MEDICAL PROPERTIES TRUST, INC.
As filed with the Securities and Exchange Commission on March 6, 2007
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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 Number) |
1000 Urban Center Drive, Suite 501
Birmingham, AL 35242
(205) 969-3755
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Edward K. Aldag, Jr.
Chairman, President, Chief Executive Officer
Medical Properties Trust, Inc.
1000 Urban Center Drive, Suite 501
Birmingham, AL 35242
(205) 969-3755
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with copies to:
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Ettore A. Santucci, Esq.
Yoel Kranz, Esq.
Goodwin Procter LLP
Exchange Place
Boston, Massachusetts 02109
(617) 570-1000
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Thomas O. Kolb, Esq.
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Wachovia Tower
420 20th Street North, Suite 1600
Birmingham, Alabama 35203
(205) 328-0480 |
Approximate date of commencement of the proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant to dividend or
interest reinvestment plans, please check the following
box: o
If any of the securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: þ
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective
amendment thereto that shall become effective upon filing with the Commission pursuant to Rule
462(e) under the Securities Act, check the following box. o
If this Form is a post-effective amendment to a registration statement filed pursuant to General
Instruction I.D. filed to register additional securities or additional classes of securities
pursuant to Rule 413(b) under the Securities Act, check the following box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Title of Each Class of |
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Amount to be |
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Offering Price |
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Aggregate |
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Amount of |
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Securities to be Registered |
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Registered(1)(2) |
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Per Unit(3) |
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Offering Price(3) |
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Registration fee |
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Common Stock, par value
$0.001 per share |
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$8,326,175 |
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$14.79 |
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$123,144,128 |
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$ |
3,781 |
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(1) |
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Pursuant to Rule 416 under the Securities Act, the number of shares of Common Stock registered hereby shall
include an indeterminable number of shares of common stock that may be issued in connection with a stock split,
stock dividend, recapitalization or similar event. |
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(2) |
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Represents the maximum number of shares of Common Stock issuable upon exchange of the 6.125% Exchangeable
Senior Notes due 2011 of MPT Operating Partnership, L.P. at an
exchange rate corresponding to the initial exchange
rate of 60.3346 shares of Common Stock per $1,000 principal amount of the notes. |
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(3) |
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Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(a) under the Securities
Act, and, in accordance with Rule 457(c) under the Securities Act, is based upon the average of the high and low
reported sale prices of the Common Stock on the New York Stock Exchange on March 5, 2007. |
The registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration
statement shall become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed or supplemented. We may not
sell these securities until the registration statement that we have filed to cover the securities
has become effective under the rules of the Securities and Exchange Commission. This prospectus is
not an offer to sell the securities, nor is it a solicitation of an offer to buy the securities, in
any state where an offer or sale of the securities is not permitted.
Subject
to Completion, dated March 6, 2007
PROSPECTUS
8,326,175 Shares
Medical Properties Trust, Inc.
Common Stock
Our operating partnership, MPT Operating Partnership, L.P., issued and sold $138 million
aggregate principal amount of its 6.125% Exchangeable Senior Notes due 2011, or the notes, in
private transactions in November 2006. Under certain circumstances, we may issue shares of our
common stock upon the exchange or redemption of the notes. In such circumstances, the recipients of
such common stock, whom we refer to as the selling stockholders, may use this prospectus to
resell from time to time the shares of our common stock that we may issue to them upon the exchange
or redemption of the notes. Additional selling stockholders may be named by future prospectus
supplements.
The registration of the shares of our common stock does not necessarily mean that the selling
stockholders will exchange their notes for common stock, that upon any exchange or redemption of
the notes we will elect, in our sole and absolute discretion, to exchange or redeem some or all of
the notes for shares of our common stock rather than cash, or that any shares of our common stock
received upon exchange or redemption of the notes will be sold by the selling stockholders under
this prospectus or otherwise.
We will not receive proceeds from any issuance of shares of our common stock to the selling
stockholders or from any sale of such shares by the selling stockholders, but we have agreed to pay
certain registration expenses relating to such shares of our common stock. These securities may be
sold directly by us, through dealers or agents designated from time to time, to or through
underwriters or through a combination of these methods. See Plan of Distribution in this
prospectus.
Investing in our
securities involves risks. You should carefully read and consider the risk
factors beginning on page 6 of this prospectus and those included in the periodic and other reports we file with the Securities and Exchange
Commission.
Our common stock is listed on the New York Stock Exchange under the symbol MPW. On March 5,
2007, the closing price per share of our common stock was $14.59. To ensure that we maintain our
qualification as a real estate investment trust, ownership by any person is limited to 9.8% of the
lesser of the number or value of outstanding common shares, with certain exceptions.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is
, 2007.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a shelf registration statement we filed with the SEC. We have
incorporated exhibits into the registration statement. You should read the exhibits carefully for
provisions that may be important to you.
You should rely only on the information incorporated by reference or provided in this
prospectus or any prospectus supplement. We have not authorized anyone to provide you with
different or additional information. We are not making an offer of these securities in any state
where the offer is not permitted. You should not assume that the information in this prospectus or
in the documents incorporated by reference is accurate as of any date other than the date on the
front of this prospectus or the date of the applicable documents.
All references to Medical Properties MPW, Company, we, our and us refer to Medical
Properties Trust and its subsidiaries. The term you refers to a prospective investor.
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A WARNING ABOUT FORWARD LOOKING STATEMENTS
We make forward-looking statements in this prospectus that are subject to risks and
uncertainties. These forward-looking statements include information about possible or assumed
future results of our business, financial condition, liquidity, results of operations, plans and
objectives. Statements regarding the following subjects, among others, are forward-looking by their
nature:
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our business strategy; |
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our projected operating results; |
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our ability to acquire or develop net-leased facilities; |
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availability of suitable facilities to acquire or develop; |
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our ability to enter into, and the terms of, our prospective leases and loans; |
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our ability to raise additional funds through offerings of our debt and equity securities; |
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our ability to obtain future financing arrangements; |
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estimates relating to, and our ability to pay, future distributions; |
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our ability to compete in the marketplace; |
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market trends; |
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lease rates and interest rates; |
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projected capital expenditures; and |
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the impact of technology on our facilities, operations and business. |
The forward-looking statements are based on our beliefs, assumptions and expectations of our
future performance, taking into account all information currently available to us. These beliefs,
assumptions and expectations can change as a result of many possible events or factors, not all of
which are known to us. If a change occurs, our business, financial condition, liquidity and results
of operations may vary materially from those expressed in our forward-looking statements. You
should carefully consider these risks before you make an investment decision with respect to our
common stock, along with, among others, the following factors that could cause actual results to
vary from our forward-looking statements:
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factors referenced herein under the section captioned Risk Factors; |
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factors referenced in our most recent Annual Report on Form 10-K for the year ended
December 31, 2005 and in our Quarterly Reports on Form 10-Q, including those set forth
under the sections captioned Risk Factors, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and Our Business; |
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general volatility of the capital markets and the market price of our common stock; |
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changes in our business strategy; |
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changes in healthcare laws and regulations; |
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availability, terms and development of capital; |
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availability of qualified personnel; |
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changes in our industry, interest rates or the general economy; and |
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the degree and nature of our competition. |
When we use the words believe, expect, may, potential, anticipate, estimate,
plan, will, could, intend or similar expressions, we are identifying forward-looking
statements. You should not place undue reliance on these forward-looking statements. We are not
obligated to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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ABOUT MEDICAL PROPERTIES TRUST
We are a self-advised real estate investment trust that acquires, develops, leases and makes
other investments in healthcare facilities providing state-of-the-art healthcare services. We lease
our facilities to healthcare operators pursuant to long-term net-leases, which require the tenant
to bear most of the costs associated with the property. We also make long-term, interest only
mortgage loans to healthcare operators, and from time to time, we also make operating, working
capital and acquisition loans to our tenants.
As of March 1, 2007, we owned 19 facilities which were being operated by six tenants; we had
two facilities that were under development and leased to two tenants; and we had five mortgage
loans to three operators. The 19 facilities we own and the five facilities that secure our
mortgage loans are located in eight states, with an aggregate of approximately 2.4 million square
feet and 2,349 licensed beds. We also had two properties in various stages of completion that we
believe can support up to approximately 252,000 square feet and 63 licensed beds.
We focus on acquiring and developing rehabilitation hospitals, long-term acute care hospitals,
regional and community hospitals, womens and childrens hospitals and other specialized
single-discipline and ancillary facilities. We believe that our strategy for acquisition and
development of these types of net-leased facilities, which generally require a physicians order
for patient admission, distinguishes us as a unique investment alternative among real estate
investment trusts, or REITs.
We were formed as a Maryland corporation on August 27, 2003 to succeed to the business of
Medical Properties Trust, LLC, a Delaware limited liability company, which was formed by one of our
founders in December 2002. We conduct substantially all of our business through our wholly-owned
subsidiaries, MPT Operating Partnership, L.P. and MPT Development Services, Inc. We made an
election to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code,
commencing with our taxable year that began on April 6, 2004.
Our principal executive offices are located at 1000 Urban Center Drive, Suite 501, Birmingham,
Alabama 35242. Our telephone number is (205) 969-3755. Our Internet address is
www.medicalpropertiestrust.com. The information found on, or otherwise accessible through, our
website is not incorporated into, and does not form a part of, this offering memorandum or any
other report or document Medical Properties files with or furnishes to the SEC. For additional
information, see Incorporation of certain information by reference and Where you can find more
information.
Recent Developments
On November 8, 2006, we acquired the real estate assets of three community
hospitals in Orange County, California for an aggregate price of $60 million, comprising $50
million in acquisition costs and $10 million for expected future renovations. The three
hospital properties were acquired from and simultaneously leased to wholly owned subsidiaries
of Prime Healthcare Services, Inc., or Prime, under long-term net leases. The three hospitals
are: La Palma Intercommunity Hospital, a 141-bed, 93,000 square foot facility located in La
Palma, CA; West Anaheim Medical Center, a 219-bed, 180,000 square foot facility in Anaheim,
CA; and Huntington Beach Hospital, a 131-bed, 110,000 square foot facility in Huntington
Beach, CA. The initial term for the three leases is 15 years, with options to extend for
three terms of five years each. The leases of the three properties will be cross-defaulted
and guaranteed by Prime. The tenant may repurchase the real estate of West Anaheim and La
Palma subsequent to the 10th anniversary of lease commencement and after the 7th anniversary
for the Huntington Beach property.
On December 4, 2006, we invested $30 million in the real estate assets of three
hospitals in Texas: Warm Springs Rehabilitation Hospital, a 114,000 square foot facility with
65 beds, located in San Antonio; Warm Springs Specialty Hospital, a 39,617 square foot
long-term acute care hospital with 34 beds, located in Luling; and Victoria Warm Springs
Hospital, a 29,910 square foot long-term acute care hospital with 29 beds located in
Victoria. The hospitals were simultaneously leased back to affiliates of a newly formed
limited liability company, Post Acute Medical, LLC. The members of Post Acute Medical, LLC
are B.A. Healthcare Holdings, LLC and Lone Star Healthcare, LLC, the principals of which are
experienced operators of healthcare facilities.
On January 17, 2007, we sold all of our interests in the real estate of Houston
Town and Country Hospital and Medical Office Building to Memorial Hermann Healthcare System,
the largest hospital operator in the Houston area. We sold these assets following our
termination of the related leases due to tenant default. The lease termination resulted in a
charge in 2006 of approximately $1.9 million, principally, for straight-line rent accruals
and loans that would have been paid between 2007 and 2020 in accordance with the terms of the
original leases. These charges were more than offset by a gain in 2007 in excess of $5
million as a result of the sale.
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On February 15, 2007, we announced new financing transactions relating to some of
our facilities operated by Prime, for a total of $91 million in new healthcare real estate
investments. Of this amount, approximately $71 million (of which $42 million has already been
funded) relates to new mortgage loans to affiliates of Prime in connection with the extension
and expansion of two of our existing hospital facilities. We funded the remaining $20 million
in connection with the payment of deferred amounts on five of our facilities we previously
acquired from, and then leased to, affiliates of Prime. The deferred amounts vary in size
from $2.5 million to $5 million. On March 1, 2007, we
made a $50 million mortgage loan to an affiliate of Prime, on a
facility which the affiliate acquired from us.
On February 28, 2007, we completed a follow-on offering of 9 million shares of our
common stock for net proceeds to us of approximately 133.4 million. We used approximately $91
million of these net proceeds to fund the financing transactions with affiliates of Prime
described above. In connection with the offering, we also entered into forward sale agreement
covering an additional 3 million shares of our common stock, pursuant to which we expect to
receive additional net proceeds of approximately $44.5 million, subject to certain
adjustments, upon physical settlement within one year. We intend to use the remaining net
proceeds received from the sale of our common stock by us and any proceeds we receive upon
the settlement of the forward sale agreements to reduce borrowings under our revolving credit
facility, make additional healthcare real estate investments, for working capital and other
general corporate purposes.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements and other information with
the SEC. You may read and copy the registration statement and any other documents filed by us at
the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also
available to the public at the SECs website at http://www.sec.gov. Our reference to the SECs
website is intended to be an inactive textual reference only. In addition, you may read our SEC
filings at the offices of the New York Stock Exchange (the NYSE), which is located at 20 Broad
Street, New York, New York 10005. Our SEC filings are available at the NYSE because our common
stock is traded on the NYSE under the symbol of MPW.
We maintain an Internet website that contains information about us at
http://www.medicalpropertiestrust.com. The information on our website is not a part of this
prospectus, and the reference to our website is intended to be an inactive textual reference only.
This prospectus is part of our registration statement and does not contain all of the
information in the registration statement. We have omitted parts of the registration statement in
accordance with the rules and regulations of the SEC. For more details concerning the Company and
any securities offered by this prospectus, you may examine the registration statement on Form S-3
and the exhibits filed with it at the locations listed in the previous paragraphs.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference into this prospectus the information we file
with the SEC, which means that we can disclose important information to you by referring you to
those documents. Information incorporated by reference is part of this prospectus. Later
information filed with the SEC will update and supersede this information.
We incorporate by reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this
offering is completed:
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our Annual Report on Form 10-K for the year ended December 31, 2005; |
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our definitive proxy statement for the 2006 annual meeting of stockholders as filed on April 20, 2006; |
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our Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarters ended March 31,
2006, June 30, 2006 and September 30, 2006; |
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our Current Reports on Form 8-K filed on July 20, 2006, August 3, 2006 (Item 1.01),
November 13, 2006 and November 29, 2006 (Item 5.02), February 21, 2007 (Item 5.02) and
February 28, 2007 (Item 1.01). |
We will provide, upon oral or written request, to each person, including any beneficial owner,
to whom a prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference in the prospectus but not delivered with this prospectus. Any person,
including any beneficial owner may request a copy of these filings, including exhibits at no cost,
by contacting:
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Investor Relations, Medical Properties Trust
1000 Urban Center Drive, Suite 501
Birmingham, Alabama 35242
by telephone at (205) 969-3755
by facsimile at (205) 969-3756
by e-mail at clambert@medicalpropertiestrust.com
or by visiting our website, http://www.medicalpropertiestrust.com. The information contained on our
website is not part of this prospectus and the reference to our website is intended to be an
inactive textual reference only.
RISK FACTORS
You should carefully consider the following risk factors and the other information
contained in this prospectus, as updated by our subsequent filings under the Securities
Exchange Act of 1934, as amended, and the risk factors and other information contained in
the applicable prospectus supplement before acquiring any of such securities, before
purchasing shares of our common stock. Investing in our common stock involves a high degree
of risk. If any of the events described in the following risk factors occur, our business,
operating results and financial condition could be seriously harmed. In addition, the
trading price of our common stock could decline due to the occurrence of any of such
events, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS AND GROWTH STRATEGY
We were formed in August 2003 and have a limited operating history; our management has
a limited history of operating a REIT and a public company and may therefore have
difficulty in successfully and profitably operating our business.
We were organized in 2003 and thus have a limited operating history. We first elected
REIT status for our taxable year ended December 31, 2004. We are subject to the risks
generally associated with the formation of any new business, including unproven business
models, uncertain market acceptance and competition with established businesses. Our
management has limited experience in operating a REIT and a public company. Therefore, you
should be especially cautious in drawing conclusions about the ability of our management
team to execute our business plan.
We expect to continue to experience rapid growth and may not be able to adapt our
management and operational systems to integrate the net-leased facilities we have acquired
and are developing or those that we may acquire or develop in the future without
unanticipated disruption or expense.
We are currently experiencing a period of rapid growth. We cannot assure you that we
will be able to adapt our management, administrative, accounting and operational systems,
or hire and retain sufficient operational staff, to integrate and manage the facilities we
have acquired and are developing and those that we may acquire or develop. Our failure to
successfully integrate and manage our current portfolio of facilities or any future
acquisitions or developments could have a material adverse effect on our results of
operations and financial condition and our ability to make distributions to our
stockholders.
We may be unable to access capital, which would slow our growth.
Our business plan contemplates growth through acquisitions and development of
facilities. As a REIT, we are required to make cash distributions, which reduce our ability
to fund acquisitions and developments with retained earnings. We are dependent on
acquisition financings and access to the capital markets for cash to make investments in
new facilities. Due to market or other conditions, there will be times when we will have
limited access to capital from the equity and debt markets. During such periods, virtually
all of our available capital will be required to meet existing commitments and to reduce
existing debt. We may not be able to obtain additional equity or debt capital or dispose of
assets on favorable terms, if at all, at the time we need additional capital to acquire
healthcare properties on a competitive basis or to meet our obligations. Our ability to
grow through acquisitions and developments will be limited if we are unable to obtain debt
or equity financing, which could have a material adverse effect on our results of
operations and our ability to make distributions to our stockholders.
Dependence on our tenants for payments of rent and interest may adversely impact our
ability to make distributions to our stockholders.
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We expect to continue to qualify as a REIT and, accordingly, as a REIT operating in
the healthcare industry, we are not permitted by current tax law to operate or manage the
businesses conducted in our facilities. Accordingly, we rely almost exclusively on rent
payments from our tenants under leases or interest payments from our tenants under mortgage
loans we have made to them for cash with which to make distributions to our stockholders.
We have no control over the success or failure of these tenants businesses. Significant
adverse changes in the operations of any facility, or the financial condition of any tenant
or a guarantor, could have a material adverse effect on our ability to collect rent and
interest payments and, accordingly, on our ability to make distributions to our
stockholders. Facility management by our tenants and their compliance with state and
federal healthcare laws could have a material impact on our tenants operating and
financial condition and, in turn, their ability to pay rent and interest to us.
It may be costly to replace defaulting tenants and we may not be able to replace
defaulting tenants with suitable replacements on suitable terms.
Failure on the part of a tenant to comply materially with the terms of a lease could
give us the right to terminate our lease with that tenant, repossess the applicable
facility, cross default certain other leases with that tenant and enforce the payment
obligations under the lease. The process of terminating a lease with a defaulting tenant
and repossessing the applicable facility may be costly and require a disproportionate
amount of managements attention. In addition, defaulting tenants or their affiliates may
initiate litigation in connection with a lease termination or repossession against us or
our subsidiaries. For example, in connection with our termination of leases relating to the
Houston Town and Country Hospital and Medical Office Building in late 2006, our relevant
subsidiaries were subsequently named as one of a number of defendants in lawsuits filed by
various affiliates of the defaulting tenant. Resolution of these types of lawsuits in a
manner materially adverse to us may adversely affect our financial condition and results of
operations. If a tenant-operator defaults and we choose to terminate our lease, we then
would be required to find another tenant-operator. The transfer of most types of healthcare
facilities is highly regulated, which may result in delays and increased costs in locating
a suitable replacement tenant. The sale or lease of these properties to entities other than
healthcare operators may be difficult due to the added cost and time of refitting the
properties. If we are unable to re-let the properties to healthcare operators, we may be
forced to sell the properties at a loss due to the repositioning expenses likely to be
incurred by non-healthcare purchasers. Alternatively, we may be required to spend
substantial amounts to adapt the facility to other uses. There can be no assurance that we
would be able to find another tenant in a timely fashion, or at all, or that, if another
tenant were found, we would be able to enter into a new lease on favorable terms. Defaults
by our tenants under our leases may adversely affect the timing of and our ability to make
distributions to our stockholders.
Our revenues are dependent upon our relationship with, and success of, Vibra and
Prime.
As of September 30, 2006, we owned 16 facilities which were being operated by five
operators, we had two facilities that were under development and leased to two operators,
and we had three mortgage loans to two operators. Vibra Healthcare, LLC, or Vibra, leased
seven of our facilities, representing 38.0% of the original total cost of our operating
facilities and mortgage loans as of September 30, 2006, and affiliates of Prime Healthcare
Services, Inc. leased four of our facilities, representing 17.4% of the original total cost
of our operating facilities and mortgage loans as of September 30, 2006. Total revenue from
Vibra and Prime, including rent, percentage rent and interest, was approximately $20.8
million and $6.4 million, respectively, or 50.8% and 15.6%, respectively, of total revenue
in the nine months ended September 30, 2006. The financial performance and resulting
ability of each of Vibra and Prime to satisfy its lease and loan obligations to us are
material to our financial results and our ability to service our debt and make
distributions to our stockholders.
In the fourth quarter of 2006 and first quarter of 2007, we completed additional
transactions with Vibra and Prime, bringing the total number of facilities we lease to, or
for which we have mortgage loans with, Vibra and Prime to eight and seven, respectively. We
may pursue additional transactions with Vibra or Prime in the future. Our relationship with
Vibra and Prime, and their respective financial performance and resulting ability to
satisfy its lease and loan obligations to us are material to our financial results and our
ability to service our debt and make distributions to our stockholders. We are dependent
upon the ability of Vibra and Prime to make rent and loan payments to us, and its failure
or delay to meet these obligations would have a material adverse effect on our financial
condition and results of operations.
Accounting rules may require consolidation of entities in which we invest and other
adjustments to our financial statements.
The Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of Accounting Research
Bulletin No. 51 (ARB No. 51), in January 2003, and a further interpretation of FIN 46 in
December 2003 (FIN 46-R, and collectively FIN 46). FIN 46 clarifies the application of ARB
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No. 51, Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties, referred to as variable interest
entities. FIN 46 generally requires consolidation by the party that has a majority of the
risk and/or rewards, referred to as the primary beneficiary. FIN 46 applies immediately to
variable interest entities created after January 31, 2003. Under certain circumstances,
generally accepted accounting principles may require us to account for loans to thinly
capitalized companies such as Vibra as equity investments. The resulting accounting
treatment of certain income and expense items may adversely affect our results of
operations, and consolidation of balance sheet amounts may adversely affect any loan
covenants.
The bankruptcy or insolvency of our tenants under our leases could seriously harm our
operating results and financial condition.
Some of our tenants, including North Cypress, BCO, Monroe Hospital and Vibra, are and
some of our prospective tenants may be, newly organized, have limited or no operating
history and may be dependent on loans from us to acquire the facilitys operations and for
initial working capital. Any bankruptcy filings by or relating to one of our tenants could
bar us from collecting pre-bankruptcy debts from that tenant or their property, unless we
receive an order permitting us to do so from the bankruptcy court. A tenant bankruptcy
could delay our efforts to collect past due balances under our leases and loans, and could
ultimately preclude collection of these sums. If a lease is assumed by a tenant in
bankruptcy, we expect that all pre-bankruptcy balances due under the lease would be paid to
us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a
general unsecured claim for damages. Any secured claims we have against our tenants may
only be paid to the extent of the value of the collateral, which may not cover any or all
of our losses. Any unsecured claim we hold against a bankrupt entity may be paid only to
the extent that funds are available and only in the same percentage as is paid to all other
holders of unsecured claims. We may recover none or substantially less than the full value
of any unsecured claims, which would harm our financial condition.
Our facilities and properties under development are currently leased to only seven
tenants, four of which were recently organized and have limited or no operating histories,
and failure of any of these tenants and the guarantors of their leases to meet their
obligations to us would have a material adverse effect on our revenues and our ability to
make distributions to our stockholders.
Our existing facilities and the properties we have under development are currently
leased to Vibra, Prime, Gulf States, North Cypress, BCO and Monroe Hospital or their
subsidiaries or affiliates. If any of our tenants were to experience financial
difficulties, the tenant may not be able to pay its rent. Vibra, North Cypress, BCO and
Monroe Hospital were recently organized and have limited or no operating histories.
Our business is highly competitive and we may be unable to compete successfully.
We compete for development opportunities and opportunities to purchase healthcare
facilities with, among others:
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private investors; |
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healthcare providers, including physicians; |
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other REITs; |
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real estate partnerships; |
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financial institutions; and |
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local developers. |
Many of these competitors have substantially greater financial and other resources
than we have and may have better relationships with lenders and sellers. Competition for
healthcare facilities from competitors may adversely affect our ability to acquire or
develop healthcare facilities and the prices we pay for those facilities. If we are unable
to acquire or develop facilities or if we pay too much for facilities, our revenue and
earnings growth and financial return could be materially
adversely affected. Certain of our facilities and additional facilities we may acquire or
develop will face competition from other nearby facilities that provide services comparable
to those offered at our facilities and additional facilities we may acquire or develop.
Some of those facilities are owned by governmental agencies and supported by tax revenues,
and others
8
are owned by tax-exempt corporations and may be supported to a large extent by
endowments and charitable contributions. Those types of support are not available to our
facilities and additional facilities we may acquire or develop. In addition, competing
healthcare facilities located in the areas served by our facilities and additional
facilities we may acquire or develop may provide healthcare services that are not available
at our facilities and additional facilities we may acquire or develop. From time to time,
referral sources, including physicians and managed care organizations, may change the
healthcare facilities to which they refer patients, which could adversely affect our rental
revenues.
Our use of debt financing will subject us to significant risks, including refinancing
risk and the risk of insufficient cash available for distribution to our stockholders.
As of September 30, 2006, we had $232.6 million of long-term debt outstanding. In
addition, our subsidiary, MPT Operating Partnership, L.P., issued $138 million aggregate
principal amount of exchangeable senior notes due 2011 in November 2006. We may borrow from
other lenders in the future, or we may issue corporate debt securities in public or private
offerings and our organizational documents do not limit the amount of debt we may incur.
Most of our current debt is, and we anticipate that much of our future debt will be,
non-amortizing and payable in balloon payments. Therefore, we will likely need to refinance
at least a portion of that debt as it matures. There is a risk that we may not be able to
refinance then-existing debt or that the terms of any refinancing will not be as favorable
as the terms of the then-existing debt. If principal payments due at maturity cannot be
refinanced, extended or repaid with proceeds from other sources, such as new equity capital
or sales of facilities, our cash flow may not be sufficient to repay all maturing debt in
years when significant balloon payments come due. Additionally, we may incur significant
penalties if we choose to prepay the debt.
Failure to hedge effectively against interest rate changes may adversely affect our
results of operations and our ability to make distributions to our stockholders.
As of September 30, 2006, we had approximately $107.6 million in variable interest
rate debt. We may seek to manage our exposure to interest rate volatility by using interest
rate hedging arrangements that involve risk, including the risk that counterparties may
fail to honor their obligations under these arrangements, that these arrangements may not
be effective in reducing our exposure to interest rate changes and that these arrangements
may result in higher interest rates than we would otherwise have. Moreover, no hedging
activity can completely insulate us from the risks associated with changes in interest
rates. Failure to hedge effectively against interest rate changes may materially adversely
affect results of operations and our ability to make distributions to our stockholders.
Most of our current tenants have, and prospective tenants may have, an option to
purchase the facilities we lease to them which could disrupt our operations.
Most of our current tenants have, and some prospective tenants will have, the option
to purchase the facilities we lease to them. We cannot assure you that the formulas we have
developed for setting the purchase price will yield a fair market value purchase price. Any
purchase not at fair market value may present risks of challenge from healthcare regulatory
authorities.
In the event our tenants and prospective tenants determine to purchase the facilities
they lease either during the lease term or after their expiration, the timing of those
purchases will be outside of our control and we may not be able to re-invest the capital on
as favorable terms, or at all. Our inability to effectively manage the turn-over of our
facilities could materially adversely affect our ability to execute our business plan and
our results of operations.
RISKS RELATING TO REAL ESTATE INVESTMENTS
Our real estate and mortgage investments are and will continue to be concentrated in
healthcare facilities, making us more vulnerable economically than if our investments were
more diversified.
We have acquired and are developing and have made mortgage investments in and expect
to continue acquiring and developing and making mortgage investments in healthcare
facilities. We are subject to risks inherent in concentrating investments in real estate.
The risks resulting from a lack of diversification become even greater as a result of our
business
strategy to invest in healthcare facilities. A downturn in the real estate industry could
materially adversely affect the value of our facilities. A downturn in the healthcare
industry could negatively affect our tenants ability to make lease or loan payments to us
and, consequently, our ability to meet debt service obligations or make distributions to
our stockholders. These adverse effects could be more pronounced than if we diversified our
investments outside of real estate or outside of healthcare facilities.
9
Our facilities may not have efficient alternative uses, which could impede our ability
to find replacement tenants in the event of termination or default under our leases.
All of the facilities in our current portfolio are and all of the facilities we expect
to acquire or develop in the future will be net-leased healthcare facilities. If we or our
tenants terminate the leases for these facilities or if these tenants lose their regulatory
authority to operate these facilities, we may not be able to locate suitable replacement
tenants to lease the facilities for their specialized uses. Alternatively, we may be
required to spend substantial amounts to adapt the facilities to other uses. Any loss of
revenues or additional capital expenditures occurring as a result could have a material
adverse effect on our financial condition and results of operations and could hinder our
ability to meet debt service obligations or make distributions to our stockholders.
Illiquidity of real estate investments could significantly impede our ability to
respond to adverse changes in the performance of our facilities and harm our financial
condition.
Real estate investments are relatively illiquid. Our ability to quickly sell or
exchange any of our facilities in response to changes in economic and other conditions will
be limited. No assurances can be given that we will recognize full value for any facility
that we are required to sell for liquidity reasons. Our inability to respond rapidly to
changes in the performance of our investments could adversely affect our financial
condition and results of operations.
Development and construction risks could adversely affect our ability to make
distributions to our stockholders.
We are developing a womens hospital and integrated medical office building in
Bensalem, Pennsylvania and renovating a long-term acute care facility in Portland, Oregon.
We expect to develop additional facilities in the future. Our development and related
construction activities may subject us to the following risks:
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we may have to compete for suitable development sites; |
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our ability to complete construction is dependent on there being no title, environmental or other legal
proceedings arising during construction; |
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we may be subject to delays due to weather conditions, strikes and other contingencies beyond our control; |
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we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building,
occupancy healthcare regulatory and other required governmental permits and authorizations, which could
result in increased costs, delays in construction, or our abandonment of these projects; |
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we may incur construction costs for a facility which exceed our original estimates due to increased costs
for materials or labor or other costs that we did not anticipate; and |
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we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our
development activities. |
We expect to fund our development projects over time. The time frame required for
development and construction of these facilities means that we may have to wait years for a
significant cash return. In addition, our tenants may not be able to obtain managed care
provider contracts in a timely manner or at all. Because we are required to make cash
distributions to our stockholders, if the cash flow from operations or refinancings is not
sufficient, we may be forced to borrow additional money to fund distributions. We cannot
assure you that we will complete our current construction projects on time or within budget
or that future development projects will not be subject to delays and cost overruns. Risks
associated with our development projects may reduce anticipated rental revenue which could
affect the timing of, and our ability to make, distributions to our stockholders.
Our facilities may not achieve expected results or we may be limited in our ability to
finance future acquisitions, which may harm our financial condition and operating results
and our ability to make the distributions to our stockholders required to maintain our REIT
status.
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Acquisitions and developments entail risks that investments will fail to perform in
accordance with expectations and that estimates of the costs of improvements necessary to
acquire and develop facilities will prove inaccurate, as well as general investment risks
associated with any new real estate investment. We anticipate that future acquisitions and
developments will largely be financed through externally generated funds such as borrowings
under credit facilities and other secured and unsecured debt financing and from issuances
of equity securities. Because we must distribute at least 90% of our REIT taxable income,
excluding net capital gain, each year to maintain our qualification as a REIT, our ability
to rely upon income from operations or cash flow from operations to finance our growth and
acquisition activities will be limited. Accordingly, if we are unable to obtain funds from
borrowings or the capital markets to finance our acquisition and development activities,
our ability to grow would likely be curtailed, amounts available for distribution to
stockholders could be adversely affected and we could be required to reduce distributions,
thereby jeopardizing our ability to maintain our status as a REIT.
Newly-developed or newly-renovated facilities do not have the operating history that
would allow our management to make objective pricing decisions in acquiring these
facilities (including facilities that may be acquired from certain of our executive
officers, directors and their affiliates). The purchase prices of these facilities will be
based in part upon projections by management as to the expected operating results of the
facilities, subjecting us to risks that these facilities may not achieve anticipated
operating results or may not achieve these results within anticipated time frames.
If we suffer losses that are not covered by insurance or that are in excess of our
insurance coverage limits, we could lose investment capital and anticipated profits.
We have purchased general liability insurance (lessors risk) that provides coverage
for bodily injury and property damage to third parties resulting from our ownership of the
healthcare facilities that are leased to and occupied by our tenants. Our leases generally
require our tenants to carry general liability, professional liability, loss of earnings,
all risk and extended coverage insurance in amounts sufficient to permit the replacement of
the facility in the event of a total loss, subject to applicable deductibles. However,
there are certain types of losses, generally of a catastrophic nature, such as earthquakes,
floods, hurricanes and acts of terrorism, which may be uninsurable or not insurable at a
price we or our tenants can afford. Inflation, changes in building codes and ordinances,
environmental considerations and other factors also might make it impracticable to use
insurance proceeds to replace a facility after it has been damaged or destroyed. Under such
circumstances, the insurance proceeds we receive might not be adequate to restore our
economic position with respect to the affected facility. If any of these or similar events
occur, it may reduce our return from the facility and the value of our investment.
Capital expenditures for facility renovation may be greater than anticipated and may
adversely impact rent payments by our tenants and our ability to make distributions to
stockholders.
Facilities, particularly those that consist of older structures, have an ongoing need
for renovations and other capital improvements, including periodic replacement of
furniture, fixtures and equipment. Although our leases require our tenants to be primarily
responsible for the cost of such expenditures, renovation of facilities involves certain
risks, including the possibility of environmental problems, construction cost overruns and
delays, uncertainties as to market demand or deterioration in market demand after
commencement of renovation and the emergence of unanticipated competition from other
facilities. All of these factors could adversely impact rent and loan payments by our
tenants, could have a material adverse effect on our financial condition and results of
operations and could adversely effect our ability to make distributions to our
stockholders.
All of our healthcare facilities are subject to property taxes that may increase in
the future and adversely affect our business.
Our facilities are subject to real and personal property taxes that may increase as
property tax rates change and as the facilities are assessed or reassessed by taxing
authorities. Our leases generally provide that the property taxes are charged to our
tenants as an expense related to the facilities that they occupy. As the owner of the
facilities, however, we are ultimately responsible for payment of the taxes to the
government. If property taxes increase, our tenants may be unable to make the required tax
payments, ultimately requiring us to pay the taxes. If we incur these tax liabilities, our
ability to make expected distributions to our stockholders could be adversely affected.
As the owner and lessor of real estate, we are subject to risks under environmental
laws, the cost of compliance with which and any violation of which could materially
adversely affect us.
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Our operating expenses could be higher than anticipated due to the cost of complying
with existing and future environmental and occupational health and safety laws and
regulations. Various environmental laws may impose liability on a current or prior owner or
operator of real property for removal or remediation of hazardous or toxic substances.
Current or prior owners or operators may also be liable for government fines and damages
for injuries to persons, natural resources and adjacent property. These environmental laws
often impose liability whether or not the owner or operator knew of, or was responsible
for, the presence or disposal of the hazardous or toxic substances. The cost of complying
with environmental laws could materially adversely affect amounts available for
distribution to our stockholders and could exceed the value of all of our facilities. In
addition, the presence of hazardous or toxic substances, or the failure of our tenants to
properly manage, dispose of or remediate such substances, including medical waste generated
by physicians and our other healthcare tenants, may adversely affect our tenants or our
ability to use, sell or rent such property or to borrow using such property as collateral
which, in turn, could reduce our revenue and our financing ability. We have obtained on all
facilities we have acquired and are developing and intend to obtain on all future
facilities we acquire Phase I environmental assessments. However, even if the Phase I
environmental assessment reports do not reveal any material environmental contamination, it
is possible that material environmental contamination and liabilities may exist of which we
are unaware.
Although the leases for our facilities generally require our tenants to comply with
laws and regulations governing their operations, including the disposal of medical waste,
and to indemnify us for certain environmental liabilities, the scope of their obligations
may be limited. We cannot assure you that our tenants would be able to fulfill their
indemnification obligations and, therefore, any material violation of environmental laws
could have a material adverse affect on us. In addition, environmental and occupational
health and safety laws are constantly evolving, and changes in laws, regulations or
policies, or changes in interpretations of the foregoing, could create liabilities where
none exists today.
Our interests in facilities through ground leases expose us to the loss of the
facility upon breach or termination of the ground lease and may limit our use of the
facility.
We have acquired interests in four of our facilities, at least in part, by acquiring
leasehold interests in the land on which the facility is or the facility under development
will be located rather than an ownership interest in the property, and we may acquire
additional facilities in the future through ground leases. As lessee under ground leases,
we are exposed to the possibility of losing the property upon termination, or an earlier
breach by us, of the ground lease. Ground leases may also restrict our use of facilities.
Our current ground lease in Marlton, New Jersey limits use of the property to operation of
a 76 bed rehabilitation hospital. Our current ground lease for the facility in Redding,
California limits use of the property to operation of a hospital offering the following
services: skilled nursing; physical rehabilitation; occupational therapy; speech pathology;
social services; assisted living; day health programs; long-term acute care services;
psychiatric services; geriatric clinic services; outpatient services related to the
foregoing service categories; and other post-acute services. Our current ground lease for
the facility in San Antonio limits use of the property to operation of a comprehensive
rehabilitation hospital, medical research and education and other medical uses and uses
reasonably incidental thereto. These restrictions and any similar future restrictions in
ground leases will limit our flexibility in renting the facility and may impede our ability
to sell the property.
RISKS RELATING TO THE HEALTHCARE INDUSTRY
Reductions in reimbursement from third-party payors, including Medicare and Medicaid,
could adversely affect the profitability of our tenants and hinder their ability to make
rent payments to us.
Sources of revenue for our tenants and operators may include the federal Medicare
program, state Medicaid programs, private insurance carriers and health maintenance
organizations, among others. Efforts by such payors to reduce healthcare costs will likely
continue, which may result in reductions or slower growth in reimbursement for certain
services provided by some of our tenants. In addition, the failure of any of our tenants to
comply with various laws and regulations could jeopardize their ability to continue
participating in Medicare, Medicaid and other government-sponsored payment programs.
The healthcare industry continues to face various challenges, including increased
government and private payor pressure on healthcare providers to control or reduce costs.
We believe that our tenants will continue to experience a shift in payor mix away from
fee-for-service payors, resulting in an increase in the percentage of revenues attributable
to managed care payors, government payors and general industry trends that include
pressures to control healthcare costs. Pressures to control healthcare costs and a shift
away from traditional health insurance reimbursement have resulted in an increase in the
number
of patients whose healthcare coverage is provided under managed care plans, such as health
maintenance organizations and preferred provider organizations. In addition, due to the
aging of the population and the expansion of governmental payor programs, we anticipate
that there will be a marked increase in the number of patients relying on healthcare
coverage provided by governmental payors. These changes could have a material adverse
effect on the financial condition of some or all of our tenants, which could have a
material adverse effect on our financial condition and results of operations and could
negatively affect our ability to make distributions to our stockholders.
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A significant number of our tenants operate long-term care hospitals, or LTACHs. The
United States Department of Health and Human Services, Centers for Medicare and Medicaid
Services, or CMS, recently proposed a 0.71 percent increase to the LTACH prospective
payment system rates for 2008. However, in light of concerns raised by an analysis of
recent LTACH case mix data, CMS also proposed a budget neutrality requirement for annual
payment updates.
In addition to the proposed payment changes, CMS is proposing changes to its policy
known as the 25 percent rule. That rule takes into account the percentage of patients
that were admitted to the LTACH from its co-located host hospital (usually a general acute
care hospital). Under the current policy, if an LTACH that is a hospital-within-a-hospital
or satellite facility that has more than a certain percentage (generally 25 percent) of its
discharges admitted from the co-located host hospital for the cost reporting period, then
the payment to the LTACH would be adjusted downward. CMS is now proposing to extend the 25
percent threshold to situations not contemplated by the existing regulations. Under the
proposed policy, the downward payment adjustment would apply to virtually all LTACHs if
more than 25 percent (or the applicable percentage in certain special circumstances) of its
discharged patients were admitted from an individual hospital, regardless of where that
hospital is located. If adopted as proposed, these changes could have a material adverse
effect on the financial condition of some of our tenants, which could have a material
adverse effect on our financial condition and results of operations and could negatively
affect our ability to make distributions to our stockholders.
The healthcare industry is heavily regulated and existing and new laws or regulations,
changes to existing laws or regulations, loss of licensure or certification or failure to
obtain licensure or certification could result in the inability of our tenants to make
lease payments to us.
The healthcare industry is highly regulated by federal, state and local laws, and is
directly affected by federal conditions of participation, state licensing requirements,
facility inspections, state and federal reimbursement policies, regulations concerning
capital and other expenditures, certification requirements and other such laws, regulations
and rules. In addition, establishment of healthcare facilities and transfers of operations
of healthcare facilities are subject to regulatory approvals not required for establishment
of or transfers of other types of commercial operations and real estate. Sanctions for
failure to comply with these regulations and laws include, but are not limited to, loss of
or inability to obtain licensure, fines and loss of or inability to obtain certification to
participate in the Medicare and Medicaid programs, as well as potential criminal penalties.
The failure of any tenant to comply with such laws, requirements and regulations could
affect its ability to establish or continue its operation of the facility or facilities and
could adversely affect the tenants ability to make lease payments to us which could have a
material adverse effect on our financial condition and results of operations and could
negatively affect our ability to make distributions to our stockholders. In addition,
restrictions and delays in transferring the operations of healthcare facilities, in
obtaining new third-party payor contracts including Medicare and Medicaid provider
agreements, and in receiving licensure and certification approval from appropriate state
and federal agencies by new tenants may affect our ability to terminate lease agreements,
remove tenants that violate lease terms, and replace existing tenants with new tenants.
Furthermore, these matters may affect a new tenants ability to obtain reimbursement for
services rendered, which could adversely affect their ability to pay rent to us and to pay
principal and interest on their loans from us.
Our tenants are subject to fraud and abuse laws, the violation of which by a tenant
may jeopardize the tenants ability to make lease and loan payments to us.
The federal government and numerous state governments have passed laws and regulations
that attempt to eliminate healthcare fraud and abuse by prohibiting business arrangements
that induce patient referrals or the ordering of specific ancillary services. In addition,
the Balanced Budget Act of 1997 strengthened the federal anti-fraud and abuse laws to
provide for stiffer penalties for violations. Violations of these laws may result in the
imposition of criminal and civil penalties, including possible exclusion from federal and
state healthcare programs. Imposition of any of these penalties upon any of our tenants
could jeopardize any tenants ability to operate a facility or to make lease and loan
payments, thereby potentially adversely affecting us.
In the past several years, federal and state governments have significantly increased
investigation and enforcement activity to detect and eliminate fraud and abuse in the
Medicare and Medicaid programs. In addition, legislation has been adopted at both state and
federal levels which severely restricts the ability of physicians to refer patients to
entities in which they have a
financial interest. It is anticipated that the trend toward increased investigation and
enforcement activity in the area of fraud and abuse, as well as self-referrals, will
continue in future years and could adversely affect our prospective tenants and their
operations, and in turn their ability to make lease and loan payments to us.
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Vibra has accepted, and prospective tenants may accept, an assignment of the previous
operators Medicare provider agreement. Vibra and other new-operator tenants that take
assignment of Medicare provider agreements might be subject to federal or state regulatory,
civil and criminal investigations of the previous owners operations and claims
submissions. While we conduct due diligence in connection with the acquisition of such
facilities, these types of issues may not be discovered prior to purchase. Adverse
decisions, fines or recoupments might negatively impact our tenants financial condition.
Certain of our lease arrangements may be subject to fraud and abuse or physician
self-referral laws.
Local physician investment in our operating partnership or our subsidiaries that own
our facilities could subject our lease arrangements to scrutiny under fraud and abuse and
physician self-referral laws. Under the federal Ethics in Patient Referrals Act of 1989, or
Stark Law, and regulations adopted thereunder, if our lease arrangements do not satisfy the
requirements of an applicable exception, that noncompliance could adversely affect the
ability of our tenants to bill for services provided to Medicare beneficiaries pursuant to
referrals from physician investors and subject us and our tenants to fines, which could
impact their ability to make lease and loan payments to us. On March 26, 2004, CMS issued
Phase II final rules under the Stark Law, which, together with the 2001 Phase I final
rules, set forth CMS current interpretation and application of the Stark Law prohibition
on referrals of designated health services, or DHS. These rules provide us additional
guidance on application of the Stark Law through the implementation of bright-line tests,
including additional regulations regarding the indirect compensation exception, but do not
eliminate the risk that our lease arrangements and business strategy of physician
investment may violate the Stark Law. Finally, the Phase II rules implemented an 18-month
moratorium on physician ownership or investment in specialty hospitals imposed by the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The moratorium
imposed by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, or
MMA, expired on June 8, 2005. However, that moratorium was retroactively extended by the
passage of the Deficit Reduction Act of 2005, or the DRA, which requires the Secretary of
Health and Human Services to develop a strategic and implementing plan for physician
investment in specialty hospitals that addresses the issues of proportionality of
investment return, bona fide investment, annual disclosure of investments, and the
provision of medical assistance (Medicaid) and charity care. The final report was published
on August 8, 2006, at which time the moratorium expired. However, we expect that specialty
hospitals will continue to be closely scrutinized by Congress and various federal and state
agencies. Further, despite the expiration of the specialty hospital moratorium, in its
final report, CMS expressed its intention to (i) revise the Medicare Payment system to
address incentives to physician investors; (ii) require disclosure of physician investment
and compensation arrangements; (iii) continue to enforce the fraud and abuse laws; and (iv)
continue to enforce prior violations of the MMA moratorium. We intend to use our good faith
efforts to structure our lease arrangements to comply with these laws; however, if we are
unable to do so, this failure may restrict our ability to permit physician investment or,
where such physicians do participate, may restrict the types of lease arrangements into
which we may enter, including our ability to enter into percentage rent arrangements.
State certificate of need laws may adversely affect our development of facilities and
the operations of our tenants.
Certain healthcare facilities in which we invest may also be subject to state laws
which require regulatory approval in the form of a certificate of need prior to initiation
of certain projects, including, but not limited to, the establishment of new or replacement
facilities, the addition of beds, the addition or expansion of services and certain capital
expenditures. State certificate of need laws are not uniform throughout the United States
and are subject to change. We cannot predict the impact of state certificate of need laws
on our development of facilities or the operations of our tenants.
In addition, certificate of need laws often materially impact the ability of
competitors to enter into the marketplace of our facilities. Finally, in limited
circumstances, loss of state licensure or certification or closure of a facility could
ultimately result in loss of authority to operate the facility and require re-licensure or
new certificate of need authorization to re-institute operations. As a result, a portion of
the value of the facility may be related to the limitation on new competitors. In the event
of a change in the certificate of need laws, this value may markedly decrease.
RISKS RELATING TO OUR ORGANIZATION AND STRUCTURE
Maryland law and Medical Properties charter and bylaws contain provisions which may
prevent or deter changes in management and third-party acquisition proposals that you may
believe to be in your best interest, depress the price
of Medical Properties common stock or cause dilution.
Medical Properties charter contains ownership limitations that may restrict business
combination opportunities, inhibit change of control transactions and reduce the value of
Medical Properties common stock. To qualify as a REIT under the Internal Revenue Code of
1986, as amended, or the Code, no more than 50% in value of Medical Properties outstanding
14
stock, after taking into account options to acquire stock, may be owned, directly or
indirectly, by five or fewer persons during the last half of each taxable year. Medical
Properties charter generally prohibits direct or indirect ownership by any person of more
than 9.8% in value or in number, whichever is more restrictive, of outstanding shares of
any class or series of our securities, including Medical Properties common stock.
Generally, Medical Properties common stock owned by affiliated owners will be aggregated
for purposes of the ownership limitation. The ownership limitation could have the effect of
delaying, deterring or preventing a change in control or other transaction in which holders
of common stock might receive a premium for their common stock over the then-current market
price or which such holders otherwise might believe to be in their best interests. The
ownership limitation provisions also may make Medical Properties common stock an unsuitable
investment vehicle for any person seeking to obtain, either alone or with others as a
group, ownership of more than 9.8% of either the value or number of the outstanding shares
of Medical Properties common stock.
Medical Properties charter and bylaws contain provisions that may impede third-party
acquisition proposals that may be in your best interests. Medical Properties charter and
bylaws also provide that our directors may only be removed by the affirmative vote of the
holders of two-thirds of Medical Properties common stock, that stockholders are required to
give us advance notice of director nominations and new business to be conducted at our
annual meetings of stockholders and that special meetings of stockholders can only be
called by our president, our board of directors or the holders of at least 25% of stock
entitled to vote at the meetings. These and other charter and bylaw provisions may delay or
prevent a change of control or other transaction in which holders of Medical Properties
common stock might receive a premium for their common stock over the then-current market
price or which such holders otherwise might believe to be in their best interests.
We depend on key personnel, the loss of any one of whom may threaten our ability to
operate our business successfully.
We depend on the services of Edward K. Aldag, Jr., William G. McKenzie, Emmett E.
McLean, R. Steven Hamner and Michael G. Stewart to carry out our business and investment
strategy. If we were to lose any of these executive officers, it may be more difficult for
us to locate attractive acquisition targets, complete our acquisitions and manage the
facilities that we have acquired or are developing. Additionally, as we expand, we will
continue to need to attract and retain additional qualified officers and employees. The
loss of the services of any of our executive officers, or our inability to recruit and
retain qualified personnel in the future, could have a material adverse effect on our
business and financial results.
The vice chairman of Medical Properties board of directors, William G. McKenzie, has
other business interests that may hinder his ability to allocate sufficient time to the
management of our operations, which could jeopardize our ability to execute our business
plan.
Medical Properties employment agreement with the vice chairman of Medical Properties
board of directors, Mr. McKenzie, permits him to continue to own, operate and control
facilities that he owned as of the date of his employment agreement and requires that he
only provide a limited amount of his time per month to our company. In addition, the terms
of Mr. McKenzies employment agreement permit him to compete against us with respect to
these previously owned healthcare facilities.
Our UPREIT structure may result in conflicts of interest between Medical Properties
stockholders and the holders of our operating partnership units.
We are organized as an UPREIT, which means that we hold our assets and conduct
substantially all of our operations through an operating limited partnership, and may in
the future issue limited partnership units to third parties. Persons holding operating
partnership units would have the right to vote on certain amendments to the partnership
agreement of our operating partnership, as well as on certain other matters. Persons
holding these voting rights may exercise them in a manner that conflicts with the interests
of our stockholders. Circumstances may arise in the future, such as the sale or refinancing
of one of our facilities, when the interests of limited partners in our operating
partnership conflict with the interests of our stockholders. As the sole member of the
general partner of the operating partnership, Medical Properties has fiduciary duties to
the limited partners of the operating partnership that may conflict with fiduciary duties
Medical Properties officers and directors owe to its stockholders. These conflicts may
result in decisions that are not in your best interest.
TAX RISKS ASSOCIATED WITH OUR STATUS AS A REIT
Loss of our tax status as a REIT would have significant adverse consequences to us and
the value of Medical Properties common stock.
15
We believe that we qualify as a REIT for federal income tax purposes and have elected
to be taxed as a REIT under the federal income tax laws commencing with our taxable year
that began on April 6, 2004 and ended on December 31, 2004. The REIT qualification
requirements are extremely complex, and interpretations of the federal income tax laws
governing qualification as a REIT are limited. Accordingly, there is no assurance that we
will be successful in operating so as to qualify as a REIT. At any time, new laws,
regulations, interpretations or court decisions may change the federal tax laws relating
to, or the federal income tax consequences of, qualification as a REIT. It is possible that
future economic, market, legal, tax or other considerations may cause our board of
directors to revoke the REIT election, which it may do without stockholder approval.
If we lose or revoke our REIT status, we will face serious tax consequences that will
substantially reduce the funds available for distribution because:
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we would not be allowed a deduction for distributions to stockholders in computing our taxable income; therefore
we would be subject to federal income tax at regular corporate rates and we might need to borrow money or sell
assets in order to pay any such tax; |
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we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and |
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unless we are entitled to relief under statutory provisions, we also would be disqualified from taxation as a
REIT for the four taxable years following the year during which we ceased to qualify. |
As a result of all these factors, a failure to achieve or a loss or revocation of our
REIT status could have a material adverse effect on our financial condition and results of
operations and would adversely affect the value of our common stock.
Failure to make required distributions would subject us to tax.
In order to qualify as a REIT, each year we must distribute to our stockholders at
least 90% of our REIT taxable income, excluding net capital gain. To the extent that we
satisfy the distribution requirement, but distribute less than 100% of our taxable income,
we will be subject to federal corporate income tax on our undistributed income. In
addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our
distributions in any year are less than the sum of (1) 85% of our ordinary income for that
year; (2) 95% of our capital gain net income for that year; and (3) 100% of our
undistributed taxable income from prior years.
We may be required to make distributions to stockholders at disadvantageous times or
when we do not have funds readily available for distribution. Differences in timing between
the recognition of income and the related cash receipts or the effect of required debt
amortization payments could require us to borrow money or sell assets to pay out enough of
our taxable income to satisfy the distribution requirement and to avoid corporate income
tax and the 4% excise tax in a particular year. In the future, we may borrow to pay
distributions to our stockholders and the limited partners of our operating partnership.
Any funds that we borrow would subject us to interest rate and other market risks.
Complying with REIT requirements may cause us to forego otherwise attractive
opportunities.
To qualify as a REIT for federal income tax purposes, we must continually satisfy
tests concerning, among other things, the sources of our income, the nature and
diversification of our assets, the amounts we distribute to our stockholders and the
ownership of our stock. In order to meet these tests, we may be required to forego
attractive business or investment opportunities. Overall, no more than 20% of the value of
our assets may consist of securities of one or more taxable REIT subsidiaries, and no more
than 25% of the value of our assets may consist of securities that are not qualifying
assets under the test requiring that 75% of a REITs assets consist of real estate and
other related assets. Further, a taxable REIT subsidiary may not directly or indirectly
operate or manage a healthcare facility. For purposes of this definition a healthcare
facility means a hospital, nursing facility, assisted living facility, congregate care
facility, qualified continuing care facility, or other licensed facility which extends
medical or nursing or ancillary services to patients and which is operated by a service
provider that is eligible for participation in the Medicare program under Title XVIII of
the Social Security Act with respect to the facility. Thus, compliance with the REIT
requirements may limit our flexibility in executing our business plan.
Loans to our tenants could be recharacterized as equity, in which case our rental
income from that tenant might not be qualifying income under the REIT rules and we could
lose our REIT status.
16
In connection with the acquisition of the Vibra Facilities, our taxable REIT
subsidiary made a loan to Vibra in an aggregate amount of approximately $41.4 million to
acquire the operations at the Vibra Facilities. As of January 31, 2007, that loan has been
reduced to approximately $29.9 million. Our taxable REIT subsidiary also made a loan of
approximately $6.2 million to Vibra and its subsidiaries for working capital purposes,
which has been paid in full. The acquisition loan bears interest at an annual rate of
10.25%. Our operating partnership loaned the funds to our taxable REIT subsidiary to make
these loans. The loan from our operating partnership to our taxable REIT subsidiary bears
interest at an annual rate of 9.25%.
Our taxable REIT subsidiary has made and will make loans to tenants to acquire
operations or for other purposes. The Internal Revenue Service, or IRS, may take the
position that certain loans to tenants should be treated as equity interests rather than
debt, and that our rental income from such tenant should not be treated as qualifying
income for purposes of the REIT gross income tests. If the IRS were to successfully treat a
loan to a particular tenant as equity interests, the tenant would be a related party
tenant with respect to our company and the rent that we receive from the tenant would not
be qualifying income for purposes of the REIT gross income tests. As a result, we could
lose our REIT status. In addition, if the IRS were to successfully treat a particular loan
as interests held by our operating partnership rather than by our taxable REIT subsidiary,
we could fail the 5% asset test, and if the IRS further successfully treated the loan as
other than straight debt, we could fail the 10% asset test with respect to such interest.
As a result of the failure of either test, could lose our REIT status, which would subject
us to corporate level income tax and adversely affect our ability to make distributions to
our stockholders.
RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK
The market price and trading volume of our common stock may be volatile.
The market price of our common stock may be highly volatile and be subject to wide
fluctuations. In addition, the trading volume in our common stock may fluctuate and cause
significant price variations to occur. If the market price of our common stock declines
significantly, you may be unable to resell your shares at or above your purchase price.
We cannot assure you that the market price of our common stock will not fluctuate or
decline significantly in the future. Some of the factors that could negatively affect our
share price or result in fluctuations in the price or trading volume of our common stock
include:
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actual or anticipated variations in our quarterly operating results or distributions; |
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changes in our funds from operations or earnings estimates or publication of research reports about us or the
real estate industry |
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increases in market interest rates that lead purchasers of our shares of common stock to demand a higher yield; |
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changes in market valuations of similar companies; |
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adverse market reaction to any increased indebtedness we incur in the future; |
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additions or departures of key management personnel; |
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actions by institutional stockholders; |
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local conditions such as an oversupply of, or a reduction in demand for, rehabilitation hospitals, long-term
acute care hospitals, ambulatory surgery centers, medical office buildings, specialty hospitals, skilled
nursing facilities, regional and community hospitals, womens and childrens hospitals and other
single-discipline facilities; |
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speculation in the press or investment community; and |
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general market and economic conditions. |
Future sales of common stock may have adverse effects on our stock price.
We cannot predict the effect, if any, of future sales of common stock, or the
availability of shares for future sales, on the market price of our common stock. Sales of
substantial amounts of common stock, or the perception that these sales could occur, may
adversely affect prevailing market prices for our common stock. We may issue from time to
time additional
17
common stock or units of our operating partnership in connection with the
acquisition of facilities and we may grant additional demand or piggyback registration
rights in connection with these issuances. Sales of substantial amounts of common stock or
the perception that these sales could occur may adversely effect the prevailing market
price for our common stock. In addition, the sale of these shares could impair our ability
to raise capital through a sale of additional equity securities.
An increase in market interest rates may have an adverse effect on the market price of
our securities.
One of the factors that investors may consider in deciding whether to buy or sell our
securities is our distribution rate as a percentage of our price per share of common stock,
relative to market interest rates. If market interest rates increase, prospective investors
may desire a higher distribution or interest rate on our securities or seek securities
paying higher distributions or interest. The market price of our common stock likely will
be based primarily on the earnings that we derive from rental income with respect to our
facilities and our related distributions to stockholders, and not from the underlying
appraised value of the facilities themselves. As a result, interest rate fluctuations and
capital market conditions can affect the market price of our common stock. In addition,
rising interest rates would result in increased interest expense on our variable-rate debt,
thereby adversely affecting cash flow and our ability to service our indebtedness and make
distributions.
USE OF PROCEEDS
We will not receive any of the proceeds from the resale of shares of our common stock from
time to time by such selling stockholders.
The selling stockholders will pay any underwriting discounts and commissions and expenses they
incur for brokerage, accounting, tax or legal services or any other expenses they incur in
disposing of the shares. We will bear all other costs, fees and expenses incurred in effecting the
registration of the shares covered by this prospectus. These may include, without limitation, all
registration and filing fees, NYSE listing fees, fees and expenses of our counsel and accountants,
and blue sky fees and expenses.
SELLING STOCKHOLDERS
The 6.125% Exchangeable Senior Notes due 2011 were originally issued by MPT Operating
Partnership, L.P. and sold by the initial purchasers of the notes in transactions exempt from the
registration requirements of the Securities Act to persons reasonably believed by the initial
purchasers to be qualified institutional buyers as defined by Rule 144A under the Securities Act.
Under certain circumstances, we may issue shares of our common stock upon the exchange or
redemption of the notes. In such circumstances, the recipients of shares of our common stock, whom
we refer to as the selling stockholders, may use this prospectus to resell from time to time the
shares of our common stock that we may issue to them upon the exchange or redemption of the notes.
Information about selling stockholders is set forth herein and information about additional selling
stockholders may be set forth in a prospectus supplement, in a post-effective amendment, or in
filings we make with the Securities and Exchange Commission under the Exchange Act which are
incorporated by reference in this prospectus.
Selling stockholders, including their transferees, pledgees or donees or their successors, may
from time to time offer and sell pursuant to this prospectus and any accompanying prospectus
supplement any or all of the shares of our common stock which we may issue upon the exchange or
redemption of the notes.
The following table sets forth information, as of March 5, 2007, with respect to the selling
stockholders and the number of shares of our common stock that would become beneficially owned by
each stockholder should we issue our common stock to such selling stockholder that may be offered
pursuant to this prospectus upon the exchange or redemption of the notes. The information is based
on information provided by or on behalf of the selling stockholders. The selling stockholders may
offer all, some or none of the shares of our common stock which we may issue upon the exchange or
redemption of the notes. Because the selling stockholders may offer all or some portion of such
shares of our common stock, we cannot estimate the number of shares of our common stock that will
be held by the selling stockholders upon termination of any of these sales. In addition, the
selling stockholders identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes or shares of our common stock since the date on which they provided the
information regarding their notes in transactions exempt from the registration requirements of the
Securities Act.
The number of shares of our common stock issuable upon the exchange or redemption of the notes shown in the table below assumes
exchange of the full amount of notes held by each selling stockholder
at the initial exchange rate of 60.3346 shares of our common stock per $1,000 principal amount of the notes and a cash payment in lieu of any fractional share. The exchange rate is subject to
adjustment in certain events. In addition, the terms of the notes
provide for net-share settlement whereby the principal amount of any
notes duly tendered for exchange will be paid in cash and we may
choose to pay the excess of any outstanding amounts due in shares of
our common stock. Accordingly, the number of shares of
our common stock issuable upon the
exchange or redemption of the
18
notes may
increase or decrease from time to time and the number of shares
actually issued upon settlement may differ from the amounts set forth
below. The number of shares of our common stock owned by the other selling stockholders or any future transferee from
any such holder assumes that they do not beneficially own any shares of common stock other than the
common stock that we may issue to them upon the exchange or redemption of the notes.
Based upon information provided by the selling stockholders, none of the selling stockholders
nor any of their affiliates, officers, directors or principal equity holders has held any positions
or office or has had any material relationship with us within the past three years, with the
exception of UBS Securities LLC and JP Morgan Securities, which acted as an initial purchasers in
the original issuance of the notes in November 2006 and has performed investment banking,
commercial banking and advisory services for us and our affiliates in the ordinary course of
business, including in connection with our follow-on common stock offering in February 2007.
To the extent any of the selling stockholders identified below are broker-dealers, they may be
deemed to be, under interpretations of the staff of the Securities and Exchange Commission,
underwriters within the meaning of the Securities Act.
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Maximum |
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Number of |
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Beneficial Ownership |
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Number of |
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Shares of |
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After Resale of Shares |
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Shares of |
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Common Stock |
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of Common Stock (1) |
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Common Stock |
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Offered by This |
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Number of |
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Beneficially |
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Prospectus for |
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Shares of |
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Selling Stockholder |
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Owned |
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Resale |
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Common Stock |
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Percentage (2) |
Akanthos Arbitrage Master Fund, L.P. |
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603,346 |
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603,346 |
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Bear,
Stearns & Co. Inc. |
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331,840 |
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331,840 |
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CBARB, a Segregated account of Geode
Capital Master Fund Ltd. |
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497,760 |
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497,760 |
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CNH CA Master Account, L.P. |
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60,335 |
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60,335 |
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Fore Convertible Master Fund, Ltd. |
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40,847 |
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40,847 |
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Fore Erisa Fund, Ltd. |
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4,404 |
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4,404 |
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Fore Multi Strategy Master Fund, Ltd. |
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8,206 |
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8,206 |
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Highbridge Convertible Master Fund LP |
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181,004 |
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181,004 |
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Highbridge International LLC |
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603,346 |
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603,346 |
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Institutional Benchmark Series
(Master Feeder) Limited in Respect of
Electra Series c/o Quattro Fund |
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40,123 |
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40,123 |
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JP Morgan Securities |
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693,848 |
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693,848 |
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Linden Capital |
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362,008 |
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362,008 |
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Man Mac 1, Ltd. |
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6,878 |
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6,878 |
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Partner Group Alternative Strategies
PCC Limited, Red Delta Cell c/o Quattro
Fund |
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57,318 |
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57,318 |
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Quattro Fund Ltd. |
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435,616 |
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435,616 |
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Quattro Multistrategy Masterfund LP |
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40,123 |
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40,123 |
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UBS Securities LLC |
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301,673 |
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301,673 |
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Vicis Capital |
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437,426 |
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437,426 |
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All other holders of notes or future
transferees of such holders (3) |
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3,620,074 |
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3,620,074 |
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Total: |
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8,326,175 |
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8,326,175 |
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(1) |
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Assumes that each named selling stockholder sells all of the shares of our
common stock that it holds that are covered by this prospectus and neither
acquires nor disposes of any other shares of common stock, or right to
purchase other shares of common stock subsequent to the date as of which
it provided information to us regarding its holdings. Because the selling
stockholders are not obligated to sell all or any portion of the shares of
our common stock shown as offered by them, we cannot estimate the actual
number of shares of our common stock that will be held by any selling
stockholder upon completion of this offering. |
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Based on 49,195,564 shares of common stock outstanding as of March 5, 2007.
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(3) |
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Information about other selling stockholder will be set forth in one or
more prospectus supplements or amendments, if required. Assumes that any
other holder of notes or any future transferee of any such holder does not
beneficially own any of our common shares other than the common
shares issuable upon exchange of the notes at the initial exchange rate. |
19
DESCRIPTION OF CAPITAL STOCK
The following summary of the material provisions of our capital stock is subject to and
qualified in its entirety by reference to the Maryland General Corporation Law, or MGCL, and our
charter and bylaws. Copies of our charter and bylaws are on file with the SEC. We recommend that
you review these documents. See Where You Can Find More Information.
Authorized Stock
Our charter authorizes us to issue up to 100,000,000 shares of common stock, par value $.001
per share, and 10,000,000 shares of preferred stock, par value $.001 per share. As of the date of
this prospectus, we have 49,195,564 shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding. Our charter authorizes our board of directors to increase
the aggregate number of authorized shares or the number of shares of any class or series without
stockholder approval. The 49,195,564 shares of our common stock excludes:
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100,000 shares reserved for issuance upon exercise of stock options outstanding as of March 5, 2007; and |
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52,171 shares reserved for issuance upon the maturity of vested deferred stock units outstanding at March 5, 2007. |
Under Maryland law, stockholders generally are not liable for the corporations debts or
obligations.
Common Stock
All shares of our common stock offered hereby have been duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or series of stock and to the
provisions of our charter regarding the restrictions on transfer of stock, holders of shares of our
common stock are entitled to receive dividends on such stock when, as and if authorized by our
board of directors out of funds legally available therefor and declared by us and to share ratably
in the assets of our company legally available for distribution to our stockholders in the event of
our liquidation, dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of our company, including the preferential rights on dissolution of any class
or classes of preferred stock.
Subject to the provisions of our charter regarding the restrictions on transfer of stock, each
outstanding share of our common stock entitles the holder to one vote on all matters submitted to a
vote of stockholders, including the election of directors and, except as provided with respect to
any other class or series of stock, the holders of such shares will possess the exclusive voting
power. There is no cumulative voting in the election of our board of directors. Our directors are
elected by a plurality of the votes cast at a meeting of stockholders at which a quorum is present.
Holders of shares of our common stock have no preference, conversion, exchange, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for any securities of our
company. Subject to the provisions of our charter regarding the restrictions on transfer of stock,
shares of our common stock will have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge,
consolidate, sell all or substantially all of its assets, engage in a share exchange or engage in
similar transactions outside of the ordinary course of business unless approved by the
corporations board of directors and by the affirmative vote of stockholders holding at least
two-thirds of the shares entitled to vote on the matter unless a lesser percentage (but not less
than a majority of all of the votes entitled to be cast on the matter) is set forth in the
corporations charter. Our charter does not provide for a lesser percentage for these matters.
However, Maryland law permits a corporation to transfer all or substantially all of its assets
without the approval of the stockholders of the corporation to one or more persons if all of the
equity interests of the person or persons are owned, directly or indirectly, by the corporation.
Because operating assets may be held by a corporations subsidiaries, as in our situation, this may
mean that a subsidiary of a corporation can transfer all of its assets without a vote of the
corporations stockholders.
Our charter authorizes our board of directors to reclassify any unissued shares of our common
stock into other classes or series of classes of stock and to establish the number of shares in
each class or series and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
Preferred Stock
Our charter authorizes our board of directors to classify any unissued shares of preferred
stock and to reclassify any previously classified but unissued shares of any series. Prior to
issuance of shares of each series, our board of directors is required by the MGCL and our charter
to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations
as to
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dividends or other distributions, qualifications and terms and conditions of redemption for
each such series. Thus, our board of directors could authorize the issuance of shares of preferred
stock with terms and conditions which could have the effect of delaying, deferring or preventing a
change of control transaction that might involve a premium price for holders of our common stock or
which holders might believe to otherwise be in their best interest. As of the date hereof, no
shares of preferred stock are outstanding, and we have no current plans to issue any preferred
stock.
Power to Increase Authorized Stock and Issue Additional Shares of Our Common Stock and Preferred
Stock
We believe that the power of our board of directors, without stockholder approval, to increase
the number of authorized shares of stock, issue additional authorized but unissued shares of our
common stock or preferred stock and to classify or reclassify unissued shares of our common stock
or preferred stock and thereafter to cause us to issue such classified or reclassified shares of
stock will provide us with flexibility in structuring possible future financings and acquisitions
and in meeting other needs which might arise. The additional classes or series, as well as the
common stock, will be available for issuance without further action by our stockholders, unless
stockholder consent is required by applicable law or the rules of any national securities exchange
or automated quotation system on which our securities may be listed or traded.
Restrictions on Ownership and Transfer
In order for us to qualify as a REIT under the Code, not more than 50% of the value of the
outstanding shares of our stock may be owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) during the last half of a taxable
year (other than the first year for which an election to be a REIT has been made by us). In
addition, if we, or one or more owners (actually or constructively) of 10% or more of our stock,
actually or constructively owns 10% or more of a tenant of ours (or a tenant of any partnership in
which we are a partner), the rent received by us (either directly or through any such partnership)
from such tenant will not be qualifying income for purposes of the REIT gross income tests of the
Code. Our stock must also be beneficially owned by 100 or more persons during at least 335 days of
a taxable year of 12 months or during a proportionate part of a shorter taxable year (other than
the first year for which an election to be a REIT has been made by us).
Our charter contains restrictions on the ownership and transfer of our capital stock that are
intended to assist us in complying with these requirements and continuing to qualify as a REIT. The
relevant sections of our charter provide that, effective upon completion of our initial public
offering and subject to the exceptions described below, no person or persons acting as a group may
own, or be deemed to own by virtue of the attribution provisions of the Code, more than (i) 9.8% of
the number or value, whichever is more restrictive, of the outstanding shares of our common stock
or (ii) 9.8% of the number or value, whichever is more restrictive, of the issued and outstanding
preferred or other shares of any class or series of our stock. We refer to this restriction as the
ownership limit. The ownership limit in our charter is more restrictive than the restrictions on
ownership of our common stock imposed by the Code.
The ownership attribution rules under the Code are complex and may cause stock owned actually
or constructively by a group of related individuals or entities to be owned constructively by one
individual or entity. As a result, the acquisition of less than 9.8% of our common stock (or the
acquisition of an interest in an entity that owns, actually or constructively, our common stock) by
an individual or entity could nevertheless cause that individual or entity, or another individual
or entity, to own constructively in excess of 9.8% of our outstanding common stock and thereby
subject the common stock to the ownership limit.
Our board of directors may, in its sole discretion, waive the ownership limit with respect to
one or more stockholders if it determines that such ownership will not jeopardize our status as a
REIT (for example, by causing any tenant of ours to be considered a related party tenant for
purposes of the REIT qualification rules).
As a condition of our waiver, our board of directors may require an opinion of counsel or IRS
ruling satisfactory to our board of directors and representations or undertakings from the
applicant with respect to preserving our REIT status.
In connection with the waiver of the ownership limit or at any other time, our board of
directors may decrease the ownership limit for all other persons and entities; provided, however,
that the decreased ownership limit will not be effective for any person or entity whose percentage
ownership in our capital stock is in excess of such decreased ownership limit until such time as
such person or entitys percentage of our capital stock equals or falls below the decreased
ownership limit, but any further acquisition of our capital stock in excess of such percentage
ownership of our capital stock will be in violation of the ownership limit. Additionally, the new
ownership limit may not allow five or fewer individuals (as defined for purposes of the REIT
ownership restrictions under the Code) to beneficially own more than 49.5% of the value of our
outstanding capital stock.
Our charter generally prohibits:
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any person from actually or constructively owning shares of our capital stock that
would result in us being closely held
under Section 856(h) of the Code; and |
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any person from transferring shares of our capital stock if such transfer would
result in shares of our stock being beneficially owned by fewer than 100 persons
(determined without reference to any rules of attribution). |
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership
of shares of our common stock that will or may violate any of the foregoing restrictions on
transferability and ownership will be required to give notice immediately to us and provide us with
such other information as we may request in order to determine the effect of such transfer on our
status as a REIT. The foregoing provisions on transferability and ownership will not apply if our
board of directors determines that it is no longer in our best interests to attempt to qualify, or
to continue to qualify, as a REIT.
Pursuant to our charter, if any purported transfer of our capital stock or any other event
would otherwise result in any person violating the ownership limit or the other restrictions in our
charter, then any such purported transfer will be void and of no force or effect with respect to
the purported transferee or owner (collectively referred to hereinafter as the purported owner)
as to that number of shares in excess of the ownership limit (rounded up to the nearest whole
share). The number of shares in excess of the ownership limit will be automatically transferred to,
and held by, a trust for the exclusive benefit of one or more charitable organizations selected by
us. The trustee of the trust will be designated by us and must be unaffiliated with us and with any
purported owner. The automatic transfer will be effective as of the close of business on the
business day prior to the date of the violative transfer or other event that results in a transfer
to the trust. Any dividend or other distribution paid to the purported owner, prior to our
discovery that the shares had been automatically transferred to a trust as described above, must be
repaid to the trustee upon demand for distribution to the beneficiary of the trust and all
dividends and other distributions paid by us with respect to such excess shares prior to the sale
by the trustee of such shares shall be paid to the trustee for the beneficiary. If the transfer to
the trust as described above is not automatically effective, for any reason, to prevent violation
of the applicable ownership limit, then our charter provides that the transfer of the excess shares
will be void. Subject to Maryland law, effective as of the date that such excess shares have been
transferred to the trust, the trustee shall have the authority (at the trustees sole discretion
and subject to applicable law) (i) to rescind as void any vote cast by a purported owner prior to
our discovery that such shares have been transferred to the trust and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust,
provided that if we have already taken irreversible action, then the trustee shall not have the
authority to rescind and recast such vote.
Shares of our capital stock transferred to the trustee are deemed offered for sale to us, or
our designee, at a price per share equal to the lesser of (i) the price paid by the purported owner
for the shares (or, if the event which resulted in the transfer to the trust did not involve a
purchase of such shares of our capital stock at market price, the market price on the day of the
event which resulted in the transfer of such shares of our capital stock to the trust) and (ii) the
market price on the date we, or our designee, accepts such offer. We have the right to accept such
offer until the trustee has sold the shares of our capital stock held in the trust pursuant to the
provisions discussed below. Upon a sale to us, the interest of the charitable beneficiary in the
shares sold terminates and the trustee must distribute the net proceeds of the sale to the
purported owner and any dividends or other distributions held by the trustee with respect to such
capital stock will be paid to the charitable beneficiary.
If we do not buy the shares, the trustee must, within 20 days of receiving notice from us of
the transfer of shares to the trust, sell the shares to a person or entity designated by the
trustee who could own the shares without violating the ownership limit. After that, the trustee
must distribute to the purported owner an amount equal to the lesser of (i) the net price paid by
the purported owner for the shares (or, if the event which resulted in the transfer to the trust
did not involve a purchase of such shares at market price, the market price on the day of the event
which resulted in the transfer of such shares of our capital stock to the trust) and (ii) the net
sales proceeds received by the trust for the shares. Any proceeds in excess of the amount
distributable to the purported owner will be distributed to the beneficiary.
All persons who own, directly or by virtue of the attribution provisions of the Code, more
than 5% (or such other percentage as provided in the regulations promulgated under the Code) of the
lesser of the number or value of the shares of our outstanding capital stock must give written
notice to us within 30 days after the end of each calendar year. In addition, each stockholder
will, upon demand, be required to disclose to us in writing such information with respect to the
direct, indirect and constructive ownership of shares of our stock as our board of directors deems
reasonably necessary to comply with the provisions of the Code applicable to a REIT, to comply with
the requirements of any taxing authority or governmental agency or to determine any such
compliance.
All certificates representing shares of our capital stock will bear a legend referring to the
restrictions described above.
These ownership limits could delay, defer or prevent a transaction or a change of control of
our company that might involve a premium price over the then prevailing market price for the
holders of some, or a majority, of our outstanding shares of common stock or which such holders
might believe to be otherwise in their best interest.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer and Trust Co.
PARTNERSHIP AGREEMENT
The following is a summary of the material terms of the first amended and restated agreement
of limited partnership of our operating partnership. This summary is subject to and qualified in
its entirety by reference to the first amended and restated agreement of limited partnership of our
operating partnership, a copy of which is on file with the SEC. See Where You Can Find More
Information.
Management of Our Operating Partnership
MPT Operating Partnership, L.P., our operating partnership, was organized as a Delaware
limited partnership on September 10, 2003. The initial partnership agreement was entered into on
that date and amended and restated on March 1, 2004. Pursuant to the partnership agreement, as the
owner of the sole general partner of the operating partnership, Medical Properties Trust, LLC, we
have, subject to certain protective rights of limited partners described below, full, exclusive and
complete responsibility and discretion in the management and control of the operating partnership.
We have the power to cause the operating partnership to enter into certain major transactions,
including acquisitions, dispositions, refinancings and selection of tenants, and to cause changes
in the operating partnerships line of business and distribution policies. However, any amendment
to the partnership agreement that would affect the redemption rights of the limited partners or
otherwise adversely affect the rights of the limited partners requires the consent of limited
partners, other than us, holding more than 50% of the units of our operating partnership held by
such partners.
Transferability of Interests
We may not voluntarily withdraw from the operating partnership or transfer or assign our
interest in the operating partnership or engage in any merger, consolidation or other combination,
or sale of substantially all of our assets, in a transaction which results in a change of control
of our company unless:
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we receive the consent of limited partners holding more than 50% of the partnership
interests of the limited partners, other than those held by our company or its
subsidiaries; |
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as a result of such transaction, all limited partners will have the right to receive
for each partnership unit an amount of cash, securities or other property equal in value
to the greatest amount of cash, securities or other property paid in the transaction to
a holder of one share of our common stock, provided that if, in connection with the
transaction, a purchase, tender or exchange offer shall have been made to and accepted
by the holders of more than 50% of the outstanding shares of our common stock, each
holder of partnership units shall be given the option to exchange its partnership units
for the greatest amount of cash, securities or other property that a limited partner
would have received had it (i) exercised its redemption right (described below) and (ii)
sold, tendered or exchanged pursuant to the offer shares of our common stock received
upon exercise of the redemption right immediately prior to the expiration of the offer;
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we are the surviving entity in the transaction and either (i) our stockholders do not
receive cash, securities or other property in the transaction or (ii) all limited
partners receive for each partnership unit an amount of cash, securities or other
property having a value that is no less than the greatest amount of cash, securities or
other property received in the transaction by our stockholders. |
We also may merge with or into or consolidate with another entity if immediately after such
merger or consolidation (i) substantially all of the assets of the successor or surviving entity,
other than partnership units held by us, are contributed, directly or indirectly, to the
partnership as a capital contribution in exchange for partnership units with a fair market value
equal to the value of the assets so contributed as determined by the survivor in good faith and
(ii) the survivor expressly agrees to assume all of our obligations under the partnership agreement
and the partnership agreement shall be amended after any such merger or consolidation so as to
arrive at a new method of calculating the amounts payable upon exercise of the redemption right
that approximates the existing method for such calculation as closely as reasonably possible.
We also may (i) transfer all or any portion of our general partnership interest to (A) a
wholly-owned subsidiary or (B) a parent company, and following such transfer may withdraw as
general partner and (ii) engage in a transaction required by law or by the rules of any national
securities exchange or automated quotation system on which our securities may be listed or traded.
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Capital Contribution
We contributed to our operating partnership substantially all the net proceeds of our April
2004 private placement and our July 2005 initial public offering as a capital contribution in
exchange for units of the operating partnership. The partnership agreement provides that if the
operating partnership requires additional funds at any time in excess of funds available to the
operating partnership from borrowing or capital contributions, we may borrow such funds from a
financial institution or other lender and lend such funds to the operating partnership on the same
terms and conditions as are applicable to our borrowing of such funds. Under the partnership
agreement, we are obligated to contribute the proceeds of any offering of shares of our companys
stock as additional capital to the operating partnership. We are authorized to cause the operating
partnership to issue partnership interests for less than fair market value if we have concluded in
good faith that such issuance is in both the operating partnerships and our best interests. If we
contribute additional capital to the operating partnership, we will receive additional partnership
units and our percentage interest will be increased on a proportionate basis based upon the amount
of such additional capital contributions and the value of the operating partnership at the time of
such contributions. Conversely, the percentage interests of the limited partners will be decreased
on a proportionate basis in the event of additional capital contributions by us. In addition, if we
contribute additional capital to the operating partnership, we will revalue the property of the
operating partnership to its fair market value, as determined by us, and the capital accounts of
the partners will be adjusted to reflect the manner in which the unrealized gain or loss inherent
in such property, that has not been reflected in the capital accounts previously, would be
allocated among the partners under the terms of the partnership agreement if there were a taxable
disposition of such property for its fair market value, as determined by us, on the date of the
revaluation. The operating partnership may issue preferred partnership interests, in connection
with acquisitions of property or otherwise, which could have priority over common partnership
interests with respect to distributions from the operating partnership, including the partnership
interests that our wholly-owned subsidiary owns as general partner.
Redemption Rights
Pursuant to Section 8.04 of the partnership agreement, the limited partners, other than us,
will receive redemption rights, which will enable them to cause the operating partnership to redeem
their limited partnership units in exchange for cash or, at our option, shares of our common stock
on a one-for-one basis, subject to adjustment for stock splits, dividends, recapitalization and
similar events. Currently, we own 100% of the issued limited partnership units of our operating
partnership. Under Section 8.04 of our partnership agreement, holders of limited partnership units
will be prohibited from exercising their redemption rights for 12 months after they are issued,
unless this waiting period is waived or shortened by our board of directors. Notwithstanding the
foregoing, a limited partner will not be entitled to exercise its redemption rights if the delivery
of common stock to the redeeming limited partner would:
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result in any person owning, directly or indirectly, common stock in excess of the
stock ownership limit in our charter; |
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result in our shares of stock being owned by fewer than 100 persons (determined
without reference to any rules of attribution); |
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cause us to own, actually or constructively, 10% or more of the ownership interests
in a tenant of our or the partnerships real property, within the meaning of Section
856(d)(2)(B) of the Code; or |
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cause the acquisition of common stock by such redeeming limited partner to be
integrated with any other distribution of common stock for purposes of complying with
the registration provisions of the Securities Act. |
We may, in our sole and absolute discretion, waive any of these restrictions.
With respect to the partnership units issuable in connection with the acquisition or
development of our facilities, the redemption rights may be exercised by the limited partners at
any time after the first anniversary of our acquisition of these facilities; provided, however,
unless we otherwise agree:
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a limited partner may not exercise the redemption right for fewer than 1,000
partnership units or, if such limited partner holds fewer than 1,000 partnership units,
the limited partner must redeem all of the partnership units held by such limited
partner; |
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a limited partner may not exercise the redemption right for more than the number of
partnership units that would, upon redemption, result in such limited partner or any
other person owning, directly or indirectly, common stock in excess of the ownership
limitation in our charter; and |
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a limited partner may not exercise the redemption right more than two times annually. |
We currently hold all the outstanding interests in our operating partnership and, accordingly,
there are currently no units of our operating partnership subject to being redeemed in exchange for
shares of our common stock. The number of shares of common stock issuable upon exercise of the
redemption rights will be adjusted to account for stock splits, mergers, consolidations or similar
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pro rata stock transactions.
The partnership agreement requires that the operating partnership be operated in a manner that
enables us to satisfy the requirements for being classified as a REIT, to avoid any federal income
or excise tax liability imposed by the Code (other than any federal income tax liability associated
with our retained capital gains) and to ensure that the partnership will not be classified as a
publicly traded partnership taxable as a corporation under Section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred by the operating
partnership, the operating partnership generally will pay all of our administrative costs and
expenses, including:
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all expenses relating to our continuity of existence; |
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all expenses relating to offerings and registration of securities; |
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all expenses associated with the preparation and filing of any of our periodic
reports under federal, state or local laws or regulations; |
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all expenses associated with our compliance with laws, rules and regulations
promulgated by any regulatory body; and |
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all of our other operating or administrative costs incurred in the ordinary course of
business on behalf of the operating partnership. |
Distributions
The partnership agreement provides that the operating partnership will distribute cash from
operations, including net sale or refinancing proceeds, but excluding net proceeds from the sale of
the operating partnerships property in connection with the liquidation of the operating
partnership, at such time and in such amounts as determined by us in our sole discretion, to us and
the limited partners in accordance with their respective percentage interests in the operating
partnership.
Upon liquidation of the operating partnership, after payment of, or adequate provision for,
debts and obligations of the partnership, including any partner loans, any remaining assets of the
partnership will be distributed to us and the limited partners with positive capital accounts in
accordance with their respective positive capital account balances.
Allocations
Profits and losses of the partnership, including depreciation and amortization deductions, for
each fiscal year generally are allocated to us and the limited partners in accordance with the
respective percentage interests in the partnership. All of the foregoing allocations are subject to
compliance with the provisions of Sections 704(b) and 704(c) of the Code and Treasury regulations
promulgated thereunder. The operating partnership expects to use the traditional method under
Section 704(c) of the Code for allocating items with respect to contributed property acquired in
connection with the offering for which the fair market value differs from the adjusted tax basis at
the time of contribution.
Term
The operating partnership will have perpetual existence, or until sooner dissolved upon:
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our bankruptcy, dissolution, removal or withdrawal, unless the limited partners elect to continue the partnership; |
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the passage of 90 days after the sale or other disposition of all or substantially all the assets of the partnership; or |
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an election by us in our capacity as the owner of the sole general partner of the operating partnership. |
Tax Matters
Pursuant to the partnership agreement, the general partner is the tax matters partner of the
operating partnership. Accordingly, through our ownership of the general partner of the operating
partnership, we have authority to handle tax audits and to make tax elections under the Code on
behalf of the operating partnership.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the current material federal income tax consequences to
our company and to our stockholders generally resulting from the treatment of our company
as a REIT. Because this section is a general summary, it does not address all of the
potential tax issues that may be relevant to you in light of your particular circumstances.
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., or Baker Donelson, has acted as our
counsel, has reviewed this summary, and is of the opinion that the discussion contained
herein fairly summarizes the federal income tax consequences that are material to a holder
of shares of our common stock. The discussion does not address all aspects of taxation that
may be relevant to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders that are subject to special treatment
under the federal income tax laws, such as insurance companies, tax-exempt organizations
(except to the limited extent discussed in Taxation of Tax-Exempt Stockholders),
financial institutions or broker-dealers, and non-United States individuals and foreign
corporations (except to the limited extent discussed in Taxation of Non-United States
Stockholders).
The statements in this section of the opinion of Baker Donelson, referred to as
the Tax Opinion, are based on the current federal income tax laws governing qualification
as a REIT. We cannot assure you that new laws, interpretations of law or court decisions,
any of which may take effect retroactively, will not cause any statement in this section to
be inaccurate. You should be aware that opinions of counsel are not binding on the IRS, and
no assurance can be given that the IRS will not challenge the conclusions set forth in
those opinions.
This section is not a substitute for careful tax planning. We urge you to consult
your own tax advisors regarding the specific federal state, local, foreign and other tax
consequences to you, in the light of your own particular circumstances, of the purchase,
ownership and disposition of shares of our common stock, our election to be taxed as a REIT
and the effect of potential changes in applicable tax laws.
Taxation of Our Company
We were previously taxed as a subchapter S corporation. We revoked our subchapter
S election on April 6, 2004 and we have elected to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with our taxable year that began on April 6, 2004 and
ended on December 31, 2004. In connection with this offering, our REIT counsel, Baker,
Donelson, Bearman, Caldwell & Berkowitz, P.C., or Baker Donelson, has opined that, for
federal income tax purposes, we are and have been organized in conformity with the
requirements for qualification to be taxed as a REIT under the Code commencing with our
initial short taxable year ended December 31, 2004, and that our current and proposed
method of operations as described in this prospectus and as represented to our counsel by
us satisfies currently, and will enable us to continue to satisfy in the future, the
requirements for such qualification and taxation as a REIT under the Code for future
taxable years. This opinion, however, is based upon factual assumptions and representations
made by us.
We believe that our proposed future method of operation will enable us to
continue to qualify as a REIT. However, no assurances can be given that our beliefs or
expectations will be fulfilled, as such qualification and taxation as a REIT depends upon
our ability to meet, for each taxable year, various tests imposed under the Code as
discussed below. Those qualification tests involve the percentage of income that we earn
from specified sources, the percentage of our assets that falls within specified
categories, the diversity of our stock ownership, and the percentage of our earnings that
we distribute. Baker Donelson will not review our compliance with those tests on a
continuing basis. Accordingly, with respect to our current and future taxable years, no
assurance can be given that the actual results of our operation will satisfy such
requirements. For a discussion of the tax consequences of our failure to maintain our
qualification as a REIT, see Failure to Qualify.
The sections of the Code relating to qualification and operation as a REIT, and
the federal income taxation of a REIT and its stockholders, are highly technical and
complex. The following discussion sets forth only the material aspects of those sections.
This summary is qualified in its entirety by the applicable Code provisions and the related
rules and regulations.
We generally will not be subject to federal income tax on the taxable income that we
distribute to our stockholders. The benefit of that tax treatment is that it avoids the
double taxation, or taxation at both the corporate and stockholder levels, that generally
results from owning stock in a corporation. However, we will be subject to federal tax in
the following circumstances:
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We are subject to the corporate federal income tax on taxable income, including net
capital gain, that we do not |
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distribute to stockholders during, or within a specified
time period after, the calendar year in which the income is earned. |
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We are subject to the corporate alternative minimum tax on any items of tax preference
that we do not distribute or allocate to stockholders. |
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We are subject to tax, at the highest corporate rate, on: |
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net gain from the sale or other disposition of
property acquired through foreclosure (foreclosure
property) that we hold primarily for sale to
customers in the ordinary course of business, and |
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other non-qualifying income from foreclosure property. |
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We are subject to a 100% tax on net income from sales or other dispositions of property,
other than foreclosure property, that we hold primarily for sale to customers in the
ordinary course of business. |
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If we fail to satisfy the 75% gross income test or the 95% gross income test, as
described below under Requirements for Qualification Gross Income Tests, but
nonetheless continue to qualify as a REIT because we meet other requirements, we will be
subject to a 100% tax on: |
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the greater of (1) the amount by which we fail the
75% gross income test, or (2) the amount by which we
fail the 95% gross income test (or for our taxable
year ended December 31, 2004, the excess of 90% of
our gross income over the amount of gross income
attributable to sources that qualify under the 95%
gross income test), multiplied by |
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a fraction intended to reflect our profitability. |
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If we fail to distribute during a calendar year at least the sum of: (1) 85% of our REIT
ordinary income for the year, (2) 95% of our REIT capital gain net income for the year
and (3) any undistributed taxable income from earlier periods, then we will be subject
to a 4% excise tax on the excess of the required distribution over the amount we
actually distributed. |
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If we fail to satisfy one or more requirements for REIT qualification during a taxable
year beginning on or after January 1, 2005, other than a gross income test or an asset
test, we will be required to pay a penalty of $50,000 for each such failure. |
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We may elect to retain and pay income tax on our net long-term capital gain. In that
case, a United States stockholder would be taxed on its proportionate share of our
undistributed long-term capital gain (to the extent that we make a timely designation of
such gain to the stockholder) and would receive a credit or refund for its proportionate
share of the tax we paid. |
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We may be subject to a 100% excise tax on certain transactions with a taxable REIT
subsidiary that are not conducted at arms-length. |
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If we acquire any asset from a C corporation (that is, a corporation generally subject
to the full corporate-level tax) in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset in the hands of the C
corporation, and we recognize gain on the disposition of the asset during the 10 year
period beginning on the date that we acquired the asset, then the assets built-in
gain will be subject to tax at the highest corporate rate. |
Requirements for Qualification
To continue to qualify as a REIT, we must meet various (1) organizational
requirements, (2) gross income tests, (3) asset tests, and (4) annual distribution
requirements.
Organizational Requirements. A REIT is a corporation, trust or association that
meets each of the following requirements:
(1) it is managed by one or more trustees or directors;
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(2) its beneficial ownership is evidenced by transferable stock, or by
transferable certificates of beneficial interest;
(3) it would be taxable as a domestic corporation, but for its election to be
taxed as a REIT under Sections 856 through 860 of the Code;
(4) it is neither a financial institution nor an insurance company subject to
special provisions of the federal income tax laws;
(5) at least 100 persons are beneficial owners of its stock or ownership
certificates (determined without reference to any rules of attribution);
(6) not more than 50% in value of its outstanding stock or ownership certificates
is owned, directly or indirectly, by five or fewer individuals, which the federal income
tax laws define to include certain entities, during the last half of any taxable year; and
(7) it elects to be a REIT, or has made such election for a previous taxable
year, and satisfies all relevant filing and other administrative requirements established
by the IRS that must be met to elect and maintain REIT status.
We must meet requirements one through four during our entire taxable year and
must meet requirement five during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. If we comply with all
the requirements for ascertaining information concerning the ownership of our outstanding
stock in a taxable year and have no reason to know that we violated requirement six, we
will be deemed to have satisfied requirement six for that taxable year. We did not have to
satisfy requirements five and six for our taxable year ending December 31, 2004. After the
issuance of common stock pursuant to our April 2004 private placement, we had issued common
stock with enough diversity of ownership to satisfy requirements five and six as set forth
above. Our charter provides for restrictions regarding the ownership and transfer of our
shares of common stock so that we should continue to satisfy these requirements. The
provisions of our charter restricting the ownership and transfer of our shares of common
stock are described in Description of Capital
Stock Restrictions on Ownership and
Transfer.
For purposes of determining stock ownership under requirement six, an
individual generally includes a supplemental unemployment compensation benefits plan, a
private foundation, or a portion of a trust permanently set aside or used exclusively for
charitable purposes. An individual, however, generally does not include a trust that is a
qualified employee pension or profit sharing trust under the federal income tax laws, and
beneficiaries of such a trust will be treated as holding our shares in proportion to their
actuarial interests in the trust for purposes of requirement six.
A corporation that is a qualified REIT subsidiary, or QRS, is not treated as a
corporation separate from its parent REIT. All assets, liabilities, and items of income,
deduction and credit of a QRS are treated as assets, liabilities, and items of income,
deduction and credit of the REIT. A QRS is a corporation other than a taxable REIT
subsidiary as described below, all of the capital stock of which is owned by the REIT.
Thus, in applying the requirements described herein, any QRS that we own will be ignored,
and all assets, liabilities, and items of income, deduction and credit of such subsidiary
will be treated as our assets, liabilities, and items of income, deduction and credit.
An unincorporated domestic entity, such as a partnership, that has a single
owner, generally is not treated as an entity separate from its parent for federal income
tax purposes. An unincorporated domestic entity with two or more owners is generally
treated as a partnership for federal income tax purposes. In the case of a REIT that is a
partner in a partnership that has other partners, the REIT is treated as owning its
proportionate share of the assets of the partnership and as earning its allocable share of
the gross income of the partnership for purposes of the applicable REIT qualification
tests. Thus, if our operating partnership were taxed as a partnership our proportionate
share of the assets, liabilities and items of income of the operating partnership and any
other partnership, joint venture, or limited liability company that is treated as a
partnership for federal income tax purposes in which we acquire an interest, directly or
indirectly, is treated as our assets and gross income for purposes of applying the various
REIT qualification requirements.
A REIT is permitted to own up to 100% of the stock of one or more taxable REIT
subsidiaries. A taxable REIT subsidiary is a fully taxable corporation that may earn
income that would not be qualifying income if earned directly by the parent REIT. The
subsidiary and the REIT must jointly file an election with the IRS to treat the subsidiary
as a taxable REIT subsidiary. A taxable REIT subsidiary will pay income tax at regular
corporate rates on any income that it earns. In addition, the taxable REIT subsidiary rules
limit the deductibility of interest paid or accrued by a taxable REIT subsidiary to its
parent REIT to assure that the taxable REIT subsidiary is subject to an appropriate level
of corporate taxation. Further, the rules impose a 100% excise tax on certain types of
transactions between a taxable REIT subsidiary and its parent REIT or the
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REITs tenants that are not conducted on an arms-length basis. We may engage in
activities indirectly through a taxable REIT subsidiary as necessary or convenient to avoid
obtaining the benefit of income or services that would jeopardize our REIT status if we
engaged in the activities directly. In particular, we would likely engage in activities
through a taxable REIT subsidiary if we wished to provide services to unrelated parties
which might produce income that does not qualify under the gross income tests described
below. We might also engage in otherwise prohibited transactions through a taxable REIT
subsidiary. See description below under Prohibited Transactions. A taxable REIT
subsidiary may not operate or manage a healthcare facility. For purposes of this definition
a healthcare facility means a hospital, nursing facility, assisted living facility,
congregate care facility, qualified continuing care facility, or other licensed facility
which extends medical or nursing or ancillary services to patients and which is operated by
a service provider which is eligible for participation in the Medicare program under Title
XVIII of the Social Security Act with respect to such facility. We have formed and made a
taxable REIT subsidiary election with respect to MPT Development Services, Inc., a Delaware
corporation formed in January 2004. We may form or acquire one or more additional taxable
REIT subsidiaries in the future. See Income Taxation of the Partnerships and Their
Partners Taxable REIT Subsidiaries.
Gross Income Tests. We must satisfy two gross income tests annually to maintain
our qualification as a REIT. First, at least 75% of our gross income for each taxable year
must consist of defined types of income that we derive, directly or indirectly, from
investments relating to real property or mortgages on real property or qualified temporary
investment income. Qualifying income for purposes of that 75% gross income test generally
includes:
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rents from real property; |
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interest on debt secured by mortgages on real property or on interests in real property; |
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dividends or other distributions on, and gain from the sale of, shares in other REITs; |
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gain from the sale of real estate assets; |
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income derived from the temporary investment of new capital that is attributable to the
issuance of our shares of common stock or a public offering of our debt with a maturity
date of at least five years and that we receive during the one year period beginning on
the date on which we received such new capital; and |
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gross income from foreclosure property. |
Second, in general, at least 95% of our gross income for each taxable year must
consist of income that is qualifying income for purposes of the 75% gross income test,
other types of interest and dividends or gain from the sale or disposition of stock or
securities. Gross income from our sale of property that we hold primarily for sale to
customers in the ordinary course of business is excluded from both the numerator and the
denominator in both income tests. In addition, for taxable years beginning on and after
January 1, 2005, income and gain from hedging transactions that we enter into to hedge
indebtedness incurred or to be incurred to acquire or carry real estate assets and that are
clearly and timely identified as such also will be excluded from both the numerator and the
denominator for purposes of the 95% gross income test (but not the 75% gross income test).
The following paragraphs discuss the specific application of the gross income tests to us.
Rents from Real Property. Rent that we receive from our real property will
qualify as rents from real property, which is qualifying income for purposes of the 75%
and 95% gross income tests, only if the following conditions are met.
First, the rent must not be based in whole or in part on the income or profits of
any person. Participating rent, however, will qualify as rents from real property if it
is based on percentages of receipts or sales and the percentages:
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are fixed at the time the leases are entered into; |
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are not renegotiated during the term of the
leases in a manner that has the effect of basing
rent on income or profits; and |
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conform with normal business practice. |
More generally, the rent will not qualify as rents from real property if,
considering the relevant lease and all the surrounding circumstances, the arrangement does
not conform with normal business practice, but is in reality used as a means of basing the
rent on income or profits. We have represented to Baker Donelson that we intend to set and
accept rents which are fixed dollar amounts or a fixed percentage of gross revenue, and not
determined to any extent by reference to any persons income or profits, in compliance with
the rules above.
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Second, we must not own, actually or constructively, 10% or more of the stock or
the assets or net profits of any tenant, referred to as a related party tenant, other than
a taxable REIT subsidiary. Failure to adhere to this limitation would cause the rental
income from the related party tenant to not be treated as qualifying income for purposes of
the REIT gross income tests. The constructive ownership rules generally provide that, if
10% or more in value of our stock is owned, directly or indirectly, by or for any person,
we are considered as owning the stock owned, directly or indirectly, by or for such person.
We do not own any stock or any assets or net profits of any tenant directly. In addition,
our charter prohibits transfers of our shares that would cause us to own, actually or
constructively, 10% or more of the ownership interests in a tenant. We should not own,
actually or constructively, 10% or more of any tenant other than a taxable REIT subsidiary.
We have represented to counsel that we will not rent any facility to a related-party
tenant. However, because the constructive ownership rules are broad and it is not possible
to monitor continually direct and indirect transfers of our shares, no absolute assurance
can be given that such transfers or other events of which we have no knowledge will not
cause us to own constructively 10% or more of a tenant other than a taxable REIT subsidiary
at some future date. MPT Development Services, Inc., our taxable REIT subsidiary, has made
and will make loans to tenants to acquire operations and for other purposes. We have
structured and will structure these loans as debt and believe that they will be
characterized as such, and that our rental income from our tenant borrowers will be treated
as qualifying income for purposes of the REIT gross income tests. However, there can be no
assurance that the IRS will not take a contrary position. If the IRS were to successfully
treat a loan to a particular tenant as an equity interest, the tenant would be a related
party tenant with respect to our company, the rent that we receive from the tenant would
not be qualifying income for purposes of the REIT gross income tests, and we could lose our
REIT status. However, as stated above, we believe that these loans will be treated as debt
rather than equity interests.
As described above, we currently own 100% of the stock of MPT Development
Services, Inc., a taxable REIT subsidiary, and may in the future own up to 100% of the
stock of one or more additional taxable REIT subsidiaries. Under an exception to the
related-party tenant rule described in the preceding paragraph, rent that we receive from a
taxable REIT subsidiary will qualify as rents from real property as long as (1) the
taxable REIT subsidiary is a qualifying taxable REIT subsidiary (among other things, it
does not operate or manage a healthcare facility), (2) at least 90% of the leased space in
the facility is leased to persons other than taxable REIT subsidiaries and related party
tenants, and (3) the amount paid by the taxable REIT subsidiary to rent space at the
facility is substantially comparable to rents paid by other tenants of the facility for
comparable space. If in the future we receive rent from a taxable REIT subsidiary, we will
seek to comply with this exception.
Third, the rent attributable to the personal property leased in connection with a
lease of real property must not be greater than 15% of the total rent received under the
lease. The rent attributable to personal property under a lease is the amount that bears
the same ratio to total rent under the lease for the taxable year as the average of the
fair market values of the leased personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate fair market values of both the real and
personal property covered by the lease at the beginning and at the end of such taxable year
(the personal property ratio). With respect to each of our leases, we believe that the
personal property ratio generally will be less than 15%. Where that is not, or may in the
future not be, the case, we believe that any income attributable to personal property will
not jeopardize our ability to qualify as a REIT. There can be no assurance, however, that
the IRS would not challenge our calculation of a personal property ratio, or that a court
would not uphold such assertion. If such a challenge were successfully asserted, we could
fail to satisfy the 75% or 95% gross income test and thus lose our REIT status.
Fourth, we cannot furnish or render noncustomary services to the tenants of our
facilities, or manage or operate our facilities, other than through an independent
contractor who is adequately compensated and from whom we do not derive or receive any
income. However, we need not provide services through an independent contractor, but
instead may provide services directly to our tenants, if the services are usually or
customarily rendered in connection with the rental of space for occupancy only and are not
considered to be provided for the tenants convenience. In addition, we may provide a
minimal amount of noncustomary services to the tenants of a facility, other than through
an independent contractor, as long as our income from the services does not exceed 1% of
our income from the related facility. Finally, we may own up to 100% of the stock of one or
more taxable REIT subsidiaries, which may provide noncustomary services to our tenants
without tainting our rents from the related facilities. We do not intend to perform any
services other than customary ones for our tenants, other than services provided through
independent contractors or taxable REIT subsidiaries. We have represented to Baker Donelson
that we will not perform noncustomary services which would jeopardize our REIT status.
Finally, in order for the rent payable under the leases of our properties to
constitute rents from real property, the leases must be respected as true leases for
federal income tax purposes and not treated as service contracts, joint ventures, financing
arrangements, or another type of arrangement. We generally treat our leases with respect to
our properties as true leases for federal income tax purposes; however, there can be no
assurance that the IRS would not consider a particular lease a financing arrangement
instead of a true lease for federal income tax purposes. In that case, our income from that
lease
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would be interest income rather than rent and would be qualifying income for purposes
of the 75% gross income test to the extent that our loan does not exceed the fair market
value of the real estate assets associated with the facility. All of the interest income
from our loan would be qualifying income for purposes of the 95% gross income test. We
believe that the characterization of a lease as a financing arrangement would not adversely
affect our ability to qualify as a REIT.
If a portion of the rent we receive from a facility does not qualify as rents
from real property because the rent attributable to personal property exceeds 15% of the
total rent for a taxable year, the portion of the rent attributable to personal property
will not be qualifying income for purposes of either the 75% or 95% gross income test. If
rent attributable to personal property, plus any other income that is nonqualifying income
for purposes of the 95% gross income test, during a taxable year exceeds 5% of our gross
income during the year, we would lose our REIT status. By contrast, in the following
circumstances, none of the rent from a lease of a facility would qualify as rents from
real property: (1) the rent is considered based on the income or profits of the tenant;
(2) the tenant is a related party tenant or fails to qualify for the exception to the
related-party tenant rule for qualifying taxable REIT subsidiaries; or (3) we furnish more
than a de minimis amount of noncustomary services to the tenants of the facility, or manage
or operate the facility, other than through a qualifying independent contractor or a
taxable REIT subsidiary. In any of these circumstances, we could lose our REIT status
because we would be unable to satisfy either the 75% or 95% gross income test.
Tenants may be required to pay, besides base rent, reimbursements for certain amounts
we are obligated to pay to third parties (such as a tenants proportionate share of a
facilitys operational or capital expenses), penalties for nonpayment or late payment of
rent or additions to rent. These and other similar payments should qualify as rents from
real property.
Interest. The term interest generally does not include any amount received or
accrued, directly or indirectly, if the determination of the amount depends in whole or in
part on the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term interest solely because it is based on a
fixed percentage or percentages of receipts or sales. Furthermore, to the extent that
interest from a loan that is based upon the residual cash proceeds from the sale of the
property securing the loan constitutes a shared appreciation provision, income
attributable to such participation feature will be treated as gain from the sale of the
secured property.
Fee Income. We may receive various fees in connection with our operations. The
fees will be qualifying income for purposes of both the 75% and 95% gross income tests if
they are received in consideration for entering into an agreement to make a loan secured by
real property and the fees are not determined by income and profits. Other fees are not
qualifying income for purposes of either gross income test. Any fees earned by MPT
Development Services, Inc., our taxable REIT subsidiary, will not be included for proposes
of the gross income tests. We anticipate that MPT Development Services, Inc. will receive
most of the management fees, inspection fees and construction fees in connection with our
operations.
Prohibited Transactions. A REIT will incur a 100% tax on the net income derived
from any sale or other disposition of property, other than foreclosure property, that the
REIT holds primarily for sale to customers in the ordinary course of a trade or business.
We believe that none of our assets will be held primarily for sale to customers and that a
sale of any of our assets will not be in the ordinary course of our business. Whether a
REIT holds an asset primarily for sale to customers in the ordinary course of a trade or
business depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular asset. Nevertheless, we will attempt to comply with
the terms of safe-harbor provisions in the federal income tax laws prescribing when an
asset sale will not be characterized as a prohibited transaction. We cannot assure you,
however, that we can comply with the safe-harbor provisions or that we will avoid owning
property that may be characterized as property that we hold primarily for sale to
customers in the ordinary course of a trade or business. We may form or acquire a taxable
REIT subsidiary to engage in transactions that may not fall within the safe-harbor
provisions.
Foreclosure Property. We will be subject to tax at the maximum corporate rate
on any income from foreclosure property, other than income that otherwise would be
qualifying income for purposes of the 75% gross income test, less expenses directly
connected with the production of that income. However, gross income from foreclosure
property will qualify under the 75% and 95% gross income tests. Foreclosure property is any
real property, including interests in real property, and any personal property incidental
to such real property acquired by a REIT as the result of the REITs having bid on the
property at foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after actual or imminent default on a lease of
the property or on indebtedness secured by the property, or a Repossession Action.
Property acquired by a Repossession Action will not be considered foreclosure property if
(1) the REIT held or acquired the property subject to a lease or securing indebtedness for
sale to customers in the ordinary course of business or (2) the lease or loan was acquired
or entered into with intent to take Repossession Action or in circumstances where the REIT
had reason to know a default would occur. The determination of such intent or reason to
know must be based on all relevant facts and circumstances. In no case will property be
considered foreclosure property unless the REIT makes a proper election to treat the
property as foreclosure property.
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Foreclosure property includes any qualified healthcare property acquired by a
REIT as a result of a termination of a lease of such property (other than a termination by
reason of a default, or the imminence of a default, on the lease). A qualified healthcare
property means any real property, including interests in real property, and any personal
property incident to such real property which is a healthcare facility or is necessary or
incidental to the use of a healthcare facility. For this purpose, a healthcare facility
means a hospital, nursing facility, assisted living facility, congregate care facility,
qualified continuing care facility, or other licensed facility which extends medical or
nursing or ancillary services to patients and which, immediately before the termination,
expiration, default, or breach of the lease secured by such facility, was operated by a
provider of such services which was eligible for participation in the Medicare program
under Title XVIII of the Social Security Act with respect to such facility.
However, a REIT will not be considered to have foreclosed on a property where the
REIT takes control of the property as a mortgagee-in-possession and cannot receive any
profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases
to be foreclosure property at the end of the third taxable year following the taxable year
in which the REIT acquired the property (or, in the case of a qualified healthcare property
which becomes foreclosure property because it is acquired by a REIT as a result of the
termination of a lease of such property, at the end of the second taxable year following
the taxable year in which the REIT acquired such property) or longer if an extension is
granted by the Secretary of the Treasury. This period (as extended, if applicable)
terminates, and foreclosure property ceases to be foreclosure property on the first day:
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on which a lease is entered into for the
property that, by its terms, will give rise to
income that does not qualify for purposes of
the 75% gross income test, or any amount is
received or accrued, directly or indirectly,
pursuant to a lease entered into on or after
such day that will give rise to income that
does not qualify for purposes of the 75% gross
income test; |
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on which any construction takes place on the
property, other than completion of a building
or any other improvement, where more than 10%
of the construction was completed before
default became imminent; or |
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which is more than 90 days after the day on
which the REIT acquired the property and the
property is used in a trade or business which
is conducted by the REIT, other than through an
independent contractor from whom the REIT
itself does not derive or receive any income.
For this purpose, in the case of a qualified
healthcare property, income derived or received
from an independent contractor will be
disregarded to the extent such income is
attributable to (1) a lease of property in
effect on the date the REIT acquired the
qualified healthcare property (without regard
to its renewal after such date so long as such
renewal is pursuant to the terms of such lease
as in effect on such date) or (2) any lease of
property entered into after such date if, on
such date, a lease of such property from the
REIT was in effect and, under the terms of the
new lease, the REIT receives a substantially
similar or lesser benefit in comparison to the
prior lease. |
Hedging Transactions. From time to time, we may enter into hedging transactions
with respect to one or more of our assets or liabilities. Our hedging activities may
include entering into interest rate swaps, caps, and floors, options to purchase such
items, and futures and forward contracts. For taxable years beginning prior to January 1,
2005, any periodic income or gain from the disposition of any financial instrument for
these or similar transactions to hedge indebtedness we incur to acquire or carry real
estate assets should be qualifying income for purposes of the 95% gross income test (but
not the 75% gross income test). For taxable years beginning on and after January 1, 2005,
income and gain from hedging transactions will be excluded from gross income for purposes
of the 95% gross income test (but not the 75% gross income test). For those taxable years,
a hedging transaction will mean any transaction entered into in the normal course of our
trade or business primarily to manage the risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to be made, or ordinary
obligations incurred or to be incurred, to acquire or carry real estate assets. We will be
required to clearly identify any such hedging transaction before the close of the day on
which it was acquired, originated, or entered into. Since the financial markets continually
introduce new and innovative instruments related to risk-sharing or trading, it is not
entirely clear which such instruments will generate income which will be considered
qualifying income for purposes of the gross income tests. We intend to structure any
hedging or similar transactions so as not to jeopardize our status as a REIT.
Failure to Satisfy Gross Income Tests. If we fail to satisfy one or both of the
gross income tests for any taxable year, we nevertheless may qualify as a REIT for that
year if we qualify for relief under certain provisions of the federal income tax laws.
Those relief provisions generally will be available if:
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our failure to meet those tests is due to reasonable cause and not to willful neglect, and |
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following our identification of such failure for any taxable year, a schedule of the
sources of our income is filed in accordance with regulations prescribed by the Secretary
of the Treasury. |
We cannot with certainty predict whether any failure to meet these tests will
qualify for the relief provisions. As discussed above in Taxation of Our Company, even
if the relief provisions apply, we would incur a 100% tax on the gross income attributable
to the greater of the amounts by which we fail the 75% and 95% gross income tests,
multiplied by a fraction intended to reflect our profitability.
Asset Tests. To maintain our qualification as a REIT, we also must satisfy the
following asset tests at the end of each quarter of each taxable year.
First, at least 75% of the value of our total assets must consist of:
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cash or cash items, including certain receivables; |
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government securities; |
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real estate assets, which includes interest in
real property, leaseholds, options to acquire
real property or leaseholds, interests in
mortgages on real property and shares (or
transferable certificates of beneficial interest)
in other REITs; and |
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investments in stock or debt instruments
attributable to the temporary investment (i.e.,
for a period not exceeding 12 months) of new
capital that we raise through any equity offering
or public offering of debt with at least a five
year term. |
With respect to investments not included in the 75% asset class, we may not hold
securities of any one issuer (other than a taxable REIT subsidiary) that exceed 5% of the
value of our total assets; nor may we hold securities of any one issuer (other than a
taxable REIT subsidiary) that represent more than 10% of the voting power of all
outstanding voting securities of such issuer or more than 10% of the value of all
outstanding securities of such issuer.
In addition, we may not hold securities of one or more taxable REIT subsidiaries
that represent in the aggregate more than 20% of the value of our total assets,
irrespective of whether such securities may also be included in the 75% asset class (e.g.,
a mortgage loan issued to a taxable REIT subsidiary). Furthermore, no more than 25% of our
total assets may be represented by securities that are not included in the 75% asset class,
including, among other things, certain securities of a taxable REIT subsidiary such as
stock or non-mortgage debt.
For purposes of the 5% and 10% asset tests, the term securities does not
include stock in another REIT, equity or debt securities of a qualified REIT subsidiary or
taxable REIT subsidiary, mortgage loans that constitute real estate assets, or equity
interests in a partnership that holds real estate assets. The term securities, however,
generally includes debt securities issued by a partnership or another REIT, except that for
purposes of the 10% value test, the term securities does not include:
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Straight debt, defined as a written unconditional promise to pay on demand or on a
specified date a sum certain in money if (1) the debt is not convertible, directly or
indirectly, into stock, and (2) the interest rate and interest payment dates are not
contingent on profits, the borrowers discretion, or similar factors. Straight debt
securities do not include any securities issued by a partnership or a corporation in which we
or any controlled TRS (i.e., a TRS in which we own directly or indirectly more than 50% of
the voting power or value of the stock) holds non-straight debt securities that have an
aggregate value of more than 1% of the issuers outstanding securities. However, straight
debt securities include debt subject to the following contingencies: |
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a contingency relating to the time of
payment of interest or principal, as long
as either (1) there is no change to the
effective yield to maturity of the debt
obligation, other than a change to the
annual yield to maturity that does not
exceed the greater of 0.25% or 5% of the
annual yield to maturity, or (2) neither
the aggregate issue price nor the aggregate
face amount of the issuers debt
obligations held by us exceeds $1 million
and no more than 12 months of unaccrued
interest on the debt obligations can be
required to be prepaid; and |
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a contingency relating to the time or
amount of payment upon a default or
exercise of a prepayment right by the
issuer of the debt obligation, as long as
the contingency is consistent with
customary commercial practice; |
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Any loan to an individual or an estate; |
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Any Section 467 rental agreement, other than an agreement with a related party tenant; |
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Any obligation to pay rents from real property; |
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Any security issued by a state or any political subdivision thereof, the District of
Columbia, a foreign government or any political subdivision thereof, or the Commonwealth of
Puerto Rico, but only if the determination of any payment thereunder does not depend in whole
or in part on the profits of any entity not described in this paragraph or payments on any
obligation issued by an entity not described in this paragraph; |
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Any security issued by a REIT; |
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Any debt instrument of an entity treated as a partnership for federal income tax purposes to
the extent of our interest as a partner in the partnership; |
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Any debt instrument of an entity treated as a partnership for federal income tax purposes not
described in the preceding bullet points if at least 75% of the partnerships gross income,
excluding income from prohibited transaction, is qualifying income for purposes of the 75%
gross income test described above in Requirements for Qualification Gross Income Tests. |
For purposes of the 10% value test, our proportionate share of the assets of a
partnership is our proportionate interest in any securities issued by the partnership,
without regard to securities described in the last two bullet points above.
MPT Development Services, Inc., our taxable REIT subsidiary, has made and will
make loans to tenants to acquire operations and for other purposes. If the IRS were to
successfully treat a particular loan to a tenant as an equity interest in the tenant, the
tenant would be a related party tenant with respect to our company and the rent that we
receive from the tenant would not be qualifying income for purposes of the REIT gross
income tests. As a result, we could lose our REIT status. In addition, if the IRS were to
successfully treat a particular loan as an interest held by our operating partnership
rather than by MPT Development Services, Inc. we could fail the 5% asset test, and if the
IRS further successfully treated the loan as other than straight debt, we could fail the
10% asset test with respect to such interest. As a result of the failure of either test, we
could lose our REIT status.
We will monitor the status of our assets for purposes of the various asset tests
and will manage our portfolio in order to comply at all times with such tests. If we fail
to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT
status if:
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we satisfied the asset tests at the end of the preceding calendar quarter; and |
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the discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and was
not wholly or partly caused by the acquisition of one or more non-qualifying
assets. |
If we did not satisfy the condition described in the second item above, we still
could avoid disqualification by eliminating any discrepancy within 30 days after the close
of the calendar quarter in which it arose.
In the event that, at the end of any calendar quarter, we violate the 5% or 10%
test described above, we will not lose our REIT status if (1) the failure is de minimis (up
to the lesser of 1% of our assets or $10 million) and (2) we dispose of assets or otherwise
comply with the asset tests within six months after the last day of the quarter in which we
identified the failure of the asset test. In the event of a more than de minimis failure of
the 5% or 10% tests, or a failure of the other assets test, at the end of any calendar
quarter, as long as the failure was due to reasonable cause and not to willful neglect, we
will not lose our REIT status if we (1) file with the IRS a schedule describing the assets
that caused the failure, (2) dispose of assets or otherwise comply with the asset tests
within six months after the last day of the quarter in which we identified the failure of
the asset test and (3) pay a tax equal to the greater of $50,000 and tax at the highest
corporate rate on the net income from the nonqualifying assets during the period in which
we failed to satisfy the asset tests.
Distribution Requirements. Each taxable year, we must distribute dividends,
other than capital gain dividends and deemed distributions of retained capital gain, to our
stockholders in an aggregate amount not less than:
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90% of our REIT taxable income, computed without regard to the
dividends-paid deduction or our net capital gain or loss; and |
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90% of our after-tax net income, if any, from foreclosure property; |
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the sum of certain items of non-cash income. |
We must pay such distributions in the taxable year to which they relate, or in
the following taxable year if we declare the distribution before we timely file our federal
income tax return for the year and pay the distribution on or before the first regular
dividend payment date after such declaration.
We will pay federal income tax on taxable income, including net capital gain,
that we do not distribute to stockholders. In addition, we will incur a 4% nondeductible
excise tax on the excess of a specified required distribution over amounts we actually
distribute if we distribute an amount less than the required distribution during a calendar
year, or by the end of January following the calendar year in the case of distributions
with declaration and record dates falling in the last three months of the calendar year.
The required distribution must not be less than the sum of:
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85% of our REIT ordinary income for the year; |
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95% of our REIT capital gain income for the year; and |
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any undistributed taxable income from prior periods. |
We may elect to retain and pay income tax on the net long-term capital gain we
receive in a taxable year. See Taxation of Taxable United States Stockholders. If we so
elect, we will be treated as having distributed any such retained amount for purposes of
the 4% excise tax described above. We intend to make timely distributions sufficient to
satisfy the annual distribution requirements and to avoid corporate income tax and the 4%
excise tax.
It is possible that, from time to time, we may experience timing differences
between the actual receipt of income and actual payment of deductible expenses and the
inclusion of that income and deduction of such expenses in arriving at our REIT taxable
income. For example, we may not deduct recognized capital losses from our REIT taxable
income. Further, it is possible that, from time to time, we may be allocated a share of
net capital gain attributable to the sale of depreciated property that exceeds our
allocable share of cash attributable to that sale. As a result of the foregoing, we may
have less cash than is necessary to distribute all of our taxable income and thereby avoid
corporate income tax and the excise tax imposed on certain undistributed income. In such a
situation, we may need to borrow funds or issue additional shares of common or preferred
stock.
Under certain circumstances, we may be able to correct a failure to meet the
distribution requirement for a year by paying deficiency dividends to our stockholders in
a later year. We may include such deficiency dividends in our deduction for dividends paid
for the earlier year. Although we may be able to avoid income tax on amounts distributed as
deficiency dividends, we will be required to pay interest based upon the amount of any
deduction we take for deficiency dividends.
Recordkeeping Requirements. We must maintain certain records in order to
qualify as a REIT. In addition, to avoid paying a penalty, we must request on an annual
basis information from our stockholders designed to disclose the actual ownership of our
shares of outstanding capital stock. We intend to comply with these requirements.
Failure to Qualify. If we failed to qualify as a REIT in any taxable year and
no relief provision applied, we would have the following consequences. We would be subject
to federal income tax and any applicable alternative minimum tax at rates applicable to
regular C corporations on our taxable income, determined without reduction for amounts
distributed to stockholders. We would not be required to make any distributions to
stockholders, and any distributions to stockholders would be taxable to them as dividend
income to the extent of our current and accumulated earnings and profits. Corporate
stockholders could be eligible for a dividends-received deduction if certain conditions are
satisfied. Unless we qualified for relief under specific statutory provisions, we would not
be permitted to elect taxation as a REIT for the four taxable years following the year
during which we ceased to qualify as a REIT.
If we fail to satisfy one or more requirements for REIT qualification, other than
the gross income tests and the asset tests, we could avoid disqualification if the failure
is due to reasonable cause and not to willful neglect and we pay a penalty
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of $50,000 for each such failure. In addition, there are relief provisions for a
failure of the gross income tests and asset tests, as described above in Gross Income
Tests and Asset Tests.
Taxation of Taxable United States Stockholders. As long as we qualify as a
REIT, a taxable United States stockholder will be required to take into account as
ordinary income distributions made out of our current or accumulated earnings and profits
that we do not designate as capital gain dividends or retained long-term capital gain. A
United States stockholder will not qualify for the dividends-received deduction generally
available to corporations. The term United States stockholder means a holder of shares of
common stock that, for United States federal income tax purposes, is:
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a citizen or resident of the United States; |
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a corporation or partnership (including an entity treated as a corporation or partnership for United
States federal income tax purposes) created or organized under the laws of the United States or of a
political subdivision of the United States; |
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an estate whose income is subject to United States federal income taxation regardless of its source; or |
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any trust if (1) a United States court is able to exercise primary supervision over the administration
of such trust and one or more United States persons have the authority to control all substantial
decisions of the trust or (2) it has a valid election in place to be treated as a United States
person. |
Distributions paid to a United States stockholder generally will not qualify for
the maximum 15% tax rate in effect for qualified dividend income for tax years through
2010. Without future congressional action, qualified dividend income will be taxed at
ordinary income tax rates starting in 2011. Qualified dividend income generally includes
dividends paid by domestic C corporations and certain qualified foreign corporations to
most United States noncorporate stockholders. Because we are not generally subject to
federal income tax on the portion of our REIT taxable income distributed to our
stockholders, our dividends generally will not be eligible for the current 15% rate on
qualified dividend income. As a result, our ordinary REIT dividends will continue to be
taxed at the higher tax rate applicable to ordinary income. Currently, the highest marginal
individual income tax rate on ordinary income is 35%. However, the 15% tax rate for
qualified dividend income will apply to our ordinary REIT dividends, if any, that are (1)
attributable to dividends received by us from non-REIT corporations, such as our taxable
REIT subsidiary, and (2) attributable to income upon which we have paid corporate income
tax (e.g., to the extent that we distribute less than 100% of our taxable income). In
general, to qualify for the reduced tax rate on qualified dividend income, a stockholder
must hold our common stock for more than 60 days during the 120-day period beginning on the
date that is 60 days before the date on which our common stock becomes ex-dividend.
Distributions to a United States stockholder which we designate as capital gain
dividends will generally be treated as long-term capital gain, without regard to the period
for which the United States stockholder has held its common stock. We generally will
designate our capital gain dividends as 15% or 25% rate distributions.
We may elect to retain and pay income tax on the net long-term capital gain that
we receive in a taxable year. In that case, a United States stockholder would be taxed on
its proportionate share of our undistributed long-term capital gain. The United States
stockholder would receive a credit or refund for its proportionate share of the tax we
paid. The United States stockholder would increase the basis in its shares of common stock
by the amount of its proportionate share of our undistributed long-term capital gain, minus
its share of the tax we paid.
A United States stockholder will not incur tax on a distribution in excess of our
current and accumulated earnings and profits if the distribution does not exceed the
adjusted basis of the United States stockholders shares. Instead, the distribution will
reduce the adjusted basis of the shares, and any amount in excess of both our current and
accumulated earnings and profits and the adjusted basis will be treated as capital gain,
long-term if the shares have been held for more than one year, provided the shares are a
capital asset in the hands of the United States stockholder. In addition, any distribution
we declare in October, November, or December of any year that is payable to a United States
stockholder of record on a specified date in any of those months will be treated as paid by
us and received by the United States stockholder on December 31 of the year, provided we
actually pay the distribution during January of the following calendar year.
Stockholders may not include in their individual income tax returns any of our
net operating losses or capital losses. Instead, these losses are generally carried over by
us for potential offset against our future income. Taxable distributions from us and gain
from the disposition of shares of common stock will not be treated as passive activity
income; stockholders generally will not be able to apply any passive activity losses,
such as losses from certain types of limited partnerships in which the stockholder is a
limited partner, against such income. In addition, taxable distributions from us and gain
from the disposition of common stock generally will be treated as investment income for
purposes of the investment
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interest limitations. We will notify stockholders after the close of our taxable year
as to the portions of the distributions attributable to that year that constitute ordinary
income, return of capital, and capital gain.
Taxation of United States Stockholders on the Disposition of Shares of Common
Stock. In general, a United States stockholder who is not a dealer in securities must
treat any gain or loss realized upon a taxable disposition of our shares of common stock as
long-term capital gain or loss if the United States stockholder has held the stock for more
than one year, and otherwise as short-term capital gain or loss. However, a United States
stockholder must treat any loss upon a sale or exchange of common stock held for six months
or less as a long-term capital loss to the extent of capital gain dividends and any other
actual or deemed distributions from us which the United States stockholder treats as
long-term capital gain. All or a portion of any loss that a United States stockholder
realizes upon a taxable disposition of common stock may be disallowed if the United States
stockholder purchases other shares of our common stock within 30 days before or after the
disposition.
Capital Gains and Losses. The tax-rate differential between capital gain and
ordinary income for non-corporate taxpayers may be significant. A taxpayer generally must
hold a capital asset for more than one year for gain or loss derived from its sale or
exchange to be treated as long-term capital gain or loss. The highest marginal individual
income tax rate is currently 35%. The maximum tax rate on long-term capital gain applicable
to individuals is 15% for sales and exchanges of assets held for more than one year and
occurring on or after May 6, 2003 through December 31, 2010. The maximum tax rate on
long-term capital gain from the sale or exchange of section 1250 property (i.e.,
generally, depreciable real property) is 25% to the extent the gain would have been treated
as ordinary income if the property were section 1245 property (i.e., generally,
depreciable personal property). We generally may designate whether a distribution we
designate as capital gain dividends (and any retained capital gain that we are deemed to
distribute) is taxable to non-corporate stockholders at a 15% or 25% rate.
The characterization of income as capital gain or ordinary income may affect the
deductibility of capital losses. A non-corporate taxpayer may deduct from its ordinary
income capital losses not offset by capital gains only up to a maximum of $3,000 annually.
A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate
taxpayer must pay tax on its net capital gain at corporate ordinary income rates. A
corporate taxpayer may deduct capital losses only to the extent of capital gains and unused
losses may be carried back three years and carried forward five years.
Information Reporting Requirements and Backup Withholding. We will report to
our stockholders and to the IRS the amount of distributions we pay during each calendar
year and the amount of tax we withhold, if any. A stockholder may be subject to backup
withholding at a rate of up to 28% with respect to distributions unless the holder:
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is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or |
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provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding rules |
A stockholder who does not provide us with its correct taxpayer identification
number also may be subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be creditable against the stockholders income tax liability. In addition,
we may be required to withhold a portion of capital gain distributions to any stockholder
who fails to certify its non-foreign status to us. For a discussion of the backup
withholding rules as applied to non-United States stockholders, see Taxation of Non-United
States Stockholders.
Taxation of Tax-Exempt Stockholders. Tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts, referred to
as pension trusts, generally are exempt from federal income taxation. However, they are
subject to taxation on their unrelated business taxable income. While many investments in
real estate generate unrelated business taxable income, the IRS has issued a ruling that
dividend distributions from a REIT to an exempt employee pension trust do not constitute
unrelated business taxable income so long as the exempt employee pension trust does not
otherwise use the shares of the REIT in an unrelated trade or business of the pension
trust. Based on that ruling, amounts we distribute to tax-exempt stockholders generally
should not constitute unrelated business taxable income. However, if a tax-exempt
stockholder were to finance its acquisition of common stock with debt, a portion of the
income it received from us would constitute unrelated business taxable income pursuant to
the debt-financed property rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts and qualified group legal services
plans that are exempt from taxation under special provisions of the federal income tax laws
are subject to different unrelated business taxable income rules, which generally will
require them to characterize distributions they receive from us as unrelated business
taxable income. Finally, in certain circumstances, a qualified employee pension or
profit-sharing trust that owns more than 10% of our outstanding stock must treat a
percentage of the dividends it receives from us as unrelated business taxable income. The
percentage is equal to the gross income we derive
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from an unrelated trade or business, determined as if we were a pension trust, divided
by our total gross income for the year in which we pay the dividends. This rule applies to
a pension trust holding more than 10% of our outstanding stock only if:
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the percentage of our dividends which the tax-exempt trust must treat as unrelated business taxable
income is at least 5%; |
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we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% in
value of our outstanding stock be owned by five or fewer individuals, which modification allows the
beneficiaries of the pension trust to be treated as holding shares in proportion to their actual
interests in the pension trust; and |
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either of the following applies: |
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one pension trust owns more than 25% of the value of our outstanding stock; or
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a group of pension trusts individually holding more than 10% of the value of
our outstanding stock collectively owns more than 50% of the value of our
outstanding stock. |
Taxation of Non-United States Stockholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders are complex. This section is only a summary of
such rules. We urge non-United States stockholders to consult their own tax advisors to
determine the impact of U.S. federal, state and local income and non-U.S. tax laws on
ownership of shares of common stock, including any reporting requirements.
A non-United States stockholder that receives a distribution which (1) is not
attributable to gain from our sale or exchange of United States real property interests
(defined below) and (2) we do not designate as a capital gain dividend (or retained capital
gain) will recognize ordinary income to the extent of our current or accumulated earnings
and profits. A withholding tax equal to 30% of the gross amount of the distribution
ordinarily will apply unless an applicable tax treaty reduces or eliminates the tax.
However, a non- United States stockholder generally will be subject to federal income tax
at graduated rates on any distribution treated as effectively connected with the non-United
States stockholders conduct of a United States trade or business, in the same manner as
United States stockholders are taxed on distributions. A corporate non-United States
stockholder may, in addition, be subject to the 30% branch profits tax. We plan to withhold
United States income tax at the rate of 30% on the gross amount of any distribution paid to
a non-United States stockholder unless:
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a lower treaty rate applies and the non-United
States stockholder provides us with an IRS Form
W-8BEN evidencing eligibility for that reduced
rate; or |
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the non-United States stockholder provides us
with an IRS Form W-8ECI claiming that the
distribution is effectively connected income. |
A non-United States stockholder will not incur tax on a distribution in excess of
our current and accumulated earnings and profits if the excess portion of the distribution
does not exceed the adjusted basis of the stockholders shares of common stock. Instead,
the excess portion of the distribution will reduce the adjusted basis of the shares. A
non-United States stockholder will be subject to tax on a distribution that exceeds both
our current and accumulated earnings and profits and the adjusted basis of its shares, if
the non-United States stockholder otherwise would be subject to tax on gain from the sale
or disposition of shares of common stock, as described below. Because we generally cannot
determine at the time we make a distribution whether or not the distribution will exceed
our current and accumulated earnings and profits, we normally will withhold tax on the
entire amount of any distribution at the same rate as we would withhold on a dividend.
However, a non-United States stockholder may obtain a refund of amounts we withhold if we
later determine that a distribution in fact exceeded our current and accumulated earnings
and profits.
We must withhold 10% of any distribution that exceeds our current and accumulated
earnings and profits. We will, therefore, withhold at a rate of 10% on any portion of a
distribution not subject to withholding at a rate of 30%.
For any year in which we qualify as a REIT, a non-United States stockholder will
incur tax on distributions attributable to gain from our sale or exchange of United States
real property interests under the FIRPTA provisions of the Code. The term United States
real property interests includes interests in real property located in the United States
or the Virgin Islands and stocks in corporations at least 50% by value of whose real
property interests and assets used or held for use in a trade or business consist of United
States real property interests. Under the FIRPTA rules, a non-United States stockholder is
taxed on distributions attributable to gain from sales of United States real property
interests as if the gain were effectively connected with the conduct of a United States
business of the non-United States stockholder. A non-United
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States stockholder thus would be taxed on such a distribution at the normal capital
gain rates applicable to United States stockholders, subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of a nonresident alien
individual. A non-United States corporate stockholder not entitled to treaty relief or
exemption also may be subject to the 30% branch profits tax on such a distribution. We must
withhold 35% of any distribution that we could designate as a capital gain dividend. A
non-United States stockholder may receive a credit against our tax liability for the amount
we withhold.
For taxable years beginning on and after January 1, 2005, for non-United States
stockholders of our publicly-traded shares, capital gain distributions that are
attributable to our sale of real property will not be subject to FIRPTA and therefore will
be treated as ordinary dividends rather than as gain from the sale of a United States real
property interest, as long as the non-United States stockholder did not own more than 5% of
the class of our stock on which the distributions are made for the one year period ending
on the date of distribution. As a result, non-United States stockholders generally would be
subject to withholding tax on such capital gain distributions in the same manner as they
are subject to withholding tax on ordinary dividends.
A non-United States stockholder generally will not incur tax under FIRPTA with
respect to gain on a sale of shares of common stock as long as, at all times, non-United
States persons hold, directly or indirectly, less than 50% in value of our outstanding
stock. We cannot assure you that this test will be met. In addition, a non-United States
stockholder that owned, actually or constructively, 5% or less of the outstanding common
stock at all times during a specified testing period will not incur tax under FIRPTA on
gain from a sale of common stock if the stock is regularly traded on an established
securities market. Any gain subject to tax under FIRPTA will be treated in the same manner
as it would be in the hands of United States stockholders subject to alternative minimum
tax, but under a special alternative minimum tax in the case of nonresident alien
individuals.
A non-United States stockholder generally will incur tax on gain from the sale of
common stock not subject to FIRPTA if:
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the gain is effectively connected with the
conduct of the non-United States stockholders
United States trade or business, in which case
the non-United States stockholder will be
subject to the same treatment as United States
stockholders with respect to the gain; or |
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the non-United States stockholder is a
nonresident alien individual who was present in
the United States for 183 days or more during
the taxable year and has a tax home in the
United States, in which case the non-United
States stockholder will incur a 30% tax on
capital gains. |
Other Tax Consequences
Tax Aspects of Our Investments in the Operating Partnership. The following
discussion summarizes certain federal income tax considerations applicable to our direct or
indirect investment in our operating partnership and any subsidiary partnerships or limited
liability companies we form or acquire, each individually referred to as a Partnership and,
collectively, as Partnerships. The following discussion does not cover state or local tax
laws or any federal tax laws other than income tax laws.
Classification as Partnerships. We are entitled to include in our income our
distributive share of each Partnerships income and to deduct our distributive share of
each Partnerships losses only if such Partnership is classified for federal income tax
purposes as a partnership (or an entity that is disregarded for federal income tax purposes
if the entity has only one owner or member), rather than as a corporation or an association
taxable as a corporation. An organization with at least two owners or members will be
classified as a partnership, rather than as a corporation, for federal income tax purposes
if it:
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is treated as a partnership under the Treasury
regulations relating to entity classification
(the check-the-box regulations); and |
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is not a publicly traded partnership. |
Under the check-the-box regulations, an unincorporated entity with at least two
owners or members may elect to be classified either as an association taxable as a
corporation or as a partnership. If such an entity does not make an election, it generally
will be treated as a partnership for federal income tax purposes. We intend that each
Partnership will be classified as a partnership for federal income tax purposes (or else a
disregarded entity where there are not at least two separate
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beneficial owners).
A publicly traded partnership is a partnership whose interests are traded on an
established securities market or are readily tradable on a secondary market (or a
substantial equivalent). A publicly traded partnership is generally treated as a
corporation for federal income tax purposes, but will not be so treated for any taxable
year for which at least 90% of the partnerships gross income consists of specified passive
income, including real property rents, gains from the sale or other disposition of real
property, interest, and dividends (the 90% passive income exception).
Treasury regulations, referred to as PTP regulations, provide limited safe
harbors from treatment as a publicly traded partnership. Pursuant to one of those safe
harbors, the private placement exclusion, interests in a partnership will not be treated as
readily tradable on a secondary market or the substantial equivalent thereof if (1) all
interests in the partnership were issued in a transaction or transactions that were not
required to be registered under the Securities Act, and (2) the partnership does not have
more than 100 partners at any time during the partnerships taxable year. For the
determination of the number of partners in a partnership, a person owning an interest in a
partnership, grantor trust, or S corporation that owns an interest in the partnership is
treated as a partner in the partnership only if (1) substantially all of the value of the
owners interest in the entity is attributable to the entitys direct or indirect interest
in the partnership and (2) a principal purpose of the use of the entity is to permit the
partnership to satisfy the 100-partner limitation. Each Partnership should qualify for the
private placement exclusion.
An unincorporated entity with only one separate beneficial owner generally may
elect to be classified either as an association taxable as a corporation or as a
disregarded entity. If such an entity is domestic and does not make an election, it
generally will be treated as a disregarded entity. A disregarded entitys activities are
treated as those of a branch or division of its beneficial owner.
At present, our operating partnership has two partners, we and Medical Properties
Trust, LLC, a Delaware limited liability company wholly owned by us. Neither the operating
partnership nor Medical Properties Trust, LLC has elected to be treated as an association
taxable as a corporation. As a result, we are the sole beneficial owner of our operating
partnership for federal income tax purposes. Therefore, presently our operating partnership
is treated as a disregarded entity and its activities are treated as those of a branch or
division of ours. We intend that so long as our operating partnership continues to have
only one beneficial owner, it will continue to be treated as a disregarded entity. At such
time as the operating partnership shall have more than one separate beneficial owner, we
intend that it will be taxed as a partnership for federal income tax purposes.
We have not requested, and do not intend to request, a ruling from the Internal
Revenue Service that the Partnerships will be classified as either partnerships or
disregarded entities for federal income tax purposes. If for any reason a Partnership were
taxable as a corporation, rather than as a partnership or a disregarded entity, for federal
income tax purposes, we likely would not be able to qualify as a REIT. See Requirements
for Qualification Gross Income Tests and Requirements for Qualification Asset
Tests. In addition, any change in a Partnerships status for tax purposes might be treated
as a taxable event, in which case we might incur tax liability without any related cash
distribution. See Requirements for Qualification Distribution Requirements. Further,
items of income and deduction of such Partnership would not pass through to its partners,
and its partners would be treated as stockholders for tax purposes. Consequently, such
Partnership would be required to pay income tax at corporate rates on its net income, and
distributions to its partners would constitute dividends that would not be deductible in
computing such Partnerships taxable income.
Income Taxation of the Partnerships and Their Partners
Partners, Not the Partnerships, Subject to Tax. A partnership is not a taxable
entity for federal income tax purposes. If a Partnership is classified as a partnership, we
will therefore take into account our allocable share of each Partnerships income, gains,
losses, deductions, and credits for each taxable year of the Partnership ending with or
within our taxable year, even if we receive no distribution from the Partnership for that
year or a distribution less than our share of taxable income. Similarly, even if we receive
a distribution, it may not be taxable if the distribution does not exceed our adjusted tax
basis in our interest in the Partnership.
If a Partnership is classified as a disregarded entity, the Partnerships
activities will be treated as if carried on directly by us.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, allocations will be
disregarded for tax purposes if they do not comply with the provisions of the federal
income tax laws governing partnership allocations. If an allocation is not recognized for
federal income tax purposes,
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the item subject to the allocation will be reallocated in accordance with the
partners interests in the partnership, which will be determined by taking into account all
of the facts and circumstances relating to the economic arrangement of the partners with
respect to such item. Each Partnerships allocations of taxable income, gain, and loss are
intended to comply with the requirements of the federal income tax laws governing
partnership allocations.
Tax Allocations With Respect to Contributed Properties. Income, gain, loss, and
deduction attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in a manner
such that the contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of the
contribution. Similar rules apply with respect to property revalued on the books of a
partnership. The amount of such unrealized gain or unrealized loss, referred to as built-in
gain or built-in loss, is generally equal to the difference between the fair market value
of the contributed or revalued property at the time of contribution or revaluation and the
adjusted tax basis of such property at that time, referred to as a book-tax difference.
Such allocations are solely for federal income tax purposes and do not affect the book
capital accounts or other economic or legal arrangements among the partners. The United
States Treasury Department has issued regulations requiring partnerships to use a
reasonable method for allocating items with respect to which there is a book-tax
difference and outlining several reasonable allocation methods. Our operating partnership
generally intends to use the traditional method for allocating items with respect to which
there is a book-tax difference.
Basis in Partnership Interest. Our adjusted tax basis in any partnership
interest we own generally will be:
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the amount of cash and the basis of any other property we contribute to the partnership; |
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increased by our allocable share of the partnerships income (including tax-exempt
income) and our allocable share of indebtedness of the partnership; and |
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reduced, but not below zero, by our allocable share of the partnerships loss, the
amount of cash and the basis of property distributed to us, and constructive
distributions resulting from a reduction in our share of indebtedness of the
partnership. |
Loss allocated to us in excess of our basis in a partnership interest will not be
taken into account until we again have basis sufficient to absorb the loss. A reduction of
our share of partnership indebtedness will be treated as a constructive cash distribution
to us, and will reduce our adjusted tax basis. Distributions, including constructive
distributions, in excess of the basis of our partnership interest will constitute taxable
income to us. Such distributions and constructive distributions normally will be
characterized as long-term capital gain.
Depreciation Deductions Available to Partnerships. The initial tax basis of
property is the amount of cash and the basis of property given as consideration for the
property. A partnership in which we are a partner generally will depreciate property for
federal income tax purposes under the modified accelerated cost recovery system of
depreciation, referred to as MACRS. Under MACRS, the partnership generally will depreciate
furnishings and equipment over a seven year recovery period using a 200% declining balance
method and a half-year convention. If, however, the partnership places more than 40% of its
furnishings and equipment in service during the last three months of a taxable year, a
mid-quarter depreciation convention must be used for the furnishings and equipment placed
in service during that year. Under MACRS, the partnership generally will depreciate
buildings and improvements over a 39 year recovery period using a straight line method and
a mid-month convention. The operating partnerships initial basis in properties acquired in
exchange for units of the operating partnership should be the same as the transferors
basis in such properties on the date of acquisition by the partnership. Although the law is
not entirely clear, the partnership generally will depreciate such property for federal
income tax purposes over the same remaining useful lives and under the same methods used by
the transferors. The partnerships tax depreciation deductions will be allocated among the
partners in accordance with their respective interests in the partnership, except to the
extent that the partnership is required under the federal income tax laws governing
partnership allocations to use a method for allocating tax depreciation deductions
attributable to contributed or revalued properties that results in our receiving a
disproportionate share of such deductions.
Sale of a Partnerships Property. Generally, any gain realized by a Partnership
on the sale of property held for more than one year will be long-term capital gain, except
for any portion of the gain treated as depreciation or cost recovery recapture. Any gain or
loss recognized by a Partnership on the disposition of contributed or revalued properties
will be allocated first to the partners who contributed the properties or who were partners
at the time of revaluation, to the extent of their built-in gain or loss on those
properties for federal income tax purposes. The partners built-in gain or loss on
contributed or revalued properties is the difference between the partners proportionate
share of the book value of those properties and the partners tax basis allocable to those
properties at the time of the contribution or revaluation. Any remaining gain or loss
recognized by the Partnership on the disposition of contributed or revalued properties, and
any gain
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or loss recognized by the Partnership on the disposition of other properties, will be
allocated among the partners in accordance with their percentage interests in the
Partnership.
Our share of any Partnership gain from the sale of inventory or other property
held primarily for sale to customers in the ordinary course of the Partnerships trade or
business will be treated as income from a prohibited transaction subject to a 100% tax.
Income from a prohibited transaction may have an adverse effect on our ability to satisfy
the gross income tests for REIT status. See Requirements for
Qualification Gross
Income Tests. We do not presently intend to acquire or hold, or to allow any Partnership
to acquire or hold, any property that is likely to be treated as inventory or property held
primarily for sale to customers in the ordinary course of our, or the Partnerships, trade
or business.
Taxable REIT Subsidiaries. As described above, we have formed and have made a
timely election to treat MPT Development Services, Inc. as a taxable REIT subsidiary and
may form or acquire additional taxable REIT subsidiaries in the future. A taxable REIT
subsidiary may provide services to our tenants and engage in activities unrelated to our
tenants, such as third-party management, development, and other independent business
activities.
We and any corporate subsidiary in which we own stock, other than a qualified
REIT subsidiary, must make an election for the subsidiary to be treated as a taxable REIT
subsidiary. If a taxable REIT subsidiary directly or indirectly owns shares of a
corporation with more than 35% of the value or voting power of all outstanding shares of
the corporation, the corporation will automatically also be treated as a taxable REIT
subsidiary. Overall, no more than 20% of the value of our assets may consist of securities
of one or more taxable REIT subsidiaries, irrespective of whether such securities may also
qualify under the 75% assets test, and no more than 25% of the value of our assets may
consist of the securities that are not qualifying assets under the 75% test, including,
among other things, certain securities of a taxable REIT subsidiary, such as stock or
non-mortgage debt.
Rent we receive from our taxable REIT subsidiaries will qualify as rents from
real property as long as at least 90% of the leased space in the property is leased to
persons other than taxable REIT subsidiaries and related party tenants, and the amount paid
by the taxable REIT subsidiary to rent space at the property is substantially comparable to
rents paid by other tenants of the property for comparable space. The taxable REIT
subsidiary rules limit the deductibility of interest paid or accrued by a taxable REIT
subsidiary to us to assure that the taxable REIT subsidiary is subject to an appropriate
level of corporate taxation. Further, the rules impose a 100% excise tax on certain types
of transactions between a taxable REIT subsidiary and us or our tenants that are not
conducted on an arms-length basis.
A taxable REIT subsidiary may not directly or indirectly operate or manage a
healthcare facility. For purposes of this definition a healthcare facility means a
hospital, nursing facility, assisted living facility, congregate care facility, qualified
continuing care facility, or other licensed facility which extends medical or nursing or
ancillary services to patients and which is operated by a service provider which is
eligible for participation in the Medicare program under Title XVIII of the Social Security
Act with respect to such facility.
State and Local Taxes. We and our stockholders may be subject to taxation by
various states and localities, including those in which we or a stockholder transact
business, own property or reside. The state and local tax treatment may differ from the
federal income tax treatment described above. Consequently, stockholders should consult
their own tax advisors regarding the effect of state and local tax laws upon an investment
in our common stock.
42
PLAN OF DISTRIBUTION
We are registering the resale of the shares of common stock offered by this prospectus in
accordance with the terms of a registration rights agreement that we entered into with the selling
stockholders in connection with our April 2004 private placement. The registration of these shares,
however, does not necessarily mean that any of the shares will be offered or sold by the selling
stockholders or their respective donees, pledgees or other transferees or successors in interest.
We will not receive any proceeds from the sale of the common stock offered by this prospectus.
The sale of the shares of common stock by any selling stockholder, including any donee,
pledgee or other transferee who receives shares from a selling stockholder, may be effected from
time to time by selling them directly to purchasers or to or through broker-dealers. In connection
with any sale, a broker-dealer may act as agent for the selling stockholder or may purchase from
the selling stockholder all or a portion of the shares as principal. These sales may be made on the
New York Stock Exchange or other exchanges on which our common stock is then traded, in the
over-the-counter market or in private transactions.
The shares may be sold in one or more transactions at:
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fixed prices; |
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prevailing market prices at the time of sale; |
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prices related to the prevailing market prices; or |
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otherwise negotiated prices. |
The shares of common stock may be sold in one or more of the following transactions:
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ordinary brokerage transactions and transactions in which a broker-dealer solicits purchasers; |
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block trades (which may involve crosses or transactions in which the same broker acts as an
agent on both sides of the trade) in which a broker-dealer may sell all or a portion of such
shares as agent but may position and resell all or a portion of the block as principal to
facilitate the transaction; |
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purchases by a broker-dealer as principal and resale by the broker-dealer for its own account
pursuant to this prospectus; |
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a special offering, an exchange distribution or a secondary distribution in accordance with
applicable rules promulgated by the National Association of Securities Dealers, Inc. or stock
exchange rules; |
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sales at the market to or through a market maker or into an existing trading market, on an
exchange or otherwise, for the shares; |
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sales in other ways not involving market makers or established trading markets, including
privately-negotiated direct sales to purchasers; |
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any other legal method; and |
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any combination of these methods. |
In effecting sales, broker-dealers engaged by a selling stockholder may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or other compensation from
the selling stockholder in the form of commissions, discounts or concessions. Broker-dealers may
also receive compensation from purchasers of the shares for whom they act as agents or to whom they
sell as principals or both. Compensation as to a particular broker-dealer may be in excess of
customary commissions and will be in amounts to be negotiated.
The distribution of the shares of common stock also may be effected from time to time in one
or more underwritten transactions. Any underwritten offering may be on a best efforts or a firm
commitment basis. In connection with any underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from the selling stockholders or
from purchasers of the shares. Underwriters may sell the shares to or through dealers, and dealers
may receive compensation in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agents.
43
The selling stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of their
securities, nor is there any underwriter or coordinating broker-dealer acting in connection with
any proposed sale of shares by the selling stockholders. We will file a supplement to this
prospectus, if required, under Rule 424(b) under the Securities Act upon being notified by the
selling stockholders that any material arrangement has been entered into with a broker-dealer for
the sale of shares through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer. This supplement will disclose:
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the name of the selling stockholders and of participating brokers and dealers; |
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the number of shares involved; |
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the price at which the shares are to be sold; |
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the commissions paid or the discounts or concessions allowed to the
broker-dealers, where applicable; |
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that the broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and |
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other facts material to the transaction. |
The selling stockholders and any underwriters, or brokers-dealers or agents that participate
in the distribution of the shares may be deemed to be underwriters within the meaning of the
Securities Act, and any profit on the sale of the shares by them and any discounts, commissions or
concessions received by any underwriters, dealers, or agents may be deemed to be underwriting
compensation under the Securities Act. Because the selling stockholders may be deemed to be
underwriters under the Securities Act, the selling stockholders will be subject to the prospectus
delivery requirements of the Securities Act. The selling stockholders and any other person
participating in a distribution will be subject to the applicable provisions of the Exchange Act
and its rules and regulations. For example, the anti-manipulative provisions of Regulation M may
limit the ability of the selling stockholders or others to engage in stabilizing and other market
making activities.
From time to time, the selling stockholders may pledge their shares of common stock pursuant
to the margin provisions of their customer agreements with their brokers. Upon default by a selling
stockholder, the broker may offer and sell such pledged shares from time to time. Upon a sale of
the shares, the selling stockholders intend to comply with the prospectus delivery requirements
under the Securities Act by delivering a prospectus to each purchaser in the transaction. We intend
to file any amendments or other necessary documents in compliance with the Securities Act that may
be required in the event the selling stockholders default under any customer agreement with
brokers.
In order to comply with the securities laws of certain states, if applicable, the shares of
common stock may be sold only through registered or licensed broker-dealers. We have agreed to pay
all expenses incidental to the offering and sale of the shares, other than commissions, discounts
and fees of underwriters, broker-dealers or agents. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages, actions, liabilities, costs and expenses,
including liabilities under the Securities Act. The selling stockholders have agreed to indemnify
us, our officers and directors and each person who controls (within the meaning of the Securities
Act) or is controlled by us, against any losses, claims, damages, liabilities and expenses arising
under the securities laws in connection with this offering with respect to written information
furnished to us by the selling stockholders.
EXPERTS
Our consolidated financial statements and the accompanying financial statement schedules for
the period from inception (August 27, 2003) through December 31, 2005, as included with the annual
report on Form 10-K for the year ended December 31, 2005 and incorporated by reference, have
been audited by KPMG LLP, independent registered public accounting firm, as stated in their report
incorporated by reference, and upon the authority of KPMG LLP as experts in accounting and
auditing.
The consolidated financial statements of Vibra Healthcare, LLC for the period from inception
(May 14, 2004) through December 31, 2005 as included with the annual report on form 10-K for the
period ending December 31, 2005 and incorporated by reference have been audited by Parente
Randolph, LLC, independent registered public accounting firm, as stated in their report
incorporated by reference, and upon the authority of Parente Randolph, LLC as experts in accounting
and auditing.
44
LEGAL MATTERS
Certain legal matters, including the validity of the common stock offered hereby, have been
passed upon for us by Goodwin Procter LLP. The general summary of material U.S. federal income tax
considerations contained under the heading United States Federal Income Tax Considerations has
been passed upon for us by Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.
45
Common Stock
PROSPECTUS
, 2007
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
We have and will continue to incur the following expected expenses in connection with the
securities being registered hereby. All amounts, other than the SEC registration fee, are
estimated. We expect to incur additional fees in connection with the issuance and distribution of
the securities registered hereby but the amount of such expenses cannot be estimated at this time
as they will depend upon the nature of the securities offered, the form and timing of such
offerings and other related matters:
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Securities and Exchange Commission Registration Fee |
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$ |
850 |
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Legal Fees and Expenses |
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100,000 |
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Accountants Fees and Expenses |
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50,000 |
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Printing and Engraving Expenses |
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50,000 |
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Transfer Agent Fees |
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2,500 |
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Trustee Fees |
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1,500 |
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Miscellaneous |
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25,000 |
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Total |
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$ |
229,850 |
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Item 15. Indemnification of Directors and Officers
We maintain a directors and officers liability insurance policy. Our charter limits the
personal liability of our directors and officers for monetary damages to the fullest extent
permitted under current Maryland law, and our charter and bylaws provide that a director or officer
shall be indemnified to the fullest extent required or permitted by Maryland law from and against
any claim or liability to which such director or officer may become subject by reason of his or her
status as a director or officer of our company. Maryland law allows directors and officers to be
indemnified against judgments, penalties, fines, settlements, and expenses actually incurred in a
proceeding unless the following can be established:
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the act or omission of the director or officer was material to the cause of action
adjudicated in the proceeding and was committed in bad faith or was the result of active
and deliberate dishonesty; |
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the director or officer actually received an improper personal benefit in money,
property or services; or |
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with respect to any criminal proceeding, the director or officer had reasonable cause
to believe his or her act or omission was unlawful. |
Our stockholders have no personal liability for indemnification payments or other obligations
under any indemnification agreements or arrangements. However, indemnification could reduce the
legal remedies available to us and our stockholders against the indemnified individuals.
This provision for indemnification of our directors and officers does not limit a
stockholders ability to obtain injunctive relief or other equitable remedies for a violation of a
directors or an officers duties to us or to our stockholders, although these equitable remedies
may not be effective in some circumstances.
In addition to any indemnification to which our directors and officers are entitled pursuant
to our charter and bylaws and the MGCL, our charter and bylaws provide that we may indemnify other
employees and agents to the fullest extent permitted under Maryland law, whether they are serving
us or, at our request, any other entity.
We have entered into indemnification agreements with each of our directors and executive
officers, which we refer to in this context as indemnitees. The indemnification agreements provide
that we will, to the fullest extent permitted by Maryland law, indemnify and defend each indemnitee
against all losses and expenses incurred as a result of his current or past service as our director
or officer, or incurred by reason of the fact that, while he was our director or officer, he was
serving at our request as a director, officer, partners, trustee, employee or agent of a
corporation, partnership, joint venture, trust, other enterprise or employee benefit plan. We have
agreed to pay expenses incurred by an indemnitee before the final disposition of a claim provided
that he provides us with a written affirmation that he has met the standard of conduct required for
indemnification and a written undertaking to repay the amount we pay or reimburse if it is
ultimately determined that he has not met the standard of conduct required for indemnification. We
are to pay expenses within 20 days of receiving the indemnitees written request for such an
advance. Indemnitees are entitled to select counsel to defend against indemnifiable claims.
II-1
The general effect to investors of any arrangement under which any person who controls us or
any of our directors, officers or agents is insured or indemnified against liability is a potential
reduction in distributions to our stockholders resulting from our payment of premiums associated
with liability insurance.
Item 16. Exhibits
The Exhibit Index filed herewith and appearing immediately before the exhibits hereto is
incorporated by reference.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
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(i) |
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To include any prospectus required by section 10(a)(3) of the Securities Act of
1933; |
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(ii) |
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To reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the Calculation of Registration Fee table in the
effective registration statement; |
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(iii) |
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To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such
information in the registration statement. |
Provided, however, That:
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) do not apply if the registration
statement is on Form S-3 and the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed pursuant to Rule
424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
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(A) |
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Each prospectus filed by the registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed
prospectus was deemed part of and included in the
registration statement; and |
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(B) |
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Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a
registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a)
of the Securities Act of 1933 shall be deemed to be
part of and included in the registration statement as
of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the
first contract of sale of securities in the offering
described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any
person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the
registration statement relating to the securities in
the registration statement to which that prospectus
relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no
statement made in a registration statement or
prospectus that is part of the registration statement
or made in a document incorporated or deemed
incorporated by reference into the registration
statement or prospectus that is part of the
registration statement will, as to a purchaser with a
time of contract of sale prior to such effective
date, supersede or modify any statement that was made
in the registration |
II-2
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statement or prospectus that was
part of the registration statement or made in any
such document immediately prior to such effective
date. |
(5) That, for the purpose of determining liability of the registrant under the Securities Act
of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering
required to be filed pursuant to Rule 424; |
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(ii) |
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Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned
registrant; |
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(iii) |
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The portion of any other free writing prospectus
relating to the offering containing material
information about the undersigned registrant or its
securities provided by or on behalf of the
undersigned registrant; and |
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(iv) |
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Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(b) The undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrants annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to trustees, officers or controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Birmingham, Alabama on March 6, 2007.
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MEDICAL PROPERTIES TRUST, INC.
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By: |
/s/
R. Steven Hamner
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R. Steven Hamner |
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Executive Vice President,
Chief Financial Officer and Director |
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POWER OF ATTORNEY
Each of the directors and/or officers of Medical Properties Trust, Inc. whose signature
appears below hereby appoints Edward K. Aldag, Jr. and R. Steven Hamner and each of them as his
attorney-in-fact to sign in his name and behalf, in any and all capacities stated below and to file
with the Securities and Exchange Commission, any and all amendments, including post-effective
amendments to this registration statement, making such changes in the registration statement as
appropriate, file a 462(b) registration statement and generally to do all such things in their
behalf in their capacities as officers to enable Medical Properties Trust, Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and on the dates indicated.
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Signature |
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Title |
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Date |
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/s/ Edward K. Aldag, Jr.
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Chairman of the Board, President and Chief
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March 6, 2007 |
Edward K. Aldag, Jr.
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Executive Officer |
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Director
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Virginia A. Clarke
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/s/
G. Steven Dawson |
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Director
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March 6, 2007 |
G. Steven Dawson
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/s/ R. Steven Hamner
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Executive Vice President, Chief Financial Officer
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March 6, 2007 |
R. Steven Hamner
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and Director |
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/s/ Robert E. Holmes
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Director
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March 6, 2007 |
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/s/ Sherry A. Kellett
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Director
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March 6, 2007 |
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/s/ William G. McKenzie
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Vice Chairman of the Board
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March 6, 2007 |
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/s/ L. Glenn Orr, Jr.
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Director
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March 6, 2007 |
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II-4
EXHIBIT INDEX
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Exhibit |
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Number |
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Description |
5.1
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Opinion of Goodwin Procter LLP with respect to the legality of the shares being registered |
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8.1
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Opinion of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. with respect to certain tax matters |
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23.1
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Consent of KPMG LLP |
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23.2
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Consent of Parente Randolph, LLC |
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23.3
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Consent of Goodwin Procter LLP (included in Exhibit 5.1) |
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23.4
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Consent of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. (included in Exhibit 8.1) |
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24.1
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Power of Attorney, included on signature page of this Registration Statement |
II-5