MEDICAL PROPERTIES TRUST, INC.
Filed
Pursuant to Rule 424(B)(3)
Registration Statement
No. 333-141100
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 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 May 30, 2007, the closing
price per share of our common stock was $14.31. 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 May 31, 2007.
TABLE OF
CONTENTS
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RISK
FACTORS
Investment in our common stock offered pursuant to this
prospectus involves risks. You should carefully consider the
risk factors incorporated by reference to our most recent Annual
Report on
Form 10-K
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 purchasing shares of our common stock.
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, Inc. and its subsidiaries. The term you
refers to a prospective investor.
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.
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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
2
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, 2006 and in our Quarterly
Report 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.
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When we use the words believe, expect,
may, potential, anticipate,
estimate, plan, will,
could, intend or similar expressions, we
are identifying forward-looking statements. You should not place
undue reliance on these forward-looking statements. We are not
obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
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 31, 2007, we owned 20 facilities which were
being operated by seven tenants; we had one facility that was
under development and leased to one tenant; and we had five
mortgage loans to three operators. The 20 facilities we own and
the five facilities that secure our mortgage loans are located
in nine states, with an aggregate of approximately
2.5 million square feet and 2,373 licensed beds. We also
had one property under development that we believe can support
up to approximately 125,000 square feet and
39 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
3
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.
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, 2006;
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our definitive proxy statement for the 2007 annual meeting of
stockholders as filed on April 17, 2007; and
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our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007;
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our Current Report on
Form 8-K
filed on March 15, 2007.
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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:
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.
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.
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The following table sets forth information, as of May 30,
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
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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Beneficial Ownership
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Number of
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After Resale of Shares
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Number of
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Shares of
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of Common Stock(1)
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Shares of
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Common Stock
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Number of
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Common Stock
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Offered by This
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Shares of
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Beneficially
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Prospectus for
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Common
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Selling Stockholder
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Owned
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Resale
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Stock
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Percentage
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Akanthos Arbitrage Master Fund,
L.P.
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603,346
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603,346
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Altma Fund Sicav Plc In
Respect of Trinity Sub Fund
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82,960
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82,960
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AM International E Mac 63 Ltd
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211,171
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211,171
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AM Master Fund I, LP
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263,964
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263,964
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Bear, Stearns & Co.
Inc.
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603,346
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603,346
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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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GLG Market Neutral Fund
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301,673
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301,673
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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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965,354
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965,354
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Lyxor/AM Investment Fund Ltd
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45,251
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45,251
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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(2)
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1,840,203
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1,840,203
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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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(2) |
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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. |
7
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
49,578,062 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
49,578,062 shares of our common stock excludes:
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80,000 shares reserved for issuance upon exercise of stock
options outstanding as of May 31, 2007; and
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71,265 shares reserved for issuance upon the maturity of
vested deferred stock units outstanding at May 31, 2007.
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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.
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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 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
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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).
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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
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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.
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
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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; or
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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.
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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.
Capital
Contribution
We contributed the net proceeds of our April 2004 private
placement and subsequent public offerings as a capital
contribution in exchange for units of our 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
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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.
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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.
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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 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.
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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.
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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.
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
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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 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.
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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;
(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,
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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 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
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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.
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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.
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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.
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
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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 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
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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
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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.
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.
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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
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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.
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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.
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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
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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; or
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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.
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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.
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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.
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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.
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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.
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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
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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
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.
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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 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
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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
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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
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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 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.
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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.
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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.
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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
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.
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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.
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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.
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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 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
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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, 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.
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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
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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 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
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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.
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 November 2006
private placement of the notes. 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.
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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.
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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.
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.
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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
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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
January 1, 2004 through December 31, 2006 as included
with the annual report on
Form 10-K
for the year ended December 31, 2006 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, 2006 as included with the quarterly report on
Form 10-Q
for the period ended March 31, 2007 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.
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.
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Common Stock
PROSPECTUS
May 31, 2007