MEDICAL PROPERTIES TRUST, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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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 September 30, 2006
OR
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o |
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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 |
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BIRMINGHAM, AL
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35242 |
(Address of principal executive offices)
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(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 October 25, 2006, the registrant had 40,195,564 shares of common stock, par value $.001,
outstanding.
MEDICAL PROPERTIES TRUST, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
Table of Contents
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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September 30, 2006 |
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December 31, 2005 |
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(Unaudited) |
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Assets |
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Real estate assets |
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Land |
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$ |
36,949,043 |
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$ |
31,004,675 |
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Buildings and improvements |
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313,154,793 |
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250,518,440 |
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Construction in progress |
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99,131,783 |
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45,913,085 |
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Intangible lease assets |
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11,339,657 |
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9,666,192 |
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Mortgage loans |
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105,000,000 |
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40,000,000 |
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Gross investment in real estate assets |
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565,575,276 |
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377,102,392 |
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Accumulated depreciation |
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(9,989,453 |
) |
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(5,260,219 |
) |
Accumulated amortization |
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(1,069,633 |
) |
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(622,612 |
) |
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Net investment in real estate assets |
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554,516,190 |
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371,219,561 |
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Cash and cash equivalents |
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1,187,026 |
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59,115,832 |
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Interest and rent receivable |
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14,044,019 |
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6,923,091 |
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Straight-line rent receivable |
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11,947,611 |
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7,909,213 |
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Loans receivable |
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46,332,229 |
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48,205,611 |
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Other assets |
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11,893,194 |
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7,800,238 |
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Total Assets |
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$ |
639,920,269 |
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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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$ |
232,630,841 |
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$ |
100,484,520 |
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Accounts payable and accrued expenses |
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27,733,227 |
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19,928,900 |
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Deferred revenue |
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16,979,122 |
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10,922,317 |
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Lease deposits and other obligations to tenants |
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6,970,052 |
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11,386,801 |
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Total liabilities |
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284,313,242 |
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142,722,538 |
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Minority interests |
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1,089,053 |
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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, $0.001 par value. Authorized 100,000,000 shares; issued and outstanding
39,533,290 shares at September 30, 2006, and 39,345,105 shares at December 31, 2005 |
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39,533 |
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39,345 |
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Additional paid in capital |
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362,202,277 |
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359,588,362 |
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Distributions in excess of net income |
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(7,723,836 |
) |
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(3,350,565 |
) |
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Total stockholders equity |
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354,517,974 |
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356,277,142 |
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Total Liabilities and Stockholders Equity |
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$ |
639,920,269 |
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$ |
501,173,546 |
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See accompanying notes to consolidated financial statements.
3
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 Nine Months Ended |
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September 30, |
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September 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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$ |
9,560,954 |
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$ |
5,964,211 |
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$ |
27,730,809 |
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$ |
14,579,588 |
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Straight-line rent |
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1,959,364 |
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1,007,062 |
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4,520,232 |
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3,784,801 |
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Interest income from loans |
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3,600,880 |
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1,233,668 |
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8,726,795 |
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3,562,857 |
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Total revenues |
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15,121,198 |
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8,204,941 |
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40,977,836 |
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21,927,246 |
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Expenses |
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Real estate depreciation and amortization |
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1,974,371 |
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1,170,387 |
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5,480,638 |
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2,986,790 |
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General and administrative |
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2,548,517 |
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2,546,380 |
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7,948,530 |
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5,712,257 |
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Total operating expenses |
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4,522,888 |
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3,716,767 |
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13,429,168 |
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8,699,047 |
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Operating income |
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10,598,310 |
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4,488,174 |
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27,548,668 |
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13,228,199 |
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Other income (expense) |
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Interest income |
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198,442 |
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767,917 |
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436,989 |
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1,509,903 |
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Interest expense |
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(2,071,900 |
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(3,246,413 |
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(1,542,266 |
) |
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Net other income (expense) |
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(1,873,458 |
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767,917 |
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(2,809,424 |
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(32,363 |
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Income before minority interests |
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8,724,852 |
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5,256,091 |
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24,739,244 |
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13,195,836 |
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Minority interests in consolidated partnerships |
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(51,305 |
) |
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(173,016 |
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Net income |
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$ |
8,673,547 |
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$ |
5,256,091 |
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$ |
24,566,228 |
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$ |
13,195,836 |
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Net income per share basic |
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$ |
0.22 |
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$ |
0.14 |
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$ |
0.62 |
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$ |
0.44 |
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Weighted average shares outstanding basic |
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39,529,687 |
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37,606,480 |
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39,453,413 |
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29,975,971 |
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Net income per share diluted |
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$ |
0.22 |
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$ |
0.14 |
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$ |
0.62 |
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$ |
0.44 |
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Weighted average shares outstanding diluted |
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39,857,355 |
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37,654,576 |
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39,759,907 |
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29,999,381 |
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See accompanying notes to consolidated financial statements.
4
MEDICAL PROPERTIES TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
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For the Nine Months Ended September 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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$ |
24,566,228 |
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$ |
13,195,836 |
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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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5,657,498 |
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3,104,131 |
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Amortization of deferred financing costs |
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753,734 |
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687,730 |
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Straight-line rent revenue |
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(4,520,232 |
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(3,784,801 |
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Deferred revenue |
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(918,751 |
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(63,963 |
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Share-based compensation |
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2,362,848 |
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684,085 |
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Other adjustments |
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346,813 |
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(75,052 |
) |
Increase in: |
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Interest and rent receivable |
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(1,025,913 |
) |
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(703,903 |
) |
Other assets |
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(2,163,078 |
) |
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(1,414,600 |
) |
Increase (decrease) in: |
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Accounts payable and accrued expenses |
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4,730,425 |
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3,503,928 |
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Deferred revenue |
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81,596 |
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|
703,750 |
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Lease deposits and other obligations to tenants |
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(732,864 |
) |
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122,226 |
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Net cash provided by operating activities |
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29,138,304 |
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15,959,367 |
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Investing activities |
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Real estate acquired |
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(44,586,357 |
) |
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(56,513,944 |
) |
Proceeds from sale of real estate |
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7,642,332 |
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Principal received on loans receivable |
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7,725,958 |
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Investment in mortgage loans receivable |
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(64,512,500 |
) |
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(4,934,772 |
) |
Investment in loans receivable |
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(1,662,982 |
) |
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Construction in progress |
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(86,327,316 |
) |
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(53,834,985 |
) |
Acquisition of minority interest |
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(1,135,799 |
) |
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Net cash used for investing activities |
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(190,582,622 |
) |
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(107,557,743 |
) |
Financing activities |
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Additions to debt |
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181,719,896 |
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19,000,000 |
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Payments of debt |
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(53,462,811 |
) |
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(34,633,333 |
) |
Deferred financing costs |
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(219,151 |
) |
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(47,103 |
) |
Interest cost recorded as addition to debt |
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1,253,236 |
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Repurchase of deferred stock units |
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(75,000 |
) |
Distributions paid |
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(25,654,886 |
) |
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(16,725,022 |
) |
Proceeds from sale of common shares, net of offering costs |
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126,224,359 |
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Proceeds from sale of partnership units |
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1,137,500 |
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Other |
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(120,772 |
) |
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Net cash provided by financing activities |
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103,515,512 |
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94,881,401 |
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(Decrease) increase in cash and cash equivalents for period |
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(57,928,806 |
) |
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3,283,025 |
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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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$ |
1,187,026 |
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$ |
100,826,702 |
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Interest paid, including capitalized interest of $4,728,153 in 2006 and $1,918,458 in 2005 |
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$ |
5,494,249 |
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$ |
2,772,994 |
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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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$ |
6,095,015 |
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$ |
3,137,380 |
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Real estate and loans receivable recorded as lease and loan deposits |
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37,542 |
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|
8,338,837 |
|
Real estate and loans receivable recorded as deferred revenue |
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884,000 |
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|
1,110,280 |
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Construction and acquisition costs charged to loans and real estate |
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897,804 |
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|
209,259 |
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Lease deposit applied to loan receivable |
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3,768,864 |
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Construction in progress transferred to land and building |
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32,374,814 |
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Supplemental schedule of non-cash financing activities: |
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Deferred costs charged to proceeds from sale of common stock |
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$ |
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$ |
579,975 |
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Distributions declared, not paid |
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10,448,750 |
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Additional paid-in capital from deferred stock units from sale of common stock |
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|
30,295 |
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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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|
166 |
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|
|
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|
Deferred financing costs deducted from debt proceeds |
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|
2,636,000 |
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|
See accompanying notes to consolidated financial statements.
5
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
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.
6
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 (SEC). 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 nine months ended September 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.
New Accounting Pronouncements: The following is a summary of recently issued accounting
pronouncements which have been issued but not adopted by the Company. Statement of Financial
Accounting Standards No. 157, Fair Value Measurements, (SFAS No. 157) defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. The changes to current practice
resulting from the application of SFAS No. 157 relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value measurements. SFAS No.
157 is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company does not expect that this
statement will have a material effect on its financial position and results of operations. SEC
Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements, sets forth the SEC staffs views on
the proper method for quantifying and recording errors from prior years which have been carried
forward in the current years financial statements. The SAB requires registrants to quantify
misstatements in current year financial statements by measuring the effect of the error on both the
balance sheet and the income statement. If either current year statement contains a material
error, the financial statements would be adjusted. Prior year financial statements would be
restated if material to either the prior year balance sheet or income statement. SAB No. 108 is
effective for fiscal years ending after November 15, 2006. The Company does not expect this SAB to
have a material effect on its financial position and results of operations.
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.
In the three months ended September 30, 2006, the company acquired the following facilities:
|
|
|
|
|
|
|
Location |
|
Type of Facility |
|
Cost |
|
Montclair, CA |
|
General acute care |
|
$ |
20,000,000 |
|
Dallas, TX |
|
Long-term acute care |
|
|
15,408,468 |
|
Portland, OR |
|
Long-term acute care |
|
|
14,000,000 |
|
The Company entered into 15-year fixed term operating leases which contain annual rent escalation
at the greater of a fixed percentage or the general increase in the consumer price index. The
Portland facility is currently undergoing additional renovation and is shown in Acquisition and
development costs in the accompanying balance sheet. The Company has a commitment to pay up to an
additional $3.8 million for renovations necessary to convert the Portland facility into a long-term
acute care hospital.
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.
7
In September, 2006, the Company completed the sale of a long-term acute care hospital located
in California for cash proceeds of $7.6 million, which were used
to pay down the Companys revolving line
of credit. The operations of this facility were not material to the Companys revenues, net
income, cash flows or total assets.
For the three months ended September 30, 2006 and 2005, revenue from Vibra Healthcare, LLC
accounted for 46.0% and 83.8%, respectively, of total revenue. For the nine months ended September
30, 2006 and 2005, revenue from Vibra Healthcare, LLC accounted for 50.8% and 88.4% of total
revenue. For the three months and nine months ended September 30, 2006, the revenue of one other
operator accounted for 15.5% and 15.6%, respectively, of total revenue.
During the
three and nine month periods ended September 30, 2006 the
Company recorded revenue of
approximately $2.2 million and $6.3 million, or 14.6% and 15.4% of total revenue, respectively from
the leases and other arrangements with Stealth, L.P., the tenant of
the Houston Town and Country
Hospital and MOB. Subsequent to September 30, 2006, the Company
terminated its leases with Stealth, L.P.
and replaced Stealth as tenant with a new partnership that was
recently organized. The Company is presently considering offers from several hospital systems that have indicated a
willingness to enter into a new lease that would include terms
allowing us to recover all amounts owed by Stealth. At September 30,
2006, the Company has outstanding loans and receivables of
approximately $3.2 million from Stealth. The Company has claimed cash
security of $1.3 million.
Management
believes that it will be successful in releasing the hospital and
MOB, but there is no assurance that a replacement lessee will agree
to pay amounts similar to those previously provided for in the leases
with Stealth. The Company has made no provision in the accompanying
financial statements for any costs which could be incurred if it does
not successfully replace Stealth or if it is required to fund
operations of the hospital for an extended period.
4. Debt
The following is a summary of debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006 |
|
|
As of December 31, 2005 |
|
|
|
Balance |
|
|
Interest Rate |
|
|
Balance |
|
|
Interest Rate |
|
Revolving credit facility |
|
$ |
64,320,474 |
|
|
|
8.080 |
% |
|
$ |
65,010,178 |
|
|
|
7.14 |
% |
Term loans |
|
|
43,310,367 |
|
|
|
7.830 |
% |
|
|
35,474,342 |
|
|
|
6.64 |
% |
Senior unsecured notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.871% fixed through July, 2011, due July, 2016 |
|
|
65,000,000 |
|
|
|
7.781 |
% |
|
|
|
|
|
|
|
|
7.715% fixed through October, 2011, due October, 2016 |
|
|
20,000,000 |
|
|
|
7.715 |
% |
|
|
|
|
|
|
|
|
7.590 % fixed through October, 2011, due October, 2016 |
|
|
15,000,000 |
|
|
|
7.590 |
% |
|
|
|
|
|
|
|
|
7.333% fixed through October, 2011, due October, 2016 |
|
|
25,000,000 |
|
|
|
7.333 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
232,630,841 |
|
|
|
|
|
|
$ |
100,484,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006, principal payments due for our term loans and senior unsecured notes were
as follows:
|
|
|
|
|
2006 |
|
$ |
144,717 |
|
2007 |
|
|
598,818 |
|
2008 |
|
|
42,566,832 |
|
2009 |
|
|
|
|
2010 |
|
|
|
|
Thereafter |
|
|
125,000,000 |
|
|
|
|
|
Total |
|
$ |
168,310,367 |
|
|
|
|
|
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.
In the third quarter of 2006, the Company issued $125.0 million of Senior Unsecured Notes (the
Notes). The Notes were placed in private transactions exempt from registration under the
Securities Act of 1933, as amended, (the Securities Act). Notes totaling $65.0 million will pay
interest quarterly at a fixed annual rate of 7.871%
through July 30, 2011, thereafter, at a floating annual rate of three-month LIBOR plus 2.30% and
may be called at par value by the Company at any time on or after July 30, 2011. The remaining
Notes will pay interest quarterly at fixed annual rates through July 30, 2011, thereafter, at a
floating annual rate of three-month LIBOR plus 2.30% and may be called at par value by the Company
at any time on or after October 30, 2011.
8
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 nine months ended September 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 nine months ended September 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 September 30, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Exercise |
|
|
|
|
|
|
|
|
|
Remaining |
Price |
|
Options Outstanding |
|
Options Exercisable |
|
Contractual Life (years) |
$10.00 |
|
|
100,000 |
|
|
|
80,000 |
|
|
|
8.1 |
|
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; expected 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 |
|
|
(188,185 |
) |
|
$ |
10.08 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006 |
|
|
662,274 |
|
|
$ |
10.40 |
|
|
|
|
|
|
|
|
|
9
The value of outstanding restricted shares is charged to compensation expense over the vesting
periods. In the three months and nine months ended September 30, 2006, the Company recorded
$791,000 and $2,096,000, respectively, of non-cash compensation expense for restricted shares. The
remaining unrecognized cost from share based compensation at September 30, 2006, is approximately
$6.0 million and will be recognized over a weighted average period of approximately 1.35 years.
During the three months and nine months ended September 30, 2006, restricted shares which vested
had a value of approximately $687,000 and $1,984,000 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 nine months ended September 30, 2006 and 2005, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted average number of
shares issued and outstanding |
|
|
39,481,070 |
|
|
|
37,593,311 |
|
|
|
39,417,433 |
|
|
|
29,961,841 |
|
Vested deferred stock units |
|
|
48,617 |
|
|
|
13,169 |
|
|
|
35,980 |
|
|
|
14,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
39,529,687 |
|
|
|
37,606,480 |
|
|
|
39,453,413 |
|
|
|
29,975,971 |
|
Common stock warrants,
restricted stock and stock
options |
|
|
327,668 |
|
|
|
48,096 |
|
|
|
306,494 |
|
|
|
23,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
39,857,355 |
|
|
|
37,654,576 |
|
|
|
39,759,907 |
|
|
|
29,999,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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 September 30, 2006, we owned 16 operating healthcare facilities and held mortgage loans secured
by three other facilities. 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 19
facilities we owned and the three facilities on which we had made mortgage loans were in ten
states, had a carrying cost of approximately $554.5 million and comprised approximately 86.7% of
our total assets. Our acquisition and other loans of approximately $46.3 million represented
approximately 7.2% of our total assets. We do not expect such non-mortgage loan assets at any time
to exceed 20% of our total assets.
At October 1, 2006, we had 19 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.
11
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 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.
12
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.
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
13
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.
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
14
consolidate any tenants or borrowers
that are VIEs. Our evaluations of our transactions indicate that we have loans receivable from two
entities which we classify as VIEs. However, because we are not the primary beneficiary of these
VIEs, we do not consolidate these entities in our financial statements.
Stock-Based Compensation. Prior to 2006, we used the intrinsic value method to account for the
issuance of stock options under our equity incentive plan in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees. SFAS No. 123(R) became effective for our annual and
interim periods beginning January 1, 2006, but had no material effect on the results of our
operations. During the three months and nine months ended September 30, 2006, we recorded $791,000
and $2,363,000, respectively, of expense for share based compensation, related to grants of
restricted common stock and deferred stock units.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2006, we had approximately $1.2 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 had a balance of $64.3 million at September 30, 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 $84.4 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 the three months ended September 30, 2006, we sold $125.0 million of Senior Unsecured Notes due
in 2016 (the Notes). The Notes were placed in private transactions exempt from registration under
the Securities Act of 1933, as amended, (the Securities Act). The Notes will pay interest
quarterly at fixed annual rate ranging from 7.333% to 7.871% for five years, 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 after five years. We used the net proceeds from the Notes primarily for funding acquisitions
of healthcare real estate and mortgage loans. The ratio of fixed rate debt to variable rate debt
is approximately 54% to 46%.
At September 30, 2006, we had remaining commitments to complete the funding of three development
projects as described below (in millions):
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|
|
|
|
|
|
|
|
|
|
Original Commitment |
|
|
Cost Incurred |
|
|
Remaining Commitment |
|
North Cypress community hospital |
|
$ |
64.0 |
|
|
$ |
57.1 |
|
|
$ |
6.9 |
|
Bucks County womens hospital and medical office building |
|
|
38.0 |
|
|
|
26.6 |
|
|
|
11.4 |
|
Portland long-term acute care hospital |
|
|
17.8 |
|
|
|
14.4 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
119.8 |
|
|
$ |
98.1 |
|
|
$ |
21.7 |
|
|
|
|
|
|
|
|
|
|
|
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 $100 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 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 $100 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.
15
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. Since the first quarter of 2006, we borrowed a net
additional $28.3 million on our revolving credit facility. In the first nine 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. In the three months ended September 30,
2006, we added $125.0 million from four issues of unsecured Senior Notes.
Investing Activities
In the first nine months of 2006, we invested $86.3 million in our four development projects. We
also invested $9.7 million in our current operating facilities, primarily the West Houston Town and
Country Hospital and Medical Office Building projects. We also acquired two facilities at a cost
of $35.4 million and invested in two mortgage loans totaling $65.0 million. Our expectations about
future investing activities are described above under Liquidity and Capital Resources. We also
sold one facility for $7.6 million. The operations of that facility were not a material source of
revenues, cash flows or total assets.
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 September 30, 2006 Compared to Three Months Ended September 30, 2005
Net income
for the three months ended September 30, 2006, was $8,673,547 compared to net income of
$5,256,091 for the three months ended September 30, 2005, a 65.0% increase.
A comparison of revenues for the three months ended September 30, 2006 and 2005, is as follows:
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
2006 |
|
|
% of Total |
|
|
2005 |
|
|
% of Total |
|
|
Change |
|
Base rents |
|
$ |
8,866,869 |
|
|
|
58.6 |
% |
|
$ |
5,320,454 |
|
|
|
64.8 |
% |
|
|
66.7 |
% |
Straight-line rents |
|
|
1,959,364 |
|
|
|
13.0 |
% |
|
|
1,007,062 |
|
|
|
12.3 |
% |
|
|
94.6 |
% |
Percentage rents |
|
|
597,395 |
|
|
|
4.0 |
% |
|
|
643,757 |
|
|
|
7.8 |
% |
|
|
(7.2 |
%) |
Contingent rents |
|
|
96,690 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Fee income |
|
|
50,128 |
|
|
|
0.3 |
% |
|
|
14,883 |
|
|
|
0.2 |
% |
|
|
236.8 |
% |
Interest from loans |
|
|
3,550,752 |
|
|
|
23.5 |
% |
|
|
1,218,785 |
|
|
|
14.9 |
% |
|
|
191.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
15,121,198 |
|
|
|
100.0 |
% |
|
$ |
8,204,941 |
|
|
|
100.0 |
% |
|
|
84.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue of $15,121,198 in the three months ended September 30, 2006, was comprised of rents (76.2%)
and interest from loans and fee income (23.8%). In the third quarter of 2006, we owned 16 rent
producing properties compared to ten in the third 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 contingent rent. During the third quarter
of 2006, we received percentage rents of approximately $597,000 from Vibra, a $46,000 decrease from
the third quarter of 2005. Interest income from loans in the quarter ended September 30, 2006
compared to the same period in 2005 increased due to the origination of $105,000,000 mortgage loans
since November of 2005. Vibra accounted for 46.0% and 83.8% of our gross revenues during the three
months ended September 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.
16
Depreciation and amortization during the third quarter of 2006, was $1,974,371, compared to
$1,170,387, during third quarter of 2005, a 68.7% increase. All of this increase is related to an
increase in the number of rent producing properties from ten at September 30, 2005 to 16 at
September 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 third quarters of 2006 and 2005
totaled $2,548,517, and
$2,546,380 respectively, an increase of 0.1%. We recorded approximately $791,000 for share-based
compensation in the third quarter of 2006 as compared to $555,000 in the third quarter of 2005. We record the expense from restricted share
awards over vesting periods of three to five years.
Interest income (other than from loans) for the three months ended September 30, 2006 and 2005,
totaled $198,442 and $767,917, respectively. Interest income decreased primarily due to lower cash
balances in the three months ended September 30, 2006, compared to the same period in 2005. 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 September 30, 2006 and 2005, totaled $2,231,436 and $676,711,
respectively. Capitalized interest for the quarters ended September 30, 2006 and 2005, totaled
$2,145,622 and $914,679, respectively, resulting in interest expense (which includes amortized
financing costs) for the three months ended September 30, 2006 and 2005, of $2,071,900 and $0,
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 $99.1 million at September 30, 2006, compared to $78.5 million under
construction at September 30, 2005.
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
Net income
for the nine months ended September 30, 2006, was $24,566,228 compared to net income of
$13,195,836 for the nine months ended September 30, 2005, an 86.2% increase.
A comparison of revenues for the nine months ended September 30, 2006 and 2005, is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
2006 |
|
|
% of Total |
|
|
2005 |
|
|
% of Total |
|
|
Change |
|
Base rents |
|
$ |
25,606,078 |
|
|
|
62.5 |
% |
|
$ |
12,936,876 |
|
|
|
59.0 |
% |
|
|
97.9 |
% |
Straight-line rents |
|
|
4,520,232 |
|
|
|
11.0 |
% |
|
|
3,784,801 |
|
|
|
17.3 |
% |
|
|
19.4 |
% |
Percentage rents |
|
|
1,893,991 |
|
|
|
4.6 |
% |
|
|
1,642,712 |
|
|
|
7.5 |
% |
|
|
15.3 |
% |
Contingent rents |
|
|
230,740 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Fee income |
|
|
382,997 |
|
|
|
0.9 |
% |
|
|
98,963 |
|
|
|
0.4 |
% |
|
|
287.0 |
% |
Interest from loans |
|
|
8,343,798 |
|
|
|
20.4 |
% |
|
|
3,463,894 |
|
|
|
15.8 |
% |
|
|
140.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
40,977,836 |
|
|
|
100.0 |
% |
|
$ |
21,927,246 |
|
|
|
100.0 |
% |
|
|
86.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue of $40,977,836 in the nine months ended September 30, 2006, was comprised of rents (78.7%)
and interest from loans and fee income (21.3%). At September 30, 2006, we owned 16 rent producing
properties compared to ten at September 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 nine months of 2006, we
received percentage rents of $1,893,991 from Vibra, a $251,000 increase from the first nine months
of 2005, due to higher revenues at the original six Vibra facilities. Interest income from loans in
the nine months ended September 30, 2006 compared to the same period in 2005 increased due to the
origination of $105,000,000 mortgage loans since November of 2005. Vibra accounted for 50.8% and
88.4% of our gross revenues during the nine months ended September 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 nine months ended September 30, 2006, was $5,480,638,
compared to $2,986,790, during the nine months ended September 30, 2005, an 83.5% increase. All of
this increase is related to an increase in the number of rent producing properties from ten at
September 30, 2005 to 16 at September 30, 2006. We expect our depreciation and amortization expense
to continue to increase commensurate with our acquisition and development activity.
17
General and administrative expenses in the nine months ended
September 30, 2006 and 2005, totaled
$7,948,530, and $5,712,257, respectively, an increase of 39.2%. We recorded approximately $2.4
million for share-based compensation as compared to $602,403 in the first nine months of 2005. 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
vesting period of three to five years. Finally, in the nine months ended September 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 September 30, 2006 and 2005, totaled
$436,989 and $1,509,903, respectively. Interest income decreased primarily due to lower cash
balances in the nine months ended September 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 nine months ended September 30, 2006 and 2005, totaled $5,494,249 and
$2,772,994, respectively. Capitalized interest for the nine months ended September 30, 2006 and
2005, totaled $4,728,153 and $1,918,458, respectively, resulting in interest expense (which
includes amortized financing costs) for the nine months ended September 30, 2006 and 2005, of
$3,246,413 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 developments under construction of $99.1 million at September 30, 2006, compared
to $78.5 million under construction at September 30, 2005.
Subsequent
Event
On October
22, 2006, MPT West Houston Hospital, L.P. and MPT West Houston MOB,
L.P., subsidiaries of Medical Properties Trust, Inc., terminated
their respective leases with Stealth, L.P. (Stealth). The
leases were for the hospital and medical office building,
respectively, operated together by Stealth as Houston Town and County
Hospital in Houston, Texas. The leases were originally entered into in
2004, with the lease for the hospital scheduled to expire in 2021 and
that for the medical office building to expire in 2016. The leases
required Stealth to make monthly payments of rent, including annual
escalations of rent, and payments to fund repairs and improvements.
The leases also required Stealth to pay all operating expenses of the
facilities, including ad valorem taxes, insurance and utilities.
During the three and nine month periods ended September 30, 2006 we
recorded revenue of approximately $2.2 million and $6.3 million, or
14.6% and 15.4% of total revenue, respectively, from the leases and
other arrangements with Stealth. We have made no provision in the
accompanying financial statements for any costs which could be
incurred if we do not successfully replace Stealth or if we are
required to fund operations of the hospital for an extended period.
In
connection with entering into the leases with Stealth, we also made
working capital loans to Stealth and have unbilled rent receivables from Stealth in an aggregate amount, including
accrued interest and after applying offsetting credits, of
approximately $3.2 million. On October 24, 2006, we received the full
proceeds of a letter of credit issued to us by Stealth in the amount
of $1.3 million, which can be used to reduce the amount outstanding
under the loans.
Stealth
had not obtained managed care provider contracts that we believe are
necessary for profitable operation of the hospital. Accordingly, and
pursuant to our rights under the leases, we terminated the leases and
began negotiations directly with other hospital systems that we
believe have access to the necessary provider contracts. We are
presently considering offers from several hospital systems
that have indicated a willingness to enter into a new lease with us
that would include terms allowing us to recover all amounts owed by
Stealth.
While we believe that we will be successful in releasing the hospital and MOB, there is no
assurance that a replacement lessee will agree to pay amounts similar to those previously provided
for in our leases with Stealth. We have made no provision in the accompanying financial statements
for any costs which could be incurred if we do not successfully replace Stealth or if we are
required to fund operations of the hospital for an extended period.
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 nine months
ended September 30, 2006 and 2005:
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|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
8,673,547 |
|
|
$ |
5,256,091 |
|
|
$ |
24,566,228 |
|
|
$ |
13,195,836 |
|
Depreciation and amortization |
|
|
1,974,371 |
|
|
|
1,170,387 |
|
|
|
5,480,638 |
|
|
|
2,986,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO |
|
$ |
10,647,918 |
|
|
$ |
6,426,478 |
|
|
$ |
30,046,866 |
|
|
$ |
16,182,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per diluted share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
0.22 |
|
|
$ |
0.14 |
|
|
$ |
0.62 |
|
|
$ |
0.44 |
|
Depreciation and amortization |
|
|
0.05 |
|
|
|
0.03 |
|
|
|
0.14 |
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations FFO |
|
$ |
0.27 |
|
|
$ |
0.17 |
|
|
$ |
0.76 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
In addition to adjustments to net income necessary to calculate funds from operations in accordance
with the NAREIT definition of FFO, we believe that investors also consider 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
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution per |
|
Declaration Date |
|
Record Date |
|
Date of Distribution |
|
Share |
|
August 18, 2006 |
|
September 14, 2006 |
|
October 12, 2006 |
|
$ |
0.26 |
|
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.
19
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 $117.6 million, the balance at October 16, 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.
20
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.
21
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
Not applicable.
Item 5. Other Information
(a) Information
required to be disclosed on Form 8-K, Item 1.02
1.02 Termination of a Material Definitive Agreement.
On October 22, 2006, MPT West Houston Hospital, L.P. and MPT West Houston MOB, L.P., subsidiaries
of Medical Properties Trust, Inc., terminated their respective leases with Stealth, L.P.
(Stealth). The leases were for the hospital and medical office building, respectively, operated
together by Stealth as Houston Town and County Hospital in Houston, Texas. The leases were
originally entered into in 2004, with the lease for the hospital scheduled to expire in 2021 and
that for the medical office building to expire in 2016. The leases required Stealth to make
monthly payments of rent, including annual escalations of rent, and payments to fund repairs and
improvements. The leases also required Stealth to pay all operating expenses of the facilities,
including ad valorem taxes, insurance and utilities. During the three and nine month periods ended
September 30, 2006 we recorded revenue of approximately $2.2 million and $6.3 million, or 14.6% and
15.4% of total revenue, respectively, from the leases and other arrangements with Stealth.
In connection with entering into the leases with Stealth, we also made working capital loans to
Stealth and have unbilled rent receivables from Stealth in an aggregate amount, including accrued interest and after applying offsetting credits,
of approximately $3.2 million. On October 24, 2006, we received the full proceeds of a letter of
credit issued to us by Stealth in the amount of $1.3 million, which can be used to reduce the
amount outstanding under the loans.
Stealth
had not obtained managed care provider contracts that we believe are
necessary for profitable operation of the hospital. Accordingly, and
pursuant to our rights under the leases, we terminated the leases and
began negotiations directly with other hospital systems that we
believe have access to the necessary provider contracts. We are
presently considering offers from several hospital systems
that have indicated a willingness to enter into a new lease with us
that would include terms allowing us to recover all amounts owed by Stealth.
While we
believe that we will be successful in releasing the hospital and MOB,
there is no assurance that a replacement lessee will agree to pay
amounts similar to those previously provided for in our leases with
Stealth. We have made no provision in the accompanying financial
statements for any costs which could be incurred if we do not
successfully replace Stealth or if we are required to fund operations
of the hospital for an extended period.
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
|
|
Consolidated Financial Statements of Vibra Healthcare, LLC as of June 30, 2006 |
|
|
Since Vibra Healthcare, LLC leases
more than 20% of our properties under triple net leases, the financial status of Vibra may be considered relevant to investors. The most recently available financial statements for Vibra are attached as Exhibit 99.1 to this Quarterly Report on Form 10-Q. We have not participated in the preparation of Vibra's financial statements nor do we have the right to dictate the form of any financial statements provided to us by Vibra.
|
22
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:
October 27, 2006
23
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
|
|
Consolidated Financial Statements of Vibra Healthcare, LLC as of June 30, 2006 |
24
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: October 27, 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: October 27, 2006
|
|
/s/ R. Steven Hamner |
|
|
|
|
|
R. Steven Hamner
Executive Vice President and Chief Financial Officer |
EX-32 SECTION 906 CERTIFICATION 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: October 27, 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 CONSOLIDATED FINANCIAL STATEMENTS
Exhibit
99.1
Vibra Healthcare, LLC and Subsidiaries
Consolidated Balance Sheet
June 30, 2006 (Unaudited) and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006 |
|
|
December 31, 2005 |
|
|
|
(unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,149,305 |
|
|
$ |
3,018,829 |
|
Patient accounts receivable, net of allowance for
doubtful collections of $1,394,000 and $1,689,000
at June 30, 2006 and December 31, 2005,
respectively |
|
|
27,109,685 |
|
|
|
22,751,868 |
|
Third party settlements receivable |
|
|
410,021 |
|
|
|
575,658 |
|
Prepaid insurance |
|
|
1,055,269 |
|
|
|
1,969,240 |
|
Other current assets |
|
|
896,679 |
|
|
|
964,268 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
31,620,959 |
|
|
|
29,279,863 |
|
|
|
|
|
|
|
|
|
|
Restricted investment |
|
|
100,000 |
|
|
|
100,000 |
|
Property and equipment, net |
|
|
17,409,512 |
|
|
|
17,638,222 |
|
Goodwill |
|
|
22,629,663 |
|
|
|
22,629,663 |
|
Intangible assets |
|
|
5,140,000 |
|
|
|
5,140,000 |
|
Deposits |
|
|
4,750,162 |
|
|
|
4,028,604 |
|
Deferred financing and lease costs |
|
|
2,031,630 |
|
|
|
1,970,073 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
83,681,926 |
|
|
$ |
80,786,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members Deficit |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
107,442 |
|
|
$ |
58,377 |
|
Current maturities of obligations under capital leases |
|
|
775,616 |
|
|
|
471,548 |
|
Accounts payable |
|
|
5,256,090 |
|
|
|
5,080,042 |
|
Accounts payable related parties |
|
|
248,902 |
|
|
|
233,977 |
|
Accrued liabilities |
|
|
6,065,401 |
|
|
|
6,260,283 |
|
Accrued insurance claims |
|
|
1,303,607 |
|
|
|
1,054,202 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
13,757,058 |
|
|
|
13,158,429 |
|
Accrued insurance claims |
|
|
2,470,507 |
|
|
|
2,470,507 |
|
Deferred rent |
|
|
7,664,632 |
|
|
|
6,501,674 |
|
Long-term debt |
|
|
53,866,954 |
|
|
|
51,572,156 |
|
Long-term obligations under capital leases |
|
|
19,519,620 |
|
|
|
17,860,209 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
97,278,771 |
|
|
|
91,562,975 |
|
Members deficit |
|
|
(13,596,845 |
) |
|
|
(10,776,550 |
) |
|
|
|
|
|
|
|
Total liabilities and members deficit |
|
$ |
83,681,926 |
|
|
$ |
80,786,425 |
|
|
|
|
|
|
|
|
Vibra Healthcare, LLC and Subsidiaries
Consolidated Statement of Operations and Changes in Members Deficit
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the six months ended |
|
|
|
June 30 |
|
|
June 30 |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue |
|
$ |
36,913.364 |
|
|
$ |
30,588,335 |
|
|
$ |
72,703.224 |
|
|
$ |
59,916,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services |
|
|
24,783,784 |
|
|
|
21,491,176 |
|
|
|
49,755,420 |
|
|
|
41,558,235 |
|
Rent expense |
|
|
5,412,953 |
|
|
|
3,669,721 |
|
|
|
10,766,593 |
|
|
|
7,024,370 |
|
General and administrative |
|
|
4,866,494 |
|
|
|
5,342,554 |
|
|
|
9,574,660 |
|
|
|
10,464,137 |
|
Interest expense |
|
|
1,914,800 |
|
|
|
1,294,943 |
|
|
|
3,716,548 |
|
|
|
2,558,299 |
|
Management fee Vibra Management, LLC |
|
|
785,038 |
|
|
|
657,466 |
|
|
|
1,525,162 |
|
|
|
1,244,059 |
|
Depreciation and amortization |
|
|
527,647 |
|
|
|
220,682 |
|
|
|
1,035,830 |
|
|
|
414,975 |
|
Bad debt expense |
|
|
209,721 |
|
|
|
178,431 |
|
|
|
397,587 |
|
|
|
345,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
38,500,437 |
|
|
|
32,854,973 |
|
|
|
76,771,800 |
|
|
|
63,609,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(1,587,073 |
) |
|
|
(2,266,638 |
) |
|
|
(4,068,576 |
) |
|
|
(3,693,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating revenue |
|
|
648,437 |
|
|
|
514,293 |
|
|
|
1,248,281 |
|
|
|
1,047,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(938,636 |
) |
|
|
(1,752,345 |
) |
|
|
(2,820,295 |
) |
|
|
(2,645,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members deficit beginning |
|
|
(12,658,209 |
) |
|
|
(4,707,918 |
) |
|
|
(10,776,550 |
) |
|
|
(3,814,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members deficit ending |
|
$ |
(13,596,845 |
) |
|
$ |
(6,460,263 |
) |
|
$ |
(13,596,845 |
) |
|
$ |
(6,460,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vibra Healthcare, LLC and Subsidiaries
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 2006 and 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,820,295 |
) |
|
$ |
(2,645,563 |
) |
Adjustments to reconcile net loss
to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,035,830 |
|
|
|
414,975 |
|
Provision for bad debts |
|
|
397,587 |
|
|
|
345,664 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities,
net of effects from acquisition of business: |
|
|
|
|
|
|
|
|
Patient accounts receivable including
third party settlements |
|
|
(4,589,766 |
) |
|
|
(4,679,052 |
) |
Prepaids and other current assets |
|
|
981,560 |
|
|
|
490,081 |
|
Deposits |
|
|
(62,581 |
) |
|
|
1,072,460 |
|
Accounts payable |
|
|
190,973 |
|
|
|
(861,010 |
) |
Accrued liabilities |
|
|
54,523 |
|
|
|
1,207,666 |
|
Deferred rent |
|
|
1,162,958 |
|
|
|
2,617,490 |
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(3,649,211 |
) |
|
|
(2,037,289 |
) |
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Deposits |
|
|
(658,977 |
) |
|
|
|
|
Purchase of restricted investment |
|
|
|
|
|
|
(100,000 |
) |
Purchases of property and equipment |
|
|
(456,651 |
) |
|
|
(505,408 |
) |
Assets acquired in business acquisition |
|
|
|
|
|
|
(284,292 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,115,628 |
) |
|
|
(889,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
|
|
72,558,824 |
|
|
|
50,591,077 |
|
Repayments of revolving credit facility |
|
|
(70,258,916 |
) |
|
|
(40,066,178 |
) |
Borrowings under capital leases |
|
|
2,000,000 |
|
|
|
2,181,898 |
|
Repayment of capital leases |
|
|
(234,981 |
) |
|
|
(11,988 |
) |
Borrowings under other long-term debt |
|
|
125,000 |
|
|
|
99,000 |
|
Repayment of long-term debt |
|
|
(81,045 |
) |
|
|
(7,731,041 |
) |
Payment of deferred financing costs |
|
|
(213,567 |
) |
|
|
(112,201 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
3,895,315 |
|
|
|
4,950,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(869,524 |
) |
|
|
2,023,578 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning |
|
|
3,018,829 |
|
|
|
2,280,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents ending |
|
$ |
2,149,305 |
|
|
$ |
4,304,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
3,716,548 |
|
|
$ |
2,558,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Deferred financing costs funded by revolving
credit facility and MPT capital lease |
|
$ |
|
|
|
$ |
352,627 |
|
|
|
|
|
|
|
|
Business acquisition adjustment of goodwill |
|
$ |
|
|
|
$ |
140,504 |
|
|
|
|
|
|
|
|
Building and equipment acquisition funded
by MPT capital lease |
|
$ |
|
|
|
$ |
14,270,000 |
|
|
|
|
|
|
|
|
License acquisition funded by MPT capital lease |
|
$ |
|
|
|
$ |
880,000 |
|
|
|
|
|
|
|
|
Lease deposit funded by MPT capital lease |
|
$ |
|
|
|
$ |
472,500 |
|
|
|
|
|
|
|
|
Equipment purchases funded by capital leases |
|
$ |
198,460 |
|
|
$ |
175,161 |
|
|
|
|
|
|
|
|