|
|
Balance |
|
|
Interest Rate |
|
|
Balance |
|
|
Interest Rate |
|
Revolving credit facility |
|
$ |
58,010,178 |
|
|
|
8.10 |
% |
|
$ |
65,010,178 |
|
|
|
7.14 |
% |
Term loans |
|
|
43,443,000 |
|
|
|
7.85 |
% |
|
|
35,474,342 |
|
|
|
6.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
101,453,178 |
|
|
|
|
|
|
$ |
100,484,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006, principal payments due for our term loans were as follows:
|
|
|
|
|
2006 |
|
$ |
277,350 |
|
2007 |
|
|
598,818 |
|
2008 |
|
|
42,566,832 |
|
|
|
|
|
|
|
$ |
43,443,000 |
|
|
|
|
|
5
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
bear interest at the thirty-day LIBOR plus 2.50%. The loans require monthly payments of principal
and interest with maturity in December, 2008 and are secured by mortgages on the hospital and
medical office building.
Transactions
Subsequent to June 30, 2006:
In July, 2006, the Company completed a $65.0 million private placement of Senior Unsecured Notes
due July 30, 2016 (the Notes). The Notes were placed in a private transaction exempt from registration
under the Securities Act of 1933, as amended, (the Securities Act). The Notes will pay interest
quarterly at a fixed annual rate of 7.871% through July 30, 2011, and, thereafter, at a floating
annual rate of three-month LIBOR plus 2.30%. The Notes may be called at par value by MPT at any
time on or after July 30, 2011. In August, 2006, the Company issued an additional $20.0 million of
Senior Unsecured Notes. These Notes have the same terms and
conditions as the $65.0 million of Notes
issued in July, except that the annual interest rate through October 30, 2011, is 7.715%. The Company
has the option to issue up to an additional $15.0 million of Notes on the same terms at any time
prior to October 30, 2006.
5. Stock Awards
The Company has adopted the Medical Properties Trust, Inc. 2004 Amended and Restated Equity
Incentive Plan (the Equity Incentive Plan) which authorizes the issuance of options to purchase
shares of common stock, restricted stock awards, restricted stock units, deferred stock units,
stock appreciation rights and performance units. The Equity Incentive Plan is administered by the
Compensation Committee of the Board of Directors. The Company has reserved 4,691,180 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 our
operations during the three months and six months ended June 30, 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
three months and six months ended June 30, 2006 and 2005 was not material.
The Company awarded 60,000 stock options to three independent directors in March, 2005, with an
estimated grant date fair value of $1.86 per option. With those awards, the Company has awarded a
total of 100,000 options, all of which were to independent directors. No options have been awarded
since that date and none have been exercised. All options have an exercise price of $10 per option
(which was the per share value at date of grant) and vested one-third upon grant. The remainder
vest one-half on each of the first and second anniversaries of the date of grant, and expire ten
years from the date of grant. No other options have been granted. In
May, 2006, the members of the Compensation Committee of the Board of
Directors awarded each of the five independent directors 5,000 deferred stock units (DSUs).
These DSUs vested immediately upon grant and will be exchanged for shares of the Companys common stock at the
end of five years. The Company recorded a non-cash expense of $267,250 on the date of grant based
on the market value of the Companys common stock.
Options exercisable at June 30, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Exercise |
|
|
|
|
|
|
|
|
|
Remaining |
Price |
|
Options Outstanding |
|
Options Exercisable |
|
Contractual Life (years) |
$10.00 |
|
|
100,000 |
|
|
|
80,000 |
|
|
|
8.3 |
|
6
The Company uses the Black-Scholes pricing model to calculate the fair values of the options
awarded. In 2005, the following assumptions were used to derive the fair values: an option term of
four to six years; estimated volatility of 27.75%; a weighted average risk-free rate of return of
4.30%; a dividend yield of 4.80%
Restricted stock awards vest over periods of three to five years, valued at the average price per
share of common stock on the date of grant. Certain officers of the Company elected to receive their 2005 incentive bonus in shares of restricted stock in lieu of cash. Such
shares vest at the rate of 25% on the date grant, and 37.5% on January 1 in
each of the following two years. Shares granted under this plan are equivalent to 135% of the
amount of cash bonus which the officer would otherwise receive. The price per share was based on
the average market price per share on the date of approval of
the bonuses by the Compensation Committee. The Compensation Committee awarded 140,500 shares of restricted common stock in May, 2006, to Company officers.
These shares vest over a period of five years beginning July 1, 2006, based on a combination of
service and performance criteria. The following summarizes restricted stock awarded in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Shares |
|
Value at Award Date |
Outstanding at January 1, 2006 |
|
|
621,460 |
|
|
$ |
10.10 |
|
Awarded bonus election shares |
|
|
88,499 |
|
|
$ |
9.93 |
|
Awarded other |
|
|
140,500 |
|
|
$ |
11.60 |
|
Vested |
|
|
(126,565 |
) |
|
$ |
10.08 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006 |
|
|
723,894 |
|
|
$ |
10.37 |
|
|
|
|
|
|
|
|
|
|
The value of outstanding restricted shares is charged to compensation expense over the vesting
periods. In the three months and six months ended June 30, 2006, the Company recorded $710,000 and
$1,316,000, respectively, of non-cash compensation expense for restricted shares. The remaining
unrecognized cost from share based compensation at June 30, 2006, is approximately $6.6 million and
will be recognized over a weighted average period of approximately 1.36 years. During the three
months and six months ended June 30, 2006, restricted shares which vested had a value of
approximately $566,000 and $1,297,000 on the vesting dates.
6. Earnings Per Share
The following is a reconciliation of the weighted average shares used in net income per common
share to the weighted average shares used in net income per common share assuming dilution for
the three months and six months ended June 30, 2006 and 2005, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Weighted average number of
shares issued and outstanding |
|
|
39,471,096 |
|
|
|
26,082,862 |
|
|
|
39,437,959 |
|
|
|
26,082,862 |
|
Vested deferred stock units |
|
|
48,599 |
|
|
|
13,159 |
|
|
|
42,725 |
|
|
|
13,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
39,519,695 |
|
|
|
26,096,021 |
|
|
|
39,480,684 |
|
|
|
26,096,813 |
|
Common stock
warrants, restricted stock and stock options |
|
|
238,028 |
|
|
|
14,098 |
|
|
|
152,474 |
|
|
|
9,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
39,757,723 |
|
|
|
26,110,119 |
|
|
|
39,633,158 |
|
|
|
26,105,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the consolidated financial condition and consolidated
results of operations should be read together with the consolidated financial statements of Medical
Properties Trust, Inc. and notes thereto contained in this Form 10-Q and the financial statements
and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2005.
Forward-Looking Statements.
This report on Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results or future performance,
achievements or transactions or events to be materially different from those expressed or implied
by such forward-looking statements, including, but not limited to, the risks described in our
Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Securities and
Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended. Such factors
include, among others, the following:
|
|
|
National and local economic, business, real estate and other market conditions; |
|
|
|
|
The competitive environment in which the Company operates; |
|
|
|
|
The execution of the Companys business plan; |
|
|
|
|
Financing risks; |
|
|
|
|
Acquisition and development risks; |
|
|
|
|
Potential environmental and other liabilities; |
|
|
|
|
Other factors affecting the real estate industry generally or the healthcare
real estate industry in particular; |
|
|
|
|
Our ability to attain and maintain our status as a REIT for federal and state income tax purposes; |
|
|
|
|
Our ability to attract and retain qualified personnel; and, |
|
|
|
|
Federal and state healthcare regulatory requirements. |
Overview
We were incorporated under Maryland law on August 27, 2003 primarily for the purpose of investing
in and owning net-leased healthcare facilities across the United States. We have operated as a
real estate investment trust (REIT) since April 6, 2004, and accordingly, elected REIT status
upon the filing in September 2005 of our calendar year 2004 Federal income tax return. We acquire
and develop healthcare facilities and lease the facilities to healthcare operating companies under
long-term net leases. We also make mortgage loans to healthcare operators secured by their real
estate assets. We selectively make loans to certain of our operators through our taxable REIT
subsidiary, the proceeds of which are used for acquisitions and working capital.
At June 30, 2006, we owned 14 operating healthcare facilities and held a mortgage loan secured by
another facility. In addition, we were in the process of developing three additional healthcare
facilities that were not yet in operation. We had one acquisition loan outstanding, the proceeds
of which our tenant used for the acquisition of six hospital operating companies. The 17 facilities
we owned and the one facility on which we had made a mortgage loan were in nine states, had a
carrying cost of approximately $428.2 million and comprised approximately 83.9% of our total
assets. Our acquisition and other loans of approximately $49.8 million represented approximately
9.8% of our total assets. We do not expect such non-mortgage loan assets at any time to exceed 20%
of our total assets.
At August 1, 2006, we had 20 employees. Over the next 12 months, we expect to add four to six
additional employees as we acquire new properties and make new mortgage loans and manage our
existing properties and loans.
Key Factors that May Affect Our Operations
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 operate in
the healthcare industry, generally providing medical, surgical and rehabilitative care to patients.
The capacity of our tenants to pay our rents and
8
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 in monitoring the performance
of existing tenants 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 and of each
facility; |
|
|
|
|
the ratio of our tenants operating earnings both to facility rent and to facility rent
plus other fixed costs, including debt costs; |
|
|
|
|
trends in the source of our tenants 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 profitability. |
Certain business factors, in addition to those described above that directly affect our tenants,
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. |
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 will 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 data 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 determines, 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.
9
Our development projects normally allow for us to earn what we term construction period rent.
Construction period rent accrues to us during the construction period based on the funds which we
invest in the facility. During the construction period, the unfinished facility does not generate
any earnings for the lessee/operator which can be used to pay us for our funds used to build the
facility. In such cases, the lessee/operator pays the accumulated construction period rent over
the term of the lease beginning when the lessee/operator takes physical possession of the facility.
We record the accrued construction period rent as deferred revenue during the construction period,
and recognize earned revenue as the construction period rent is paid to us by the lessee/operator.
We make loans to our 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 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 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 Statement of Financial Accounting Standards (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 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.
Because our strategy to a large degree involves the origination of long term lease arrangements at
market rates, we do not expect the above-market and below-market in-place lease values to be
significant for many of our anticipated transactions.
10
We measure the aggregate value of other intangible assets to be acquired based on the difference
between (i) the property valued with existing leases adjusted to market rental rates and (ii) the
property valued as if vacant. 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 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 range primarily from 10 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. Should a tenant terminate its lease, the unamortized portion of the in-place lease
value and customer relationship intangibles would be charged to expense.
Accounting for Derivative Financial Investments and Hedging Activities. We expect to 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. We are not currently a party to any derivatives contracts.
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
11
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 three months and six months ended June 30, 2006, we recorded $977,000 and
$1,583,000, respectively, of expense for share based compensation, related to grants of restricted
common stock and deferred stock units.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2006, we had approximately $1.8 million in cash and temporary liquid investments.
In October 2005, we entered into a four-year $100.0 million secured revolving credit facility. The
loan, which has a balance of $74.2 million at August 1, 2006, is secured by a collateral pool
comprised of several of our properties. The six properties currently in the collateral pool
provide available borrowing capacity of approximately $74.2 million. We believe we have sufficient
value in our other properties to increase the availability under the credit facility to its present
maximum of $100.0 million. Under the terms of the credit agreement, we may increase the maximum
commitment to $175.0 million subject to adequate collateral valuation and payment of customary
commitment fees. We have begun discussions with the lender to expand the revolving credit
facility to an amount greater than the maximum $175.0 million commitment. However, we can not
provide assurance that we will enter into a larger revolving credit facility with the lender or
with any other potential lender.
In July, 2006, we completed a $65.0 million private placement of Senior Unsecured Notes due July
30, 2016 (the Notes). The Notes were placed in a private transaction exempt from registration
under the Securities Act of 1933, as amended, (the Securities Act). The Notes will pay interest
quarterly at a fixed annual rate of 7.871% through July 30, 2011, and, thereafter, at an annual
floating rate of three-month LIBOR plus 2.30%. We may call the Notes at par value at any time on
or after July 30, 2011. In August, 2006, we issued an additional $20.0
million of Senior Unsecured Notes. These Notes have the same terms and conditions as the $65.0
million of Notes issued in July, except the annual interest rate
through October 30, 2011, is 7.715%.
Under the terms of the Placement Agreement for the Senior Unsecured Notes,
we have the option to issue up to an additional $15.0 million of Notes on the same terms at any
time prior to October 30, 2006. We expect to use the net proceeds from the Notes, after deducting fees and expenses, primarily for
funding future acquisitions of healthcare real estate or mortgage loans. In July, 2006, we made
two 15 year interest only mortgage loans totaling $65.0 million which we funded using the proceeds
from the Senior Unsecured Notes. In August, 2006, we used $20 million of proceeds to acquire a
general acute care hospital in California, which we then leased to the operator under a 15 year
operating lease.
At June 30, 2006, we had remaining commitments to complete the funding of three development
projects as described below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Commitment |
|
|
Cost Incurred |
|
|
Remaining Commitment |
|
North Cypress community hospital |
|
$ |
64.0 |
|
|
$ |
48.4 |
|
|
$ |
15.6 |
|
Bucks County womens hospital
and medical office building |
|
|
38.0 |
|
|
|
17.9 |
|
|
|
20.1 |
|
Monroe County community hospital |
|
|
35.5 |
|
|
|
30.2 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
137.5 |
|
|
$ |
96.5 |
|
|
$ |
41.0 |
|
|
|
|
|
|
|
|
|
|
|
Short-term Liquidity Requirements: We believe that our existing cash and temporary investments,
funds available under our existing loan agreements, additional financing arrangements and cash from
operations will be sufficient for us to complete the developments described above, acquire as much
as $235 million in additional assets, provide for working capital, and make required distributions
to our stockholders through the remainder of 2006. We expect that such additional financing
arrangements will include various types of new debt, possibly including long-term, fixed-rate
mortgage loans, variable-rate term loans, and construction financing facilities. Generally, we
believe we will be able to finance up to approximately 50-60% of the cost of our healthcare
facilities; however, there is no assurance that we will be able to obtain or maintain those levels
of debt on our portfolio of real estate assets on
12
favorable terms in the future. If we are not able to obtain or maintain these levels of debt, we
believe that our ability to acquire up to $235 million of additional assets during the remainder of
2006 will be adversely affected.
Long-term Liquidity Requirements: We believe that cash flow from operating activities subsequent
to 2006 will be sufficient to provide adequate working capital and make required distributions to
our stockholders in compliance with our requirements as a REIT. However, in order to continue
acquisition and development of healthcare facilities after 2006, we will require access to more
permanent external capital, including equity capital. If equity capital is not available at a price
that we consider appropriate, we may increase our debt, selectively dispose of assets, utilize
other forms of capital, if available, or reduce our acquisition activity.
Financing Activities
In the first quarter of 2006, we used $29.0 million of available cash to temporarily reduce the
balance on our revolving credit facility. In the second quarter of 2006, we borrowed an additional
$22.0 million on our revolving credit facility. In the first six months of 2006, we also borrowed
an additional $8.0 million on our construction loans for our West Houston Town and Country Hospital
and Medical Office Building projects.
Investing Activities
In the first six months of 2006,
we invested $51.2 million in our three development projects. We
also invested $9.5 million in our current operating facilities, primarily the West Houston Town and
Country Hospital and Medical Office Building projects. Our expectations about future investing
activities are described above under Liquidity and Capital Resources.
Results of Operations
Our historical operations are generated substantially by investments we have made since we
completed our private offering and raised approximately $233.5 million in common equity in the
second quarter of 2004 and since we completed our IPO and raised
approximately $124.7 million in
common equity in the third quarter of 2005. We also are in the process of developing additional
healthcare facilities that have not yet begun generating revenue, and we expect to acquire
additional existing healthcare facilities in the foreseeable future. Accordingly, we expect that
future results of operations will vary materially from our historical results.
Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
Net income for the three months ended June 30, 2006, was $7,915,071 compared to net income of
$4,379,811 for the three months ended June 30, 2005, a 80.7% increase.
A comparison of revenues for the three months ended June 30, 2006 and 2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
2006 |
|
|
% of Total |
|
|
2005 |
|
|
% of Total |
|
|
Change |
|
Base rents |
|
$ |
8,487,113 |
|
|
|
64.4 |
% |
|
$ |
4,087,915 |
|
|
|
56.4 |
% |
|
|
107.6 |
% |
Straight-line rents |
|
|
1,259,411 |
|
|
|
9.6 |
% |
|
|
1,432,298 |
|
|
|
19.8 |
% |
|
|
(12.1 |
%) |
Percentage rents |
|
|
655,888 |
|
|
|
5.0 |
% |
|
|
604,413 |
|
|
|
8.3 |
% |
|
|
8.52 |
% |
Contingent rents |
|
|
90,758 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Fee income |
|
|
260,490 |
|
|
|
2.0 |
% |
|
|
19,116 |
|
|
|
0.3 |
% |
|
|
1,262.7 |
% |
Interest from loans |
|
|
2,410,711 |
|
|
|
18.3 |
% |
|
|
1,098,035 |
|
|
|
15.2 |
% |
|
|
119.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
13,164,371 |
|
|
|
100.0 |
% |
|
$ |
7,241,777 |
|
|
|
100.0 |
% |
|
|
81.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue of $13,164,371 in the three months ended June 30, 2006, was comprised of rents (79.7%) and
interest from loans and fee income (20.3%). In the second quarter of 2006, we owned 14 rent
producing properties compared to nine in the second quarter of 2005, which accounted for the
increase in base rents. While minimum guaranteed base rent increases are included in straight-line
rents, any amounts in excess of these minimums are recorded as
13
contingent rent. During the second quarter of 2006, we received percentage rents of approximately
$656,000 from Vibra, a $52,000 increase from the second quarter of 2005, due to higher revenues at
the original six Vibra facilities. Interest income from loans in the quarter ended June 30, 2006
compared to the same period in 2005 increased due to origination of a $40,000,000 mortgage loan in
the fourth quarter of 2005. Vibra accounted for 52.9% and 87.4% of our gross revenues during the
three months ended June 30, 2006 and 2005, respectively.
We expect our revenue to continue to increase in future quarters as a result of expected
acquisitions and mortgage loans and completion of projects currently under development. We also
expect that the relative portion of our revenue that is paid by Vibra will continue to decline as a
result of continued tenant diversification.
Depreciation and amortization during the second quarter of 2006, was $1,762,400, compared to
$973,996, during second quarter of 2005, an 81.0% increase. All of this increase is related to an
increase in the number of rent producing properties from nine at June 30, 2005 to 14 at June 30,
2006. We expect our depreciation and amortization expense to continue to increase commensurate
with our acquisition and development activity.
General and administrative expenses in the second quarters of 2006 and 2005 totaled $2,855,142, and
$1,415,067, respectively, an increase of 101.8%. We recorded approximately $977,000 for
share-based compensation in the second quarter of 2006 as compared to $47,000 in the second quarter
of 2005, accounting for approximately 64.6% of the increase. Share based compensation for 2006
includes approximately $267,000 for 25,000 deferred stock units (DSUs) awarded to the five
independent members of our Board of Directors in May, 2006, at our annual meeting of shareholders.
These DSUs vested immediately upon award. Based on our existing director compensation policies
and Board composition, a similar number of DSUs will be awarded and expensed (based on the market
price of our common stock) on the date of future annual meetings. The remaining share-based
compensation expense recorded in 2006 represents the expense from grants of restricted shares to
employees, officers and directors in 2005 and 2006. We record the expense from restricted share
awards over the vesting period of three to five years.
Interest income (other than from loans) for the quarters ended June 30, 2006 and 2005, totaled
$62,486 and $358,214, respectively. Interest income decreased primarily due to lower cash
balances in the three months ended June 30, 2006. We used our cash balances of $59.1 million at
December 31, 2005 to reduce debt, pay dividends and invest in our development projects.
Interest
paid for the quarters ended June 30, 2006 and 2005, totaled
$1,843,773 and $1,132,905,
respectively. Capitalized interest for the quarters ended June 30, 2006 and 2005, totaled
$1,453,113 and $608,378, respectively, resulting in interest expense (which includes amortized
financing costs) for the quarters ended June 30, 2006 and 2005, of $637,473 and $831,117,
respectively. Interest paid increased due to higher interest rates and larger debt balances in
2006 compared to 2005. Capitalized interest increased due to higher interest rates and
developments under construction of $96.9 million at
June 30, 2006, compared to $50.5 million under
construction at June 30, 2005.
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
Net income for the six months ended June 30, 2006, was $15,892,681 compared to net income of
$7,939,745 for the six months ended June 30, 2005, a 100.2% increase.
A comparison of revenues for the six months ended June 30, 2006 and 2005, is as follows:
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
2006 |
|
|
% of Total |
|
|
2005 |
|
|
% of Total |
|
|
Change |
|
Base rents |
|
$ |
16,739,209 |
|
|
|
64.8 |
% |
|
$ |
7,616,422 |
|
|
|
55.5 |
% |
|
|
119.8 |
% |
Straight-line rents |
|
|
2,560,868 |
|
|
|
9.9 |
% |
|
|
2,777,739 |
|
|
|
20.2 |
% |
|
|
(7.81 |
%) |
Percentage rents |
|
|
1,296,596 |
|
|
|
5.0 |
% |
|
|
998,955 |
|
|
|
7.3 |
% |
|
|
29.8 |
% |
Contingent rents |
|
|
134,050 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Fee income |
|
|
332,869 |
|
|
|
1.3 |
% |
|
|
84,080 |
|
|
|
0.6 |
% |
|
|
295.9 |
% |
Interest from loans |
|
|
4,793,046 |
|
|
|
18.5 |
% |
|
|
2,245,109 |
|
|
|
16.4 |
% |
|
|
113.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
25,856,638 |
|
|
|
100.0 |
% |
|
$ |
13,722,305 |
|
|
|
100.0 |
% |
|
|
88.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue of $25,856,638 in the six months ended June 30, 2006, was comprised of rents (80.2%) and
interest from loans and fee income (19.8%). At June 30, 2006, we owned 14 rent producing
properties compared to nine at June 30, 2005, which accounted for the increase in base rents.
While minimum guaranteed base rent increases are included in straight-line rents, any amounts in
excess of these minimums are recorded as contingent rent. During the first two quarters of 2006,
we received percentage rents of $1,296,596 from Vibra, a $298,000 increase from the first two
quarters of 2005, due to higher revenues at the original six Vibra facilities. Interest income
from loans in the six months ended June 30, 2006 compared to the same period in 2005 increased due
to origination of a $40,000,000 mortgage loan in the fourth quarter of 2005. Vibra accounted for
53.7% and 91.7% of our gross revenues during the six months ended June 30, 2006 and 2005,
respectively.
We expect our revenue to continue to increase in future quarters as a result of expected
acquisitions and completion of projects currently under development. We also expect that the
relative portion of our revenue that is paid by Vibra will continue to decline as a result of
continued tenant diversification.
Depreciation and amortization during the six months ended June 30, 2006, was $3,506,267, compared
to $1,816,403, during the six months ended June 30, 2005, a 93.0% increase. All of this increase
is related to an increase in the number of rent producing properties from nine at June 30, 2005 to
14 at June 30, 2006. We expect our depreciation and amortization expense to continue to increase
commensurate with our acquisition and development activity.
General and administrative expenses in the six months ended June 30, 2006 and 2005, totaled
$5,400,013, and $3,165,877, respectively, an increase of 70.6%. We recorded approximately $1.6
million for share-based compensation as compared to $122,000 in the first six months of 2005,
accounting for approximately 66.2% of the increase. Share based compensation for 2006 includes
approximately $267,000 for 25,000 deferred stock units (DSUs) awarded to the five independent
members of our Board of Directors in May, 2006, at our annual meeting of shareholders. These DSUs
vested immediately upon award. Based on our existing director compensation policies and Board
composition, a similar number of DSUs will be awarded and expensed (based on the market price of
our common stock) on the date of future annual meetings. The remaining share-based compensation
expense recorded in 2006 represents the expense from grants of restricted shares to employees,
officers and directors in 2005 and 2006. We record the expense from restricted share awards over
the vesting period of three to five years. Finally,
in the six months ended June 30, 2006, we settled a legal dispute resulting in incremental general
and administrative expense of approximately $200,000.
Interest income (other than from loans) for the quarters ended June 30, 2006 and 2005, totaled
$238,547 and $741,986, respectively. Interest income decreased primarily due to lower cash
balances in the six months ended June 30, 2006. We used our cash balances of $59.1 million at
December 31, 2005 to reduce debt, pay dividends and invest in our development projects.
Interest paid for the six months ended June 30, 2006 and 2005, totaled $3,262,813 and $2,096,283,
respectively. Capitalized interest for the six months ended June 30, 2006 and 2005, totaled
$2,582,531 and $1,003,779, respectively, resulting in interest expense (which includes amortized
financing costs) for the six months ended June 30, 2006 and 2005, of $1,174,513 and $1,542,266,
respectively. Interest paid increased due to higher interest rates and larger debt balances in
2006 compared to 2005. Capitalized interest increased due to higher interest rates and
15
developments
under construction of $96.9 million at June 30, 2006,
compared to $50.5 million under
construction at June 30, 2005.
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 three and six months ended June
30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
7,915,071 |
|
|
$ |
4,379,811 |
|
|
$ |
15,892,681 |
|
|
$ |
7,939,745 |
|
Depreciation and
amortization |
|
|
1,762,400 |
|
|
|
973,996 |
|
|
|
3,506,267 |
|
|
|
1,816,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO |
|
$ |
9,677,471 |
|
|
$ |
5,353,807 |
|
|
$ |
19,398,948 |
|
|
$ |
9,756,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per diluted share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
0.20 |
|
|
$ |
0.17 |
|
|
$ |
0.40 |
|
|
$ |
0.30 |
|
Depreciation and
amortization |
|
|
0.04 |
|
|
|
0.04 |
|
|
|
0.09 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO |
|
$ |
0.24 |
|
|
$ |
0.21 |
|
|
$ |
0.49 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to adjustments to net income necessary to calculate funds from operations in accordance
with the effects of straight-line rent revenue and non-cash share based compensation expense.
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.
The table below is a summary of our distributions paid or declared during the two years ended June
30, 2006:
16
|
|
|
|
|
|
|
|
|
Declaration Date |
|
Record Date |
|
Date of Distribution |
|
Distribution per Share |
May 18, 2006
|
|
June 15, 2006
|
|
July 13, 2006
|
|
$ |
0.25 |
|
February 16, 2006
|
|
March 15, 2006
|
|
April 12, 2006
|
|
$ |
0.21 |
|
November 18, 2005
|
|
December 15, 2005
|
|
January 19, 2006
|
|
$ |
0.18 |
|
August 18, 2005
|
|
September 15, 2005
|
|
September 29, 2005
|
|
$ |
0.17 |
|
May 19, 2005
|
|
June 20, 2005
|
|
July 14, 2005
|
|
$ |
0.16 |
|
March 4, 2005
|
|
March 16, 2005
|
|
April 15, 2005
|
|
$ |
0.11 |
|
November 11, 2004
|
|
December 16, 2004
|
|
January 11, 2005
|
|
$ |
0.11 |
|
September 2, 2004
|
|
September 16, 2004
|
|
October 11, 2004
|
|
$ |
0.10 |
|
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 tax on undistributed income.
17
Item 3. 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.
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 $1.2 million per year. If market rates of interest on our variable rate debt decrease
by 1%, the decrease in interest expense on our variable rate debt would increase future earnings
and cash flows by approximately $1.2 million per year. This assumes that the amount outstanding
under our variable rate debt remains approximately $117.7 million, the balance at August 1, 2006.
We currently have no assets denominated in a foreign currency, nor do we have any assets located
outside of the United States. We also have no exposure to derivative financial instruments.
18
Item 4. 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 quarter 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.
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.
19
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1.A. Risk Factors
There have been no material changes to the Risk Factors as presented in our Annual Report on Form
10-K for the year ended December 31, 2005 as filed with the Commission on March 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of stockholders was held on May 18, 2006.
Proxies for the annual meeting were solicited pursuant to Regulation 14A under the Exchange
Act. There were no solicitations in opposition to managements nominees for the board of directors
or other proposals listed in our proxy statement. All nominees listed in the proxy statement were
elected and all proposals listed in the proxy statement were approved.
The election of eight directors for the ensuing year was voted upon at the annual meeting. The
number of votes cast for and withheld for each nominee for director is set forth below:
|
|
|
|
|
|
|
|
|
Nominee |
|
For |
|
Withheld |
Edward K. Aldag, Jr. |
|
|
30,801,942 |
|
|
|
1,407,614 |
|
Virginia A. Clarke |
|
|
32,147,141 |
|
|
|
62,415 |
|
G. Steven Dawson |
|
|
29,557,922 |
|
|
|
2,651,634 |
|
Bryan L. Goolsby |
|
|
29,603,022 |
|
|
|
2,606,534 |
|
R. Steven Hamner |
|
|
31,012,262 |
|
|
|
1,197,294 |
|
Robert E. Holmes, Ph.D. |
|
|
32,103,241 |
|
|
|
106,315 |
|
William G. McKenzie |
|
|
28,557,543 |
|
|
|
3,652,013 |
|
L. Glenn Orr, Jr. |
|
|
31,056,922 |
|
|
|
1,152,634 |
|
A proposal to ratify managements selection of KPMG LLP as our independent audit firm for 2006
was voted upon at the annual meeting. The number of votes that were cast for and against this
proposal and the number of abstentions and broker non-votes are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abstentions and |
For: |
|
Against: |
|
Broker Non-Votes: |
31,983,789 |
|
|
166,790 |
|
|
|
58,977 |
|
20
Item 5. Other Information
(a) Information required to be disclosed on Form 8-K, Items 2.02 and 9.01
On August 9, 2006, we issued a press release announcing our financial results for the three months
and six months ended June 30, 2006. A copy of the press release is furnished as exhibit 99.1 to
this report and is incorporated by reference herein. The information in Exhibit 99.1 attached
hereto shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, nor shall it be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, except as expressly set forth by specific reference in such
filing.
Item 6. Exhibits
The following exhibits are filed as a part of this report:
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 |
|
|
|
32
|
|
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
|
|
Press release dated August 9, 2006 reporting financial results for the three
months and six months ended June 30, 2006 |
|
|
|
99.2
|
|
Consolidated Financial Statements of Vibra Healthcare, LLC as of March 31, 2006 |
21
SIGNATURE
Pursuant to the requirements 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. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ R. Steven Hamner
|
|
|
|
|
R. Steven Hamner |
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
(On behalf of the Registrant and as the Registrants |
|
|
|
|
Principal Financial and Accounting Officer) |
|
|
Date:
August 10, 2006
22
INDEX TO EXHIBITS
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 |
|
|
|
32
|
|
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
|
|
Press release dated August 9, 2006 reporting financial results for the three
months ended June 30, 2006 |
|
|
|
99.2
|
|
Consolidated Financial Statements of Vibra Healthcare, LLC as of March 31, 2006 |
23
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TORULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Edward K. Aldag, Jr., certify that:
1) |
|
I have reviewed this quarterly report on Form 10-Q of Medical Properties Trust, Inc. |
2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3) |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have: |
|
a) |
|
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
b) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
c) |
|
disclosed in this report any changes in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5) |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors: |
|
a) |
|
all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
|
|
b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
Date: August 10, 2006 |
/s/ Edward K. Aldag, Jr.
|
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and
Chief Executive Officer |
|
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, R. Steven Hamner, certify that:
|
1) |
|
I have reviewed this quarterly report on Form 10-Q of Medical Properties Trust, Inc. |
|
|
2) |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
|
|
3) |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4) |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and have: |
|
a. |
|
designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
|
|
b. |
|
evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
|
|
c. |
|
disclosed in this report any changes in the registrants internal
control over financial reporting that occurred during the registrants most recent
fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting; and |
|
5) |
|
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of registrants board of directors: |
|
a. |
|
all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrants ability to record, process, summarize and
report financial information; and |
|
|
b. |
|
any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
|
|
|
|
|
|
|
|
Date: August 10, 2006 |
/s/ R. Steven Hamner
|
|
|
R. Steven Hamner |
|
|
Executive Vice President and
Chief Financial Officer |
|
EX-32 SECTION 906 CERITFICATION OF THE CEO & CFO
Exhibit 32
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
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report on Form 10-Q of Medical Properties Trust, Inc. (the
Company) for the quarter ended June 30, 2006 (the Report), each of the undersigned, Edward K.
Aldag, Jr. and R. Steven Hamner, certifies, pursuant to Section 18 U.S.C. Section 1350, that:
|
1. |
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
|
2. |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
|
|
|
|
|
|
|
|
Date: August 10, 2006 |
/s/ Edward K. Aldag, Jr.
|
|
|
Edward K. Aldag, Jr. |
|
|
Chairman, President and
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
/s/ R. Steven Hamner
|
|
|
R. Steven Hamner |
|
|
Executive Vice President and
Chief Financial Officer |
|
|
EX-99.1 PRESS RELEASE DATED AUGUST 9, 2006
EXHIBIT 99.1
|
|
|
Contact:
|
|
Charles Lambert |
|
|
Finance Director |
|
|
Medical Properties Trust |
|
|
(205) 397-8897 |
|
|
clambert@medicalpropertiestrust.com |
MEDICAL PROPERTIES TRUST, INC.
REPORTS SECOND QUARTER RESULTS
Vibra Healthcare to Reduce Loan Balance
2006 Guidance Adjusted for Acquisitions Timing and Vibra Prepayment
Birmingham, Ala., August 9, 2006 Medical Properties Trust, Inc. (NYSE: MPW) today announced
its operating and other results for the quarter and six months ended June 30, 2006.
HIGHLIGHTS
|
|
|
Second quarter funds from operations (FFO) was $0.24 per diluted share; |
|
|
|
|
FFO for the first six months of 2006 was $0.49 per diluted share; |
|
|
|
|
Vibra to repay $12 million of its loan balance and repurchase a hospital; |
|
|
|
|
The Company closed on $90 million of acquisitions since June 30 at rates in excess of
10%; |
|
|
|
|
The company issued $85 million in 5-year fixed-rate unsecured notes since June 30; |
|
|
|
|
A quarterly dividend of $0.25 per common share was declared on May 18, and paid on July
13, 2006. |
OPERATING RESULTS
FFO of $9.7 million for the second quarter of 2006 increased 81% over the same period in 2005.
On a per diluted share basis, FFO of $0.24 for the second quarter increased 14% over second
quarter 2005 FFO per share.
Net income for the quarter ended June 30, 2006 was $7.9 million, or $0.20 per diluted share,
which was an increase of 81% and 18% respectively, compared with net income for the corresponding
period in 2005.
For the first six months of 2006, FFO increased 99% to $19.4 million from $9.8 million for the
first six months in 2005. On a per diluted share basis, FFO was $0.49 per share compared to $0.37
per diluted share for the first six months of 2005.
Net income for the first six months was $15.9 million, or $0.40 per diluted share, which was
an increase of 100% and 33%, respectively, compared with net income of $7.9 million and $0.30 per
diluted share in the corresponding period in 2005.
General and administrative expenses for the quarter were $2.9 million. Included in this total
was a charge for non-cash share based compensation expense of $710 thousand, and annual independent
director share based compensation that was awarded and fully vested in May of approximately $300
thousand. The Company restated its expectation that general and administrative expenses, not
including share based compensation, will approximate $1.8 million per quarter through the end of
2006.
The Company also announced today that Vibra Healthcare, its largest tenant, has notified MPT
of its intention to repay approximately $12.0 million of a $41.4 million loan on or about August
15, 2006. Additionally, Vibra will repurchase the Kentfield, California facility for approximately
$7.6 million. Subsequent to the Vibra loan payment and repurchase, the Companys investment in
Vibra real estate and loans will approximate 35% of total investments and total pro-forma
annualized revenue.
In just two short years, Brad Hollinger and the Vibra management team have proven themselves
as outstanding long-term acute care and inpatient rehabilitation hospital operators, said Edward
K. Aldag, Jr., Chairman, President and CEO. Vibras lease coverage ratio, calculated on base
rent, for the original six hospitals has continually improved and stands at 1.94 times for the
first six months of 2006. Vibras ability to refinance a significant portion of our loan with
institutional healthcare lenders validates the MPT strategy of investing with strong and
experienced hospital operators.
Based on operating results for the first six months reported by the Companys tenants, MPTs
weighted average EBITDAR lease coverage ratio approximated 3.1 times; approximately 60% of all
tenants patient days during the quarter resulted from Medicare patients, while commercial payors,
Medicaid, and other reimbursement sources represented 20%, 15% and 5%, respectively of patient
days.
ACQUISITIONS AND FUTURE OPERATIONS
MPT also reaffirmed its expectations that it will acquire at least $200 million in hospital
real estate and mortgages during 2006. As previously reported, we recently turned down two
acquisitions with an aggregate value of $70 million late in the closing process and that put us
behind in our acquisition plans, said Aldag. However, we continue to see a healthy number of
opportunities that generate initial cash yields of 10% and higher from experienced and successful
hospital operators.
Because of the Vibra loan prepayment and repurchase of the Kentfield hospital, and the timing
of acquisitions as previously noted, the Company updated its expected FFO for the full year of
2006. Based solely on the existing portfolio of investments and managements expectations about
the completion of three development projects, 2006 FFO is expected to range between $1.06 and
$1.08 per diluted share (previously between $1.16 and $1.20 per share). The Company attributed
approximately $0.03 ($0.07 on an annualized basis) per share of the guidance reduction to the
effects of the Vibra transactions and substantially all of the remainder to the amount and timing
of anticipated acquisitions. Any additional investments made before December 31, 2006 are
expected to result in 2006 FFO in excess of the Companys guidance.
CONFERENCE CALL AND WEBCAST
The Company has scheduled a conference call and webcast for Thursday, August 10, 2006 at 11:00
a.m. Eastern Time in order to present the Companys performance and operating results for the
quarter and six months ended June 30, 2006. The dial-in number for the conference call is (800)
901-5241 (U.S.) and (617) 786-2963 (International), and the passcode is 38467708. Participants may
also access the call via webcast at www.medicalpropertiestrust.com. A dial-in and webcast replay
of the call will be available shortly after completion of the call. Callers may dial (888)
286-8010 (U.S.) or (617) 801-6888 (International), and use passcode 11909742 for the replay.
About Medical Properties Trust, Inc.
Medical Properties Trust, Inc. is a Birmingham, Alabama based self-advised real estate
investment trust formed to capitalize on the changing trends in healthcare delivery by acquiring
and developing net-leased healthcare facilities. These facilities include inpatient rehabilitation
hospitals, long-term acute care hospitals, regional acute care hospitals, ambulatory surgery
centers and other single-discipline healthcare facilities, such as heart hospitals, orthopedic
hospitals and cancer centers.
The statements in this press release that are forward looking are based on current expectations and
actual results or future events may differ materially. Words such as expects, believes,
anticipates, intends, will,
should and variations of such words and similar expressions are
intended to identify such forward-looking statements, which include statements including, but not
limited to, concerning the payment of future dividends, if any, completion of projects under
development, acquisition of healthcare real estate, completion of additional debt arrangements, the
capacity of the Companys tenants to meet the terms of their agreements, the level of general and
administrative expense, the timing of Vibras debt repayment, and net income per share and FFO per
share in 2006. Such forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results of the Company or future events to differ
materially from those express in or underlying such forward-looking statements, including without
limitation: national and economic, business, real estate and other market conditions; the
competitive environment in which the Company operations; the execution of the Companys business
plan; financing risks; the Companys ability to attain and maintain its status as a REIT for
federal income tax
purposes; acquisition and development risks; potential environmental and other liabilities; and
other factors affecting the real estate industry generally or the healthcare real estate in
particular. For further discussion of the facts that could affect outcomes, please refer to the
Risk Factors section of the Companys Form 10-K for the year ended December 31, 2005 and the
final prospectus for its initial public offering. Except as otherwise required by the federal
securities laws, the Company undertakes no obligation to update the information in this press
release.
# # #
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Six Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent billed |
|
$ |
9,233,759 |
|
|
$ |
4,692,328 |
|
|
$ |
18,169,855 |
|
|
$ |
8,615,377 |
|
Straight-line rent |
|
|
1,259,411 |
|
|
|
1,432,298 |
|
|
|
2,560,868 |
|
|
|
2,777,739 |
|
Interest income from loans |
|
|
2,671,201 |
|
|
|
1,117,151 |
|
|
|
5,125,915 |
|
|
|
2,329,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
13,164,371 |
|
|
|
7,241,777 |
|
|
|
25,856,638 |
|
|
|
13,722,305 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization |
|
|
1,762,400 |
|
|
|
973,996 |
|
|
|
3,506,267 |
|
|
|
1,816,403 |
|
General and administrative |
|
|
2,855,142 |
|
|
|
1,415,067 |
|
|
|
5,400,013 |
|
|
|
3,165,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,617,542 |
|
|
|
2,389,063 |
|
|
|
8,906,280 |
|
|
|
4,982,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
8,546,829 |
|
|
|
4,852,714 |
|
|
|
16,950,358 |
|
|
|
8,740,025 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
62,486 |
|
|
|
358,214 |
|
|
|
238,547 |
|
|
|
741,986 |
|
Interest expense |
|
|
(637,473 |
) |
|
|
(831,117 |
) |
|
|
(1,174,513 |
) |
|
|
(1,542,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other expense |
|
|
(574,987 |
) |
|
|
(472,903 |
) |
|
|
(935,966 |
) |
|
|
(800,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interests |
|
|
7,971,842 |
|
|
|
4,379,811 |
|
|
|
16,014,392 |
|
|
|
7,939,745 |
|
Minority interests in consolidated partnerships |
|
|
(56,771 |
) |
|
|
|
|
|
|
(121,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
7,915,071 |
|
|
$ |
4,379,811 |
|
|
$ |
15,892,681 |
|
|
$ |
7,939,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic |
|
$ |
0.20 |
|
|
$ |
0.17 |
|
|
$ |
0.40 |
|
|
$ |
0.30 |
|
Weighted average shares outstanding basic |
|
|
39,519,695 |
|
|
|
26,096,021 |
|
|
|
39,480,684 |
|
|
|
26,096,813 |
|
Net income (loss) per share, diluted |
|
$ |
0.20 |
|
|
$ |
0.17 |
|
|
$ |
0.40 |
|
|
$ |
0.30 |
|
Weighted average shares outstanding diluted |
|
|
39,757,723 |
|
|
|
26,110,119 |
|
|
|
39,633,158 |
|
|
|
26,105,844 |
|
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
December 31, 2005 |
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Real estate assets |
|
|
|
|
|
|
|
|
Land |
|
$ |
34,512,464 |
|
|
$ |
31,004,675 |
|
Buildings and improvements |
|
|
256,486,426 |
|
|
|
250,518,440 |
|
Construction in progress |
|
|
96,931,759 |
|
|
|
45,913,085 |
|
Intangible lease assets |
|
|
9,666,192 |
|
|
|
9,666,192 |
|
Mortgage loan |
|
|
40,000,000 |
|
|
|
40,000,000 |
|
|
|
|
|
|
|
|
Gross investment in real estate assets |
|
|
437,596,841 |
|
|
|
377,102,392 |
|
Accumulated depreciation |
|
|
(8,444,279 |
) |
|
|
(5,260,219 |
) |
Accumulated amortization |
|
|
(944,818 |
) |
|
|
(622,612 |
) |
|
|
|
|
|
|
|
Net investment in real estate assets |
|
|
428,207,744 |
|
|
|
371,219,561 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,833,614 |
|
|
|
59,115,832 |
|
Interest and rent receivable |
|
|
11,190,702 |
|
|
|
6,923,091 |
|
Straight-line rent receivable |
|
|
10,470,081 |
|
|
|
7,909,213 |
|
Loans receivable |
|
|
49,848,111 |
|
|
|
48,205,611 |
|
Other assets |
|
|
8,709,365 |
|
|
|
7,800,238 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
510,259,617 |
|
|
$ |
501,173,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Debt |
|
$ |
101,453,178 |
|
|
$ |
100,484,520 |
|
Accounts payable and accrued expenses |
|
|
26,736,716 |
|
|
|
19,928,900 |
|
Deferred revenue |
|
|
13,947,179 |
|
|
|
10,922,317 |
|
Lease deposits and other obligations to tenants |
|
|
10,313,533 |
|
|
|
11,386,801 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
152,450,606 |
|
|
|
142,722,538 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
2,295,577 |
|
|
|
2,173,866 |
|
|
|
|
|
|
|
|
|
|
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 39,419,450
shares at March 31, 2006 and
39,345,105 shares at December 31,
2005 |
|
|
39,472 |
|
|
|
39,345 |
|
Additional paid in capital |
|
|
361,408,197 |
|
|
|
359,588,362 |
|
Distributions in excess of net income |
|
|
(5,934,235 |
) |
|
|
(3,350,565 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
355,513,434 |
|
|
|
356,277,142 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
510,259,617 |
|
|
$ |
501,173,546 |
|
|
|
|
|
|
|
|
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Reconciliation of Net Income to Funds From Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Three Months |
|
|
For the Six Months |
|
|
For the Six Months |
|
|
|
Ended June 30, 2006 |
|
|
Ended June 30, 2005 |
|
|
Ended June 30, 2006 |
|
|
Ended June 30, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,915,071 |
|
|
$ |
4,379,811 |
|
|
$ |
15,892,681 |
|
|
$ |
7,939,745 |
|
Depreciation and amortization |
|
|
1,762,399 |
|
|
|
973,996 |
|
|
|
3,506,267 |
|
|
|
1,816,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
$ |
9,677,470 |
|
|
$ |
5,353,807 |
|
|
$ |
19,398,948 |
|
|
$ |
9,756,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share, basic
and diluted |
|
$ |
0.20 |
|
|
$ |
0.17 |
|
|
$ |
0.40 |
|
|
$ |
0.30 |
|
Depreciation and amortization |
|
|
0.04 |
|
|
|
0.04 |
|
|
|
0.09 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations |
|
$ |
0.24 |
|
|
$ |
0.21 |
|
|
$ |
0.49 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per share, basic |
|
$ |
0.24 |
|
|
$ |
0.21 |
|
|
$ |
0.49 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per share, diluted |
|
$ |
0.24 |
|
|
$ |
0.21 |
|
|
$ |
0.49 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations, or FFO, represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and
amortization (excluding amortization of loan origination costs) and after adjustments for unconsolidated partnerships and joint ventures. Management considers funds from operations a useful
additional measure of performance for an equity REIT because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation
and amortization, which assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we
believe that funds from operations provides a meaningful supplemental indication of our performance. We compute funds from operations in accordance with standards established by the Board of
Governors of the National Association of Real Estate Investment Trusts, or NAREIT, in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the
methodology for calculating funds from operations utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs. FFO does not represent amounts available for managements discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. Funds
from operations should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as indicators of our financial performance or to cash flow from operating
activities (computed in accordance with GAAP) as an indicator of our liquidity.
EX-99.2 CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.2
Vibra Healthcare, LLC and Subsidiaries
Consolidated Balance Sheet
March 31, 2006 (Unaudited) and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
|
(unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,564,324 |
|
|
$ |
3,018,829 |
|
Patient accounts receivable, net of allowance for
doubtful collections of $1,700,000 and $1,689,000
at March 31, 2006 and December 31, 2005,
respectively |
|
|
27,678,467 |
|
|
|
22,751,868 |
|
Third party settlements receivable |
|
|
334,740 |
|
|
|
575,658 |
|
Prepaid insurance |
|
|
1,767,934 |
|
|
|
1,969,240 |
|
Other current assets |
|
|
1,081,147 |
|
|
|
964,268 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
33,426,612 |
|
|
|
29,279,863 |
|
|
|
|
|
|
|
|
|
|
Restricted investment |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
17,424,829 |
|
|
|
17,638,222 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
22,629,663 |
|
|
|
22,629,663 |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
5,140,000 |
|
|
|
5,140,000 |
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
4,101,822 |
|
|
|
4,028,604 |
|
|
|
|
|
|
|
|
|
|
Deferred financing and lease costs |
|
|
1,901,722 |
|
|
|
1,970,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
84,724,648 |
|
|
$ |
80,786,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
46,862 |
|
|
$ |
58,377 |
|
Current maturities of obligations under capital leases |
|
|
712,863 |
|
|
|
471,548 |
|
Accounts payable |
|
|
4,677,973 |
|
|
|
5,080,042 |
|
Accounts payable related parties |
|
|
254,669 |
|
|
|
233,977 |
|
Accrued liabilities |
|
|
5,917,283 |
|
|
|
6,260,283 |
|
Accrued insurance claims |
|
|
1,186,696 |
|
|
|
1,054,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
12,796,346 |
|
|
|
13,158,429 |
|
|
|
|
|
|
|
|
|
|
Accrued insurance claims |
|
|
2,470,507 |
|
|
|
2,470,507 |
|
|
|
|
|
|
|
|
|
|
Deferred rent |
|
|
7,083,154 |
|
|
|
6,501,674 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
57,495,423 |
|
|
|
51,572,156 |
|
|
|
|
|
|
|
|
|
|
Long-term obligations under capital leases |
|
|
17,537,427 |
|
|
|
17,860,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
97,382,857 |
|
|
|
91,562,975 |
|
|
|
|
|
|
|
|
|
|
Members deficit |
|
|
(12,658,209 |
) |
|
|
(10,776,550 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members deficit |
|
$ |
84,724,648 |
|
|
$ |
80,786,425 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Vibra Healthcare, LLC and Subsidiaries
Consolidated Statement of Operations and Changes in Members Deficit
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
$ |
35,789,860 |
|
|
$ |
29,328,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Cost of services |
|
|
24,971,636 |
|
|
|
20,067,059 |
|
Rent expense |
|
|
5,353,640 |
|
|
|
5,121,583 |
|
General and administrative |
|
|
4,708,166 |
|
|
|
3,354,649 |
|
Interest expense |
|
|
1,801,748 |
|
|
|
1,263,356 |
|
Management fee Vibra Management, LLC |
|
|
740,124 |
|
|
|
586,593 |
|
Depreciation and amortization |
|
|
508,183 |
|
|
|
194,293 |
|
Bad debt expense |
|
|
187,866 |
|
|
|
167,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
38,271,363 |
|
|
|
30,754,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(2,481,503 |
) |
|
|
(1,426,678 |
) |
|
|
|
|
|
|
|
|
|
Non-operating revenue |
|
|
599,844 |
|
|
|
533,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(1,881,659 |
) |
|
|
(893,218 |
) |
|
|
|
|
|
|
|
|
|
Members deficit beginning |
|
|
(10,776,550 |
) |
|
|
(3,814,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members deficit ending |
|
$ |
(12,658,209 |
) |
|
$ |
(4,707,918 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Vibra Healthcare, LLC and Subsidiaries
Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,881,659 |
) |
|
$ |
(893,218 |
) |
Adjustments to reconcile net loss
to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
508,183 |
|
|
|
194,293 |
|
Provision for bad debts |
|
|
187,866 |
|
|
|
167,233 |
|
|
Changes in operating assets and liabilities,
net of effects from acquisition of business: |
|
|
|
|
|
|
|
|
Patient accounts receivable including
third party settlements |
|
|
(4,873,547 |
) |
|
|
(2,613,072 |
) |
Prepaids and other current assets |
|
|
84,427 |
|
|
|
122,010 |
|
Deposits |
|
|
(73,218 |
) |
|
|
1,375,000 |
|
Accounts payable |
|
|
(381,377 |
) |
|
|
(1,954,941 |
) |
Accrued liabilities |
|
|
(210,506 |
) |
|
|
(190,445 |
) |
Deferred rent |
|
|
581,480 |
|
|
|
1,308,923 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(6,058,351 |
) |
|
|
(2,484,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(161,947 |
) |
|
|
(163,463 |
) |
Purchase of restricted investment |
|
|
|
|
|
|
(100,000 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(161,947 |
) |
|
|
(263,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
|
36,103,365 |
|
|
|
24,098,291 |
|
Repayments of revolving credit facility |
|
|
(30,174,988 |
) |
|
|
(13,189,000 |
) |
Repayment of capital leases |
|
|
(145,959 |
) |
|
|
|
|
Repayment of notes payable |
|
|
(16,625 |
) |
|
|
(7,725,957 |
) |
Payment of deferred financing costs |
|
|
|
|
|
|
(8,450 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
5,765,793 |
|
|
|
3,174,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(454,505 |
) |
|
|
427,204 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning |
|
|
3,018,829 |
|
|
|
2,280,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents ending |
|
$ |
2,564,324 |
|
|
$ |
2,707,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,801,748 |
|
|
$ |
1,263,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing
and financing activities: |
|
|
|
|
|
|
|
|
Equipment purchases funded by capital lease |
|
$ |
64,492 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Deferred financing costs funded by
revolving credit facility |
|
$ |
|
|
|
$ |
157,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisition adjustment of goodwill |
|
$ |
|
|
|
$ |
140,504 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Vibra Healthcare, LLC and Subsidiaries (Vibra
and the Company) as of March 31, 2006, and for the three months ended March 31, 2006 and 2005,
have been prepared in accordance with accounting principles generally accepted in the United States
of America. In the opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the results for such
periods. All significant intercompany transactions and balances have been eliminated. The results
of operations for the three months ended March 31, 2006 are not necessarily indicative of the
results to be expected for the full fiscal year ending December 31, 2006.
Certain information and disclosures normally included in the notes to consolidated financial
statements have been condensed or omitted as permitted by the rules and regulations of the
Securities and Exchange Commission, although the Company believes the disclosure is adequate to
make the information presented not misleading. The accompanying unaudited consolidated financial
statements should be read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2005, previously included in filings of Medical Properties
Trust, Inc. with the Securities and Exchange Commission.
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Vibra was formed May 14, 2004, and commenced operations with the acquisition of its subsidiaries
consisting of four inpatient rehabilitation hospitals (IRF) and two long-term acute care
hospitals (LTACH) located throughout the United States on July 1, 2004 and August 17, 2004,
respectively. On June 30, 2005, Vibra acquired an IRF that has been converted to an LTACH effective
January 1, 2006. Vibra, a Delaware limited liability company, has an infinite life. The members
liability is limited to the capital contribution. Vibra was previously named Highmark Healthcare
LLC until a name change in December 2004. Vibras wholly-owned subsidiaries consist of:
|
|
|
SUBSIDIARIES |
|
LOCATION |
92 Brick Road Operating Company LLC
|
|
Marlton, NJ |
4499 Acushnet Avenue Operating Company LLC
|
|
New Bedford, MA |
1300 Campbell Lane Operating Company LLC
|
|
Bowling Green, KY |
8451 Pearl Street Operating Company LLC
|
|
Denver, CO |
7173 North Sharon Avenue Operating Company LLC
|
|
Fresno, CA |
1125 Sir Francis Drake Boulevard Operating Company LLC
|
|
Kentfield, CA |
Northern California Rehabilitation Hospital, LLC
|
|
Redding, CA |
The Company provides long-term acute care hospital services and inpatient acute rehabilitative
hospital care at its hospitals. Patients in the Companys LTACHs typically suffer from serious and
often complex medical conditions that require a high degree of care. Patients in the Companys
IRFs typically suffer from debilitating injuries including traumatic brain and spinal cord
injuries, and require rehabilitation care in the form of physical, psychological, social and
vocational rehabilitation services. The Company also operates eleven outpatient clinics affiliated
with six of its seven hospitals.
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 reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
Patient Accounts Receivable
Patient accounts receivable are reported at net realizable value. Accounts are written off when
they are determined to be uncollectible based upon managements assessment of individual accounts.
The allowance for doubtful collections is estimated based upon a periodic review of the accounts
receivable aging, payor classifications and application of historical write-off percentages.
Property and Equipment
Property and equipment are stated at cost net of accumulated depreciation. Depreciation and
amortization are computed using the straight-line method over the lesser of the estimated useful
lives of the assets or the term of the lease, as appropriate. The general range of useful lives is
as follows:
|
|
|
|
|
Building under capital lease
|
|
Lesser of 15 years or remaining lease term |
|
Leasehold improvements
|
|
Lesser of 15 years or remaining lease term |
|
Furniture and equipment
|
|
2-7 years |
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No 144), the Company reviews the realizability
of long-lived assets whenever events or circumstances occur which indicate recorded costs may not
be recoverable.
Revenue Recognition
Net patient service revenue consists primarily of charges to patients and are recognized as
services are rendered. Net patient service revenue is reported net of provisions for contractual
adjustments from third-party payors and patients. The Company has agreements with third-party
payors that provide for payments to the Company at amounts different from its established rates.
The differences between the estimated program reimbursement rates and the standard billing rates
are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at
net patient service revenue. Payment arrangements include prospectively determined rates per
discharge, reimbursed costs, discounted charges and per diem payments. Retroactive adjustments are
accrued on an estimated basis in the period the related services are rendered and adjusted in
future periods as final settlements are determined. Patient accounts receivable resulting from such
payment arrangements are recorded net of contractual allowances.
A significant portion of the Companys net patient service revenue is generated directly from the
Medicare and Medicaid programs. As a provider of services to these programs, the Company is
subject to extensive regulations. The inability of a hospital to comply with regulations can result
in changes in that hospitals net patient service revenue generated from these programs. The
following table shows the percentage of the Companys patient service receivables from Medicare and
Medicaid.
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
2006 |
|
2005 |
Medicare |
|
|
67 |
% |
|
|
46 |
% |
Medicaid |
|
|
11 |
% |
|
|
22 |
% |
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
The following table represents the Companys net patient service revenues from the Medicare and
Medicaid programs as a percentage of total consolidated net patient service revenue:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
March 31, 2006 |
|
March 31, 2005 |
Medicare |
|
|
57 |
% |
|
|
65 |
% |
Medicaid |
|
|
25 |
% |
|
|
14 |
% |
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
Direct Ownership |
|
|
Under Capital Leases |
|
|
Total |
|
Building |
|
$ |
26,691 |
|
|
$ |
14,087,816 |
|
|
$ |
14,114,507 |
|
Leasehold improvements |
|
|
674,615 |
|
|
|
|
|
|
|
674,615 |
|
Furniture and equipment |
|
|
3,953,028 |
|
|
|
558,400 |
|
|
|
4,511,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,654,334 |
|
|
|
14,646,216 |
|
|
|
19,300,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated
depreciation and
amortization |
|
|
(1,115,898 |
) |
|
|
(759,823 |
) |
|
|
(1,875,721 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,538,436 |
|
|
$ |
13,886,393 |
|
|
$ |
17,424,829 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including amortization of property and equipment under capital leases, was
$439,832 and $152,783 for the three months ended March 31, 2006 and 2005, respectively.
4. LONG-TERM DEBT
The components of long-term debt are shown in the following table:
|
|
|
|
|
|
|
March 31, 2006 |
|
MPT 10.25% hospital acquisition note |
|
$ |
41,415,987 |
|
Merrill Lynch $20 million revolving credit facility |
|
|
16,079,436 |
|
Other |
|
|
46,862 |
|
|
|
|
|
|
|
|
57,542,285 |
|
Less: current maturities |
|
|
46,862 |
|
|
|
|
|
|
|
$ |
57,495,423 |
|
|
|
|
|
The hospital acquisition note is interest only through June 2007, and then amortized over the next
12 years with a final maturity in 2019. Substantially all of the assets of Vibra and its
subsidiaries, as well as Vibras membership interests in its subsidiaries, secure the MPT note. In
addition the majority member of Vibra, an affiliated company owned by the majority member and Vibra
Management, LLC have jointly and severally guaranteed the notes payable to MPT, although the
obligation of the majority member is limited to $5 million and his membership interest in Vibra. A
default in any of the MPT lease terms will also constitute a default under the notes.
The revolving credit facility has a balloon maturity on February 8, 2008. Interest is payable
monthly at the rate of 30 day LIBOR plus 3% (7.83% as of March 31, 2006). The loan is secured by a
first position in the Companys patient accounts receivable through an intercreditor agreement with
MPT. Up to $20 million can be borrowed based on a formula of qualifying accounts receivable. The
Company is subject to various financial and non-financial covenants under the credit facility. A
default in any of the MPT note and lease terms will also constitute a default under the credit
facility.
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
Other long-term debt consists of a bank loan for furniture and equipment. The equipment purchased
is pledged as collateral for the loan. The loan is payable in monthly installments of $5,000 plus
interest at a fixed rate of 6.7%.
Maturities of long-term debt for the next five years are as follows:
|
|
|
|
|
March 31 |
|
(in thousands) |
|
2007 |
|
$ |
46,862 |
|
2008 |
|
|
17,450,338 |
|
2009 |
|
|
1,999,000 |
|
2010 |
|
|
2,213,803 |
|
2011 |
|
|
2,451,688 |
|
Thereafter |
|
|
33,380,594 |
|
|
|
|
|
|
|
$ |
57,542,285 |
|
|
|
|
|
5. RELATED PARTY TRANSACTIONS
The Company has entered into agreements with Vibra Management, LLC (a company affiliated through
common ownership) to provide management services to each hospital. The services include
information system support, legal counsel, accounting/tax, human resources, program development,
quality management and marketing oversight. The agreements call for management fees equal to 2-3%
of net patient service revenue, and are for an initial term of five years with automatic one-year
renewals. Management fee expense amounted to $740,124 and $586,593 for the three months ended
March 31, 2006 and 2005, respectively. At March 31, 2006, $254,669 was payable to Vibra
Management, LLC and is included in accounts payable-related parties in the accompanying
consolidated balance sheet.
The spouse of the majority member of the Company provided legal consulting services to the Company
on the hospital acquisition and on various operational licensing and financing matters. During the
period from inception through December 31, 2004, legal consulting services from this person totaled
$176,187, of which $98,137 was payable at December 31, 2004. The balance was paid during 2005. A
total of $24,200 was paid for services in 2006.
6. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to legal proceedings and claims that have arisen in the ordinary course of
its business and have not been finally adjudicated (including claims against the hospitals under
prior ownership). In the opinion of management, the outcome of these actions will not have a
material effect on consolidated financial position or results of operations of the Company.
California Medicaid
The Company has recently fulfilled change of ownership requirements imposed by Medi-Cal, the
California Medicaid administrator that date back to the prior owners acquisition of the California
hospitals. Accounts receivable at March 31, 2006, include $2,060,940 due from Medi-Cal, including
$657,000 prior to the acquisition. The Company is in the process of submitting bills for
services provided from July 2003 to present. Payments totaling $218,636 were received from
Medi-Cal during the three months ended March 31, 2006.
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
California Seismic Upgrade
For earthquake protection California requires hospitals to receive an approved Structural
Performance Category 2 (SPC-2) by January 1, 2008, to maintain its license. Hospitals may request
a five year implementation extension. The Fresno and Redding, CA hospitals are expected to meet
the SPC-2 standard by January 1, 2008. The Kentfield, CA hospital has received a five year
extension to meet the requirement. Management is in preliminary consultations with consulting
architects and engineers to develop a plan for Kentfield to meet the requirements. The capital
outlay required to meet the standards at Kentfield cannot be determined at this time.
7. OPERATING LEASES
Vibra entered into triple-net long-term real estate operating leases with MPT at each of the six
hospitals leased from MPT in 2004. Each lease is for an initial term of 15 years and contains
renewal options at Vibras option for three additional five-year terms. The base rate at
commencement is calculated at 10.25% of MPTs adjusted purchase price of the real estate (APP).
The base rate increases to 12.23% of APP effective July 1, 2005. Beginning January 1, 2006, and
each January 1, thereafter, the base rate increases by an inflator of 2.5% (i.e. base rate becomes
12.54% of APP on January 1, 2006).
Each lease also contains a percentage rent provision (Percentage Rent). Beginning January 1,
2005, if the aggregate monthly net patient service revenues of the six hospitals exceed an
annualized net patient service revenue run rate of $110,000,000, additional rent equal to 2% of
monthly net patient service revenue is triggered. The percentage rent is payable within ten days
after the end of the applicable quarter. The percentage rent declines from 2% to 1% on a pro rata
basis as Vibra repays the $41.416 million in notes to MPT. Percentage rents totaling $642,579 and
$404,823 are included in rent expense in the accompanying consolidated statement of operations for
the three months ended March 31, 2006 and 2005, respectively. Vibra has the option to purchase the
leased property at the end of the lease term, including any extension periods, for the greater of
the fair market value of the leased property, or the purchase price increased by 2.5% per annum
from the commencement date.
Commencing on July 1, 2005, Vibra must make quarterly deposits to a capital improvement reserve at
the rate of $375 per quarter per bed, or $652,500 on an annual basis, for all hospitals leased from
MPT. The reserve may be used to fund capital improvements and repairs as agreed to by the parties.
To date, Vibras expenditures for capital improvements have exceeded the deposit requirements and
no deposits have been made.
Beginning with the quarter ending September 30, 2006, the MPT leases will be subject to various
financial covenants including limitations on total debt to 100% of the total capitalization of the
guarantors (as defined) or 4.5 times the 12 month total EBITDAR (as defined) of the guarantors
whichever is greater, coverage ratios of 125% of debt service and 150% of rent (as defined), and
maintenance of average daily patient census. A default in any of the loan terms will also
constitute a default under the leases. All of the MPT leases are cross defaulted.
Vibra has also entered into operating leases for six outpatient clinics which expire on various
dates through 2011, and a billing software system that expires November 2007. These leases are
classified as other in the table below. The Redding hospital land is leased from a prior owner
under a triple net lease that expires in November 2075. The lease has monthly payments of $1,483.
The lease payments increase annually by 4% each November until lease expiration.
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
Minimum future lease obligations on the operating leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPT |
|
|
|
|
|
|
Redding Land |
|
|
|
|
March 31 |
|
Rent Obligation |
|
|
Other |
|
|
Lease |
|
|
Total |
|
2007 |
|
$ |
16,182,977 |
|
|
$ |
979,265 |
|
|
$ |
18,748 |
|
|
$ |
17,180,990 |
|
2008 |
|
|
16,587,551 |
|
|
|
835,937 |
|
|
|
19,498 |
|
|
|
17,442,986 |
|
2009 |
|
|
17,002,240 |
|
|
|
241,272 |
|
|
|
20,278 |
|
|
|
17,263,790 |
|
2010 |
|
|
17,427,296 |
|
|
|
241,272 |
|
|
|
21,089 |
|
|
|
17,689,657 |
|
2011 |
|
|
17,862,978 |
|
|
|
241,272 |
|
|
|
21,933 |
|
|
|
18,126,183 |
|
Thereafter |
|
|
166,164,261 |
|
|
|
|
|
|
|
7,982,314 |
|
|
|
174,146,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
251,227,303 |
|
|
$ |
2,539,018 |
|
|
$ |
8,083,860 |
|
|
$ |
261,850,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially, all of the assets of Vibra and its subsidiaries, as well as Vibras membership
interests in its subsidiaries, secure the MPT leases. In addition the member of Vibra, an
affiliated Company owned by the member, and Vibra Management, LLC have jointly and severally
guaranteed the leases to MPT, although the obligation of the member is limited to $5 million and
his membership interest in Vibra.
The Company has sublet a floor of its Marlton, NJ hospital to an independent pediatric
rehabilitation provider. Three other hospitals have entered into numerous sublease arrangements.
These subleases generated rental income of $374,199 and $433,881 for the three months ended March
31, 2006 and 2005, respectively, which is included in non-operating revenue in the accompanying
consolidated statement of operations. The following table summarizes amounts due under sub leases
(in thousands):
|
|
|
|
|
March 31 |
|
|
|
|
2007 |
|
$ |
1,150,826 |
|
2008 |
|
|
1,176,719 |
|
2009 |
|
|
1,203,195 |
|
2010 |
|
|
1,230,267 |
|
2011 |
|
|
1,257,948 |
|
Thereafter |
|
|
3,044,720 |
|
|
|
|
|
|
|
$ |
9,063,675 |
|
|
|
|
|
8. OBLIGATIONS UNDER CAPITAL LEASES
On June 30, 2005, Vibra entered into a triple-net real estate lease with MPT on the Redding,
California property. The lease is for an initial term of 15 years and contains renewal options at
Vibras option for three additional five year terms. The initial lease base rate is 10.5% of MPTs
APP. Beginning January 1, 2006, and each January 1 thereafter, the base rate increases by the
greater of 2.5% or by the increase in the consumer price index from the previous adjustment date.
(Rate adjusted to 10.685 at January 1, 2006, based on CPI prorated for July 1, 2005 start date.)
An additional $2.75 million can be drawn under the lease agreement upon the completion of certain
building renovations and the conversion of the operations to a LTACH.
The Redding lease does not contain a purchase option or percentage rent provisions. Commencing
January 1, 2006, Vibra must make quarterly deposits to a capital improvement reserve at the rate of
$375 per bed per quarter, or $132,000 on an annual basis. To date, Vibras expenditures for
capital improvements have exceeded the deposit requirements and no deposits have been made.
In March, 2006, Vibra and MPT entered into a lease amendment to delay the measurement of the
Redding covenants. Beginning July, 2007, the Redding lease is subject to a covenant limiting total
debt to 100% of the total capitalization of the guarantors (as defined) or 4.5 times the 12 month
total EBITDAR (as defined) of the guarantors whichever is greater. Redding is also subject to the
following financial covenants relating to EBITDAR coverage:
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Fixed Charge |
|
Lease Payment |
12 Month Period Ending |
|
Coverage Required |
|
Coverage Required |
Six months ended June 30, 2007 |
|
|
100 |
% |
|
|
120 |
% |
Nine months ended September 30, 2007 |
|
|
100 |
% |
|
|
120 |
% |
Twelve months ended December 31, 2007
and thereafter |
|
|
125 |
% |
|
|
150 |
% |
Other capital leases consist of equipment financing. The equipment is pledged as collateral for
the lease.
The following schedule summarizes the future minimum lease payments under capital leases together
with the net minimum lease payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPT |
|
|
|
|
|
|
|
March 31 |
|
Redding Lease |
|
|
Other |
|
|
Total |
|
2007 |
|
$ |
1,934,410 |
|
|
|
183,681 |
|
|
$ |
2,118,091 |
|
2008 |
|
|
1,982,770 |
|
|
|
154,945 |
|
|
|
2,137,715 |
|
2009 |
|
|
2,032,339 |
|
|
|
126,682 |
|
|
|
2,159,021 |
|
2010 |
|
|
2,083,148 |
|
|
|
74,452 |
|
|
|
2,157,600 |
|
2011 |
|
|
2,135,226 |
|
|
|
12,796 |
|
|
|
2,148,022 |
|
Thereafter |
|
|
22,231,699 |
|
|
|
|
|
|
|
22,231,699 |
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
32,399,592 |
|
|
|
552,556 |
|
|
|
32,952,148 |
|
Less amount representing
interest (imputed rate 9%) |
|
|
(14,601,081 |
) |
|
|
(100,777 |
) |
|
|
(14,701,858 |
) |
|
|
|
|
|
|
|
|
|
|
Present value of net
minimum lease payments |
|
$ |
17,798,511 |
|
|
|
451,779 |
|
|
$ |
18,250,290 |
|
|
|
|
|
|
|
|
|
|
|
Substantially, all of the assets of Vibra and its subsidiaries, as well as Vibras membership
interests in its subsidiaries, secure the MPT leases. In addition the member of Vibra, an
affiliated Company owned by the member, and Vibra Management, LLC have jointly and severally
guaranteed the leases to MPT, although the obligation of the member is limited to $5 million and
his membership interest in Vibra.
9. SEGMENT INFORMATION
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments and related disclosures about products
and services, geographic areas and major customers.
The Companys segments consist of (i) IRFs and (ii) LTACHs. The accounting policies of the
segments are the same as those described in the summary of significant accounting policies. The
Company evaluates performance of the segments based on loss from operations.
The following table summarizes selected financial data for the Companys reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Mar. 31, 2006 |
|
IRF |
|
LTACH |
|
Other |
|
Total |
|
|
|
Net patient service revenue |
|
$ |
14,033,214 |
|
|
$ |
21,756,646 |
|
|
|
|
|
|
$ |
35,789,860 |
|
Loss from operations |
|
|
(1,407,330 |
) |
|
|
(648,583 |
) |
|
|
(425,590 |
) |
|
|
(2,481,503 |
) |
Interest expense |
|
|
802,110 |
|
|
|
999,638 |
|
|
|
|
|
|
|
1,801,748 |
|
Depreciation and amortization |
|
|
105,195 |
|
|
|
364,210 |
|
|
|
38,778 |
|
|
|
508,183 |
|
VIBRA HEALTHCARE, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006 |
|
IRF |
|
LTACH |
|
Other |
|
Total |
|
|
|
Deferred rent |
|
$ |
5,009,701 |
|
|
$ |
2,073,453 |
|
|
|
|
|
|
$ |
7,083,154 |
|
Total assets |
|
|
34,688,038 |
|
|
|
48,437,253 |
|
|
|
1,599,357 |
|
|
|
84,724,648 |
|
Purchases of property and equipment |
|
|
86,779 |
|
|
|
19,374 |
|
|
|
55,794 |
|
|
|
161,947 |
|
Goodwill |
|
|
16,721,881 |
|
|
|
5,907,782 |
|
|
|
|
|
|
|
22,629,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Mar. 31, 2005 |
|
IRF |
|
LTACH |
|
Other |
|
Total |
|
|
|
Net patient service revenue |
|
$ |
13,822,924 |
|
|
$ |
15,505,164 |
|
|
|
|
|
|
$ |
29,328,088 |
|
Loss from operations |
|
|
(1,153,003 |
) |
|
|
(189,409 |
) |
|
|
(84,266 |
) |
|
|
(1,426,678 |
) |
Interest expense |
|
|
744,998 |
|
|
|
518,358 |
|
|
|
|
|
|
|
1,263,356 |
|
Depreciation and amortization |
|
|
95,348 |
|
|
|
82,435 |
|
|
|
16,510 |
|
|
|
194,293 |
|
10. SUBSEQUENT EVENTS
Upon conversion of the Redding, CA hospital from an IRF to a LTACH, Vibra was entitled to draw an
additional $2 million from MPT under its capital lease. Vibra borrowed the $2 million in April
2006.
In March 2006, Vibra entered into a purchase agreement with Hacienda Care X, LP to purchase a newly
constructed 60 bed LTACH in Dallas, TX for $16,800,000, subject to a 60 day due diligence period
and the seller obtaining a certificate of occupancy (COO). In May 2006 Vibra made a $1 million
deposit on the LTACH at the end of the due diligence period. The deposit is binding and
non-refundable unless the seller defaults, the property is condemned, or the seller does not obtain
a COO by December 31, 2006. The $1 million deposit, along with $400,000 for pre-opening expenses,
were funded by notes from MPT. The notes bear interest at 10.5% and are due on the earlier of the
closing date of the purchase or December 31, 2006. The notes are guaranteed by an affiliated
Company owned by the member and Vibra Management, LLC. The purchase is expected to be funded with
a lease commitment from MPT. The LTACH is expected to open in September 2006.