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Executives

Mike Stewart - EVP, General Counsel

Ed Aldag - Chairman, President and CEO

Steve Hamner - EVP and CFO

Analysts

Kevin Ellich - RBC Capital Markets

Jerry Doctrow - Stifel Nicolaus

Karin Ford - KeyBanc Capital Markets

Michael Mueller - J.P. Morgan

Omotayo Okusanya - UBS

Medical Properties Trust, Inc. (MPW) Q4 2008 Earnings Call January 29, 2009 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2008 Medical Properties Trust Incorporated Earnings Conference Call. My name is Jerry, and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to turn the call over to Mr. Mike Stewart, Executive Vice President and General Counsel. You may proceed, sir.

Mike Stewart

Thank you, operator and good morning everyone. Welcome to the Medical Properties Trust conference call to discuss our fourth quarter and full year 2008 financial results.

With us today from senior management are Edward K. Aldag Jr., Chairman, President and Chief Executive Officer, and Steven Hamner, Executive Vice President and Chief Financial Officer.

A press release was distributed this morning January 29th and we furnished our Form 8-K with the SEC. If you did not receive a copy it is available on our website at www.medicalpropertiestrust.com in the Investor Relations section. Additionally, we are hosting a live webcast of today's call which you can access in the same section.

During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to know and unknown risks and uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of these factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information we've provided today is of this date only and accept as required by the Federal Securities Laws, the company does not undertake any duty to update any such information.

In addition, during the course of the conference call we'll describe certain non-GAAP financial measures which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release Medical Properties Trust has reconciled all non-GAAP financial measures to most directly comparable GAAP measure in accordance with Reg G requirements. You can also refer to our website at www.medicalpropertiestrust.com for the most directly comparable financial measures and related reconciliation.

I'd like to turn the call over now to our Chief Executive Officer, Ed Aldag for his opening remarks.

Ed Aldag

Thank you Mike, and good morning everyone and thank you for joining us on today's conference call, before turning the call over to our Chief Financial Officer, Steve Hamner to review our financial results. I would like to highlight our achievements for the year, provide some perspective on trends within healthcare industry and then update you on the state of our portfolio.

In 2008 we made dramatic progress on growing and diversifying our real estate platform. For the full year we made $425 million in healthcare real estate investments which is over $200 million ahead of our original objective.

For the year we increased total healthcare investments by over 40% to more than $1.3 billion at year end. These investments have broadened both our geographic and tenant diversification while increasing the overall scale of our real estate platform.

Today we have a total of 51 healthcare properties in 21 states. For the full year the company delivered a 22% increase in total revenues. One of the most important measures of diversification for our portfolio is how much does any one property represent of our total portfolio.

In 2008 we made great progress in this area, today no one property represents more than 6% of the total portfolio and only 5 represent 5% or more. Our investments in 2008 also have substantially improved the credit strength of our portfolio.

In a few minutes, Steve will describe our anticipated 2009 lease and interest revenue, but it is important at this time to note that more than 67% of our total revenue is generated by some of the strongest hospital operators in the country including some publicly reporting companies.

And while our operator Prime Healthcare Services is not publicly traded we do include the parent company financial statements in our periodic filings. So investors can see for themselves how strong that operator is. By the way Prime currently ranks among the largest 12 hospital operators in the entire country.

We expect that as our portfolio grows we will continue to focus on acquiring hospitals that are operated by companies like these that have demonstrated their expertise and ability to operate profitably in good and bad economic and regulatory conditions.

In 2003, the year we formed Medical Properties Trust one of our principle goals was to become the leading source of financing of hospital real estate nationwide. With the completion of our 2008 acquisitions we believe we are now the company to turn to in real estate financing for hospitals across the nation.

Now I’d like to take a moment to speak to what's happening with the healthcare industry and in particular hospitals. There have been some reports within the media about the state of hospitals and specifically the possible negative effects the country's recession is having on or may have on hospitals broadly.

However, as with news reports in general they have broad reports that'll have all hospitals in same category.

In reviewing the hospital sector just like any sector it is important to remember that not all hospitals are the same.

Our LTACHs and rehab hospitals for example have very little exposure to commercial insurance and private pay which could be affected by the nation's rising unemployment.

And while it's true that the rising unemployment will likely increase the number of uninsured you can not assume the direct proportional effect from the unemployment to utilization of hospitals is not all of these people were or our customers of hospitals. In fact when reviewing hospital utilization and recessions past even the deep recession of the mid 70s utilization per hospitals actually went up.

Even in bad times people need hospitals. In fact the hospital sector was the only private sector in the US economy to experience job growth in 2008.

And furthermore these jobs were not front end loaded in 2008. Hospitals actually experienced job growth just this past December and there continues to be nursing vacancies to be built throughout the country of more than 100,000.

We compared our hospitals that were in our portfolio in both November 2007 and on November 2008. The results are very positive and further reflect the strength of our portfolio and MPT especially during the economic crisis the country is experiencing.

Patient days were 8.7% higher in November 2008, compared to November 2007. Outpatient visits were 6.5% higher in November '08 compared to November '07. Emergency room visits remained unchanged. Net revenues were 7% higher in November '08 compared to November '07, and bad debt was 4.4% lower in November '08 compared to November '07.

While we certainly agree that all companies including hospitals are being very cautious with their capital expenditures during these uncertain times. We are confident that our portfolio is well positioned to not only weather but to outperform the current market.

Four of our hospitals are actually undergoing some form of expansion in order to keep up with their increasing profitable utilizations.

Healthcare spending particularly in the hospital sector is expected to continue to increase throughout 2009 and years thereafter. It is already very clear that the Obama's administration will continue to make increasing access for healthcare, to all Americans one of its top priorities.

We expect to shortly after the stimulus package Congress will pass and the President will sign a bill that will increase funding for hospital utilization in the country. While we anticipate that some of our facilities may say some effects of the recession. It is important to know that when viewing any concerns you may have about how I slow down in the economy might affect our tenants.

Our EBITDAR lease coverage is some of the very best in the industry. While it is a little difficult to compare our portfolio from year-to-year because of acquisitions during the year.

Our overall lease coverage portfolio wide increased approximately 30% from 2007 to 2008. More specifically the acute care hospital coverage was 4.81 times for 2008, LTACHs 1.77 times and our rehab hospitals 3.37 times.

There are additional trends that we’re seeing in hospital sector that are also promising. These include continued advancement in technological innovations and demand from both physicians and patients for modern, conveniently located facilities.

The significance of these trends is that healthcare operators are increasingly conserving their capital for investment in operations and new technologies rather than investment in real estate and therefore there is increased demand at least rather than owned hospital facilities.

Our management team's ability to source, fund and manage well located hospitals, position us well now and when overall economic conditions improve.

Our tenant's are well funded experienced healthcare facility operators and healthcare systems.

In terms of revenues our largest tenants are currently Prime at 33.8% of revenues. Vibra at 15.4% followed by North Cypress Medical Center, HealthSouth, IASIS and Community Health Systems each in the single digits.

Looking ahead spreading investment exposure across the tenant base remains a key objective and we will continue to enhance tenant diversification as we did in 2008, with strategic activities such as the acquisitions we made in 2008. These activities may also include selective dispositions in refinancing.

So in summary while the overall economic picture remains challenging right now healthcare spending is robust and all trends point toward our portfolio's continued upswing. As well as the trend of healthcare operators reserve capital positions our company well.

Our triple net lease structure upholds operator's ability to channel that capital into facility improvements, technology upgrades, staff additions, and even new construction.

Now I'll provide a brief update on specific assets, first as previously announced in November. We signed a new long-term triple net lease agreements for Shasta Regional Medical Center in Redding, California with Prime replacing the previous operator.

The agreement provides us with an ownership interest in the new lease as well as additional rental revenue from a 5% increase in the value of the real estate, from $60 million to $63 million.

This agreement should also generate valuable incremental income for us up to an additional $20 million based on the future profitability of the hospitals operations. This incremental revenue comes in the form of additional rent and there is a profits interest in the operator itself and is expected to be paid from our 50% share in cash flow from the operations.

It is important to understand that this incremental $20 million is over and above the contractual lease payments and requires no additional investment for MPT.

Regarding River Oaks, and as communicated we are pursuing various scenarios regarding the sale or re-leasing of the Houston campuses. This process is taking a bit longer than originally anticipated due to the aftereffects of Hurricane Ike as well as the overall state of the credit markets.

However, we are still seeing interest in both campuses at values above or near our total investment in River Oaks. We are currently in negotiations with four different parties for these facilities. There is of course no assurance that we will complete a transaction with these parties.

Turning to Monroe Hospital, this facility continues to post strong operating results as a result of our strategies we earlier implemented. In the fourth quarter of 2008, net patient revenue grew from $2.9 million in the month of September to almost $4.5 million in the month of December. And EBITDAR grew from $331,000 in September to more than $1.3 million in December.

We continue our discussion with several large operators concerning a potential lease, purchase or even joint venture structures with potential operators for this facility. However, it is important to note that with the improved performance of Monroe we have taken it off our internal special asset list leaving only Bucks and River Oaks on that list.

We also, currently considering alternatives for our Bucks County facility. The current operator DSI has given those that they intend to close the facility in February. Most of the potential new operators at Bucks have indicated they would prepare to obtain their own license instead of assuming the existing DSI license. Therefore they prefer the closure.

We recently entered into a non-binding letter of intent with one of the proposed new operators, although, no definitive agreement has yet been signed. It is important to note in our AFFO range that Steve will go over in few minutes.

We have assumed no revenue from either Bucks or River Oaks. We truly expect that both Bucks and River Oaks will generate revenue in 2009, but because we currently do not have binding agreements we've assumed to no revenue from these two facilities for this year.

Given current economic conditions we are also continuing to improve our liquidity and overall financial position. We have taken several prudent steps to strengthen our balance sheet including the adjustment of the dividend pay in the fourth quarter to $0.20 pr share. This represents an annualized yield of approximately 15.25% based on the closing price of $5.24 on January 27th. Capital preservation is key for us as any company in this current environment.

In January we completed a public offering of 13.4 million shares generating net proceeds of approximately $68 million, while it is never preferable to raise equity in this type of environment. When your stock prices clearly trading at the discounts, we were extremely pleased that so many of our current and new investors recognized the benefits of this offering and purchase new shares.

In fact the offering in early January was so over subscribed that we were able to complete the offering at market. The current economic crisis worldwide is truly historic in nature and we knew there would be a small window of opportunity to raise new equity right after the first of the year and we wanted to be sure that we did not delay and missed this window.

With this equity MPT is well positioned for the long term including future acquisitions once we see a bottom to the credit crises. So in conclusion 2008 was a significant year for our company in terms of investment and operations.

If you were able to ignore the global negative effects of our stock price and which as a significant shareholder in our company I am no more able to do that than most of you. 2008 was a tremendous year for our company.

Our properties performed very well. We have successfully repositioned two of the four properties on our special asset list and we have positioned our balance sheet in a manner that allows us to be very well positioned for the long term.

At this time I'll ask Steve Hamner our Executive Vice President and Chief Financial Officer to go over our specific yearend and fourth quarter results. Steve?

Steve Hamner

Thanks Ed and good morning everyone, I'll provide a brief overview of our financial results for the fourth quarter and full year 2008, but I want to spend the majority of my time reviewing our outlook for anticipated 2009 operations because our future operations will not be directly comparable to 2008 results. That's because since really the beginning of 2008 we have successfully completed a number of major transactions that have positioned MPT to thrive even through the unprecedented economic conditions that the world is in today.

Those transactions have resulted in a portfolio and capital structure very different and very improved from when we started the year.

So, let me proceed and then we'll open up the call for your questions. First the historical quarterly results.

For the fourth quarter 2008 we reported normalized funds from operations or FFO of $0.22 per diluted share and adjusted FFO of $0.21 per share. There are number of items unique to the fourth quarter that are included in FFO that I would like to go through with you briefly. First we charged off approximately $4.7 million about $0.07 per diluted share and various receivables related to Bucks County.

Of this amount approximately $2.9 million or $0.05 a share is for previously approved straight-line rent. And we do not include that portion of the charge off in our normalized FFO. The remaining portion roughly $1.8 million is classified as bad debt and operating expense and is classified in the fourth quarter in the G&A line item.

We incurred approximately $1.4 million or $0.02 a share in legal expense related to the Houston town and country litigation. We continue to believe that the allegations have no merit and that we will prevail at trial which we are prepared to start by the way in March.

Moreover, we believe its some or all of these expenses may be recovered through insurance, but due to the uncertainty of future defense cost and the ultimate outcome of the trial we can not be assure that our total future cost will not exceed the limits of our insurance policy.

Also included in G&A is that deductible portion of damages sustained by our River Oaks campuses during Hurricane Ike, this amounts to approximately $1.3 million or $0.02 per share and as I said is also included in fourth quarter G&A.

We expensed another approximately $1.1 million, $0.02 a share of cost associated with the bankruptcy of Hospital Partners of America the former tenant at both River Oaks and Shasta.

We believe most of these cost may be substantially recovered through collection of pre-bankruptcy accounts receivable on which we have first, but we have elected not to recognize any recovery until issue surrounding the bankruptcy proceedings are clarified.

For the year ended December 31, normalized FFO and adjusted FFO per diluted share were each at $1.19. These results were affected by the same items we just discussed and other items that we have previously discussed on prior earnings calls.

Including the effect of annualizing the weighted average share count over the entire year instead of quarterly. The per share FFO levels were calculated using a fourth quarter weighted average share count of 65,075,000, and full year 2008 weighted average share count of 62,144,000.

Let's discuss capital for just a few minutes and I'll give you a few metrics concerning our capital structure and liquidity sources.

As of today we have approximately $580 million in borrowings that's down from about $638 million at year end. Of this total approximately $350 million is in fixed rate facilities that carry a weighted average rate of approximately 7.4%. Approximately $230 million of our total borrowings is in variable rate loans with the weighted average rate today of approximately 2.5%.

We have approximately $70 million of cash and immediate availability under our revolving credit agreements.

Our first meaningful non-extendable maturity of debt is for approximately $30 million in November 2010. That loan which may be prepaid without penalty, is secured by most of the assets we acquired from HCP that have a collateral valuation of approximately $330 million which of course would be freed up, if we elect to pay these $30 million loan balance.

We have unfunded commitment to financial certain expansion and refurbishment project with in our portfolio totaling less than $5 million. We have no commitments to acquire or develop any new facilities.

So our expected cash flow from operations will be sufficient to continue to fund our limited commitments and pay $0.20 quarterly cash dividend. And our liquidity in unencumbered assets provide a high level of confidence that we will have multiple options three years from now in November 20/11 to satisfy our debt maturities at that time.

Nonetheless we are continuing to explore potential opportunities to selectively dispose our otherwise refinance some of our assets. We have no bonding agreements for any of such transactions. But we have recently seen encouraging signs that some real-estate investors may be getting more active. Mean while until there is a lot more clarity about potential property sales across the entire real estate spectrum and about credit conditions in general it is unlikely that we will commit to any significant uses of our available capital.

Let's turn briefly to future operations and our estimate of what our existing portfolio and operations are expected to produce and so far as FFO in 2009. As those who have followed the company know our practice is to provide estimates of annualized FFO run-rate based on our in place portfolio, based on the assumptions I am about to go through we believe that 2009 run rate will be between $0.88 and $0.92 per diluted share.

The share count for both basic and diluted measures is approximately 78 million shares; this of course is an additional 13 plus million share, over our December 31 shares count as a result of the successful offering we completed earlier this month.

We stopped rent accrual on River Oaks Hospital as of October 1, 2008 and as discussed the status of our process to sell at least the two River Oaks campuses but for purposes of estimating our run-rate we have assumed no revenue related to these facilities.

Similarly we have started the accrual of revenue from our Bucks County Hospital and written off the rent receivables that we believe are not collectible.

Our run rate estimate for 2009 does not include any Bucks County revenue even though as I described we are negotiating with several parties for a new lease or sale transaction and we believe we'll have some resolution in 2009.

Interest expense is estimated based on existing loan balances and fixed interest rates and a LIBOR rate across the year of 2%.

Our general and administrative expenses in 2009 are estimated to total approximately $21 million which is comparable to our 2008 levels after reduction for items such as what I described a little earlier.

Included in the estimate is the cost of non-cash share based compensation of approximately $6 million. The substantial majority of this expense is based on stock price assumption that on average exceeds $13 per share and on the assumption that 100% of shares that are subject to performance criteria were left when in fact it is likely that many of those shares will not waste.

The run rate does not include any cost that may be incurred with respect to the Houston Litigation.

The terms of our existing leases or expected to result in straight line rent revenue of approximately $7 million generally ratably across the four quarters of 2009.

We do not assume any incremental revenue from our profit interest in the Shasta Hospital operations. As a reminder when we signed a new lease agreement with Prime entity as of November 1 of last year we've received the right to receive up to 50% of that entity's cash flow for a total of up to $20 million over the term of the lease.

We are not required to make any incremental investment in the entity in order to earn this participation.

Although, there is no assurance about the amount or timing of any such participation. We believe that the Shasta entity will become cash flow profitable during the later half of 2009 and that we will begin receiving distributions in 2010 which could amount to approximately $1.2 million.

As we've discussed we are negotiating possible transactions regarding Monroe and Bucks County that may include similar participating interest. Our strategy includes the exploration of other such opportunity.

If we are successful in completing these types of agreements we believe the volatility inherent in the level of operating earnings will be mitigated by increasing the number and diversity of similar arrangements.

Moreover, because we expect that most of these arrangements will be similar to Shasta in that little or no additional capital investment is required for us to achieve the returns. Any added volatility has a very little real cost to us.

Finally this 2009 estimated run rate does not include the effect of a change in accounting for our two issues of exchangeable notes. We believe that application of this pronouncement as required in 2009 will result in non-cash increases in interest expense of approximately $2.2 million.

And with those comments I will turn the call back to the control of the operator and she will queue any questions that you may have.

Question-and-Answer-Session

Operator

(Operator Instructions). And your first question comes from the line of Kevin Ellich with RBC Capital Markets. You may proceed.

Kevin Ellich - RBC Capital Markets

Good morning guys, thanks for taking my question.

Ed Aldag

Good morning.

Kevin Ellich - RBC Capital Markets

I guess I'd like to start off with the guidance and the G&A expenses Steve you did nice job of breaking off all of the components. But I was just wondering and I missed the Houston Litigation it seems. Could you walk through that once again and then what should we expect going forward?

Steve Hamner

The Houston litigation in the fourth quarter amounted to about a $1.4 million in, in defense cost. And I am not sure what your question was Kevin.

Kevin Ellich - RBC Capital Markets

The question is, the G&A expense I guess is the $10 million a good number to use?

Steve Hamner

Oh no the $10 million is not a good number to use. If you look at the $10 million roughly, $10,020,000 in G&A for the fourth quarter. That includes over $4 million of unusual one time, non-recurring, similarly phrased charges that include for example, we discussed the, the Bucks County write off. Bucks County, was a $4.7 million write off, of which $3 million of that went to straight line rent and $1.8 million of that is included in that $10 million of G&A as a bad debt expense.

Kevin Ellich - RBC Capital Markets

Okay. (inaudible)

Steve Hamner

Pardon.

Kevin Ellich - RBC Capital Markets

Sorry, that bad debt that is just a one time expense then.

Steve Hamner

Yes, that's right as is of course the roughly $1.3 million in retention cost that we had on the River Oaks hurricane damage. We are still negotiating with insurers and contractors that we believe we may have had as much as $6 million or $7 million in damage to the two buildings all of which is insured of course except for our retention which was $1.3 million. So we charged off that $1.3 million to G&A as a property expense in the fourth quarter.

So that also is included $10,020,000. Also there is another I think I mentioned roughly $1.1 million in HPA related cost that we believe may be recoverable but given the status of the bankruptcy proceedings we've elected basically to reserve those costs until we get more clarity on the bankruptcy and our rise to the collateral. So those three items themselves amount to over $4 million and again as you described it one time charges that are included in the roughly $10 million of G&A.

Kevin Ellich - RBC Capital Markets

Okay, that's helpful. And then going back to Bucks County I know you guys stated that you haven't included in your guidance but if you come back and how much might be recovered if you do get some agreements from the operators at that facility.

Steve Hamner

Well, Kevin we think that and we are virtually certain at this point that we'll not be restructuring at least with the existing operator. We've gone back and forth with that operator really for the last 12 months and I think as Ed mentioned the littler earlier on the call the hospital is probably very likely going to be closed within a couple of weeks and there will be some wind down period, but our negotiations currently are with other parties and so we don’t expect to -- well there is not much likelihood we'll put it that way that we will recover any of that $1.7 million above what we've already calculated there.

Kevin Ellich - RBC Capital Markets

Okay. And then just going back to the economy and obviously stimulus is a positive, but have your operators really talked you guys about what type of Medicaid exposure they have given, challenging fiscal debt environment the states are in right now?

Ed Aldag

Kevin, the largest Medicaid exposure we have is out in California with the Prime properties. And they are very comfortable with their revenue where it is right now with their medical situation.

Kevin Ellich - RBC Capital Markets

Okay. That's all I have. Thanks.

Ed Aldag

Thank you.

Operator

And your next question comes from the line of Jerry Doctrow with Stifel Nicolaus. You may proceed.

Jerry Doctrow - Stifel Nicolaus

Hi, thanks. I guess I want to shift gears little bit and talk more about sort of the capital structure and I think you detailed obviously offering reduction and dividend some of which you've done already. I was wondering if you could just think a little bit further out. You've got the converts as well coming so I think you talked about some asset sales, I was just wondering we go little bit may be broader sense sort of strategically kind of what else you think about sort of managed those kind of pending maturities and whether something like exchange offer for the existing converts well that's sort of thing is also on the agenda?

Ed Aldag

Well I guess, Jerry the simple answers everything is on the agenda. As we look out to November 2011, we’re, we take some confidence in the fact that as I mentioned that we've got $330 million basically of properties that are encumbered now that can be released with the payment in 2010 or earlier if we would so chose of the KeyBanc $30 million term loan.

Now of course that assumes that, there is going to be credit market, take advantage of that collateral and we are not making that assumption taking that for granted. Who knows how long and how deep the situation is going to last. But that is clearly an alternative, what you mentioned, bringing in some of the dead at the discount is something we consider on an ongoing basis. We've been unable just frankly to get comfortable with the arithmetic on an exchange a stock for, for note exchange. But the things can change.

We do think there is a reasonable likelihood that will access some additional liquidity with the couple of specific property transactions although there is no assurance of that and with more cash that may come from that, and that gives us, even that much more growth to consider perhaps with respect, to bringing in some of the data to discount.

Jerry Doctrow - Stifel Nicolaus

And so asset sale repurchasing some of the in discount will be one clear option I guess is on the agenda. In terms of just, you also I think have mentioned refinancing. Just any sense and obviously it's a very self destructive market but I think, the past your feeling was that there was sort of secured property level that may be from regional banks and that sort of thing. Any sense of sort of where that market is, you're doing any testing of the waters there.

Ed Aldag

And that's a good point and in fact we haven't announced because it's relatively small transaction but we did complete the financing of a single property which at all helps out rehabilitation hospital with a local bank out of Kansas. And we've got very good terms on there, we access 60% of value at a fixed rate, very attractive fixed rate in the 6% neighborhood and we've continued to explore other opportunities like that and there are such other opportunities.

It takes a lot of digging to find a local bank that has the capacity and the desire to underwrite the property like this but we've identified a few and it's possible that there will be more of those. It's a lot of work for not much proceeds but nonetheless we are able to chip away some of the issues and that's been worth the risk. So it's long winded way of saying there could be another $15 million perhaps of refinancing of that type.

Jerry Doctrow - Stifel Nicolaus

Okay, and what kind of term, is it a five year term, ten year term or.

Ed Aldag

Five year term.

Jerry Doctrow - Stifel Nicolaus

Okay. And fixed rather than floating.

Ed Aldag

Fixed and we have the option we elected to fix this when it.

Jerry Doctrow - Stifel Nicolaus

Okay, and let's say one of this stuff I think that you've covered, I just dig as one or two other thing. While just on the debt just in terms of where you stand on sort of debt covenants, are there just some key covenants and give us a sense where you are in the metric?

Steve Hamner

Well, there is a number of limits and sub limits and covenants and sub covenants and all I can tell you I guess on this call would be we are well within with lots of headroom on each and everyone as a covenants.

Jerry Doctrow - Stifel Nicolaus

Okay. And I guess one or two other things and just on operators the wellness and issues we basically touch on there are big part of the portfolio coverage there or how they are holding up sort of in the economic downturn?

Ed Aldag

Jerry, all the facilities that the only ones that have really shown any effects on the recession and it's been there but been slight. As you know they never been a stellar performer from the day we bought them. They pay their rent and their coverage. We have the corporate guarantee there, the coverage is on the individual facilities are slightly below one times, but we have corporate guarantee and they have -- I think total of 23 or some odd number of total facilities and their total portfolio.

Jerry Doctrow - Stifel Nicolaus

Okay. And so remind me to the company as how many you own of the 23?

Ed Aldag

It's health tracks and we own six of them, but I think they have 23 or so other than our six.

Jerry Doctrow - Stifel Nicolaus

Okay.

Steve Hamner

And just to remind it Jerry we have a total investment in '06 of about $15 million.

Jerry Doctrow - Stifel Nicolaus

Okay. And is that something that would potentially be on the block of among others?

Ed Aldag

Absolutely.

Jerry Doctrow - Stifel Nicolaus

Okay. And then the one other thing on I think Prime mostly could potentially I guess opening in fact five or less but separate from whether Medicare rates and all that sort of stuff certainly point is one other states and some talking about what holding actual cash distributions. Any of that happen or is that an issue that you think Prime is prepared to, to deal with just not paying the money even though it's over?

Ed Aldag

Yeah I think they are very prepared but to handle it as you know when it happened a for a very short while this past fall, while the state was in there budget, discussions I should say but I think that Prime is very well capable of handling it.

Jerry Doctrow - Stifel Nicolaus

Okay, thanks it's all from me for now thanks.

Ed Aldag

Thanks Jerry.

Operator

And your next question comes from the line of Karin Ford with KeyBanc Capital Markets. You may proceed.

Karin Ford - KeyBanc Capital Markets

Hi good morning.

Ed Aldag

Good morning, Karin.

Karin Ford - KeyBanc Capital Markets

Question on the guidance, is there any rent from Monroe included in the guidance?

Steve Hamner

Yeah, Monroe we assume full payment of rent and actually have started paying rent. They are ramping up to a full contractual payment in April. They have paid a $100,000 in January and they have ramped that up to 100,000 a month so in March they are paying 300 and then in April they'll be fully paying the rent. So that is included in the $0.88 to $0.92 run rate.

Karin Ford - KeyBanc Capital Markets

And in April what’s the full rental payment?

Steve Hamner

335 something.

Karin Ford - KeyBanc Capital Markets

335?

Steve Hamner

I guess, something like that. I am getting some hesitant nods but something in that neighborhood.

Karin Ford - KeyBanc Capital Markets

Okay that's great, thanks. Second question is I think you guys have mentioned on the third quarter call that, you are expecting Bucks County to stay with the existing operator that they weren’t. They were happy with the operations there and now it seems like its getting ready to close. What sort of change the Bucks County there?

Ed Aldag

We did state, then there was the fact that biggest change as they replaced their internal management team. They replaced their CEO, new CEO came in did his own assessment of what direction you want to take the company in. As you will recall the vast majority their business is in the rental business. This is really an outlier for them and he chose in this economic climate to focus on their strengths.

Karin Ford - KeyBanc Capital Markets

And then the current negotiations you are having with a new tenant, how much lower do you think the rent will be versus with what the previous tenant was paying.

Ed Aldag

Well I am not sure it would be fair to say that it would be any lower Karin. But as I stated in my prepared remarks. We are currently negotiating with a number of tenants, number of prospects. We currently have a signed non-binding LOI but since we are still in negotiations with people it will not be very prudent of me to disclose what those terms are at this point.

Karin Ford - KeyBanc Capital Markets

Okay, any other potential properties with issues out there in the horizon.

Ed Aldag

We are certainly not aware of any.

Karin Ford - KeyBanc Capital Markets

And final question is just on the dividend after the December cut at $0.80 level looks like based on the mid point of your FFO guidance less the call it $0.11 per share of straight-line that you guys indicated in your guidance that you are slightly below that $0.80 level on an AFFO basis. And 2009, can you sort of talk about your comfort level in that and would you consider paying some of that $0.80 in stock.

Steve Hamner

Well you didn't quite get a complete reconciliation to AFFO, Karin because you’re right, you take out straight line obviously but you add back in I think I mentioned $6 million of share based compensation and a very heavy amortization of loan cost. So it ends up actually we are forecasting a penny higher AFFO than FFO. So it's actually, where you call it a pick up, but it's actually basically a wash.

Karin Ford - KeyBanc Capital Markets

Okay

Steve Hamner

With respect to the second part of your question, we set the dividend when we did, based on what we thought the portfolio could do it a minimum. And we don’t expect that 2009 will be at the low end of that range and could even exceed the range obviously depending on lots of other things may happen. And just philosophically as we said here today I think this management and our board feel fairly strongly about the need to continue cash dividends and we are talking about the entire REIT sector frankly, I think for lot of reasons continue to go toward non-cash dividend, I think they has long term negative ramifications for the entire industry.

Karin Ford - KeyBanc Capital Markets

Okay. Thanks very much.

Ed Aldag

Thank you, Karin.

Operator

And your next question comes from the line of Michael Mueller with J.P. Morgan. You may proceed.

Michael Mueller - J.P. Morgan

Hi. Couple of things, first of all on the charges and the fourth quarter, Steve can you just walk through the geography of those which ones are in G&A, which ones are elsewhere?

Steve Hamner

Yes, let's just go through. Ones that are not in G&A would be the $1.4 million litigation cost that's down in discontinued operations would be the $3 million write off of the Bucks straight line ramp.

Michael Mueller - J.P. Morgan

Okay.

Steve Hamner

And then what's in G&A is the roughly $1.3 million in the insurance retention for River Oaks. Another roughly $1.1 million in other charges, cost and accruals related to the prior tenant at River Oaks.

Michael Mueller - J.P. Morgan

Okay.

Steve Hamner

And then the $1.8 million in current ramps that we had previously recognized from Bucks. So, that's a total of about something that were $4 million that are included in the $10 million of reported G&A.

Michael Mueller - J.P. Morgan

Okay. So, we shouldn't strip therefore from tenant and save six. What because the six versus I think you’re prior quarters if I am not mistaken where in a 4 to 5 range, is that right.

Steve Hamner

Yeah they were number of, other cost related to all of the transitions they we have gone through with some of the problem. Properties and there is a true up of compensation cost. Primarily related the non-executives and so your ride is as you look forward into the guidance or the estimate we gave for 2009 probably should be assuming, we think a roughly 5, $5.25 million a quarter in total G&A and so that will get back to your run-rate that I think you will be ride on.

Michael Mueller - J.P. Morgan

Okay and than what is the Bucks revenue that goes away per quarter or per year.

Steve Hamner

It’s roughly $4 million so, $0.04, $0.05 a share.

Michael Mueller - J.P. Morgan

Okay. So if we're thinking about Q4 run rate versus Q1 and going forward getting down to the $0.22, $0.23. The only change is that are recurring is the offering impact and just dripping out $4 million a year there is nothing else that's taken for the run rate in one quarter going forward because Shasta is already out of Q4. That's first in there correct?

Ed Aldag

It was Shasta did --

Michael Mueller - J.P. Morgan

Yeah, that's what I meant Shasta reworked, sorry for that. Because they only had a full.

Steve Hamner

Yeah that’s right but try got a, you are the only change because you arrived at Buck I mean River Oaks was not in Q4. So you’re taking out obviously you are counting for 30 million new shares and then taking out the Bucks. And then there was no Shasta by the way in October so that's another what $300,000 and $400, 000 that we did not recognize in October.

Michael Mueller - J.P. Morgan

Okay

Steve Hamner

It will be recognized going forward.

Michael Mueller - J.P. Morgan

Okay. Thank you.

Steve Hamner

Thanks Mike.

Ed Aldag

Thanks.

Operator

And your next question comes from the line of Omotayo Okusanya with UBS. You may proceed.

Omotayo Okusanya - UBS

Hi good morning. Most of my questions have been answered. It's just a quick one. The line of credit given what the current balance on the line is and then based on your current covenants and what’s the maximum amount you can put on the line at this point of time.

Steve Hamner

We have two lines just to be totally active. One for $42 million that's the single property collateralized by North Cypress that's $42 million that's fully drawn. Then we have the $220 million facility led by JPMorgan and KeyBanc and that has $66 million of term and $154 million of revolver and about roughly $65 million to $70 million is available under that revolver portion. And I am sorry what was the --

Omotayo Okusanya - UBS

As long as $220 million if you needed to.

Steve Hamner

I know covenant is the entire revolver availability is available. So we've got between $65 million and $70 million pending on which day you look at.

Omotayo Okusanya - UBS

Okay thank you.

Ed Aldag

Thanks, Tayo.

Operator

And you have a follow-up question from Jerry Doctrow with Stifel Nicolaus. You may proceed

Jerry Doctrow - Stifel Nicolaus

Hi. I understand you may not want to get pinned down but what I was trying to just get a sense of is in terms of expectations when we might expect to see some of the resolutions on things like Houston like Bucks. I mean is sort of kind of, I am assuming nothing is going to happen in the first quarter, is it kind of the first half, second half, give me just any sense about when we might know one way or the other something is going to happen or not out there?

Ed Aldag

Jerry, in this climate is really a very broad range, it's something could happen in this quarter but more likely to happen in the second or third quarters of this year.

Jerry Doctrow - Stifel Nicolaus

And that's on both.

Ed Aldag

Yes.

Jerry Doctrow - Stifel Nicolaus

Okay. All right. Thanks.

Ed Aldag

Thank you.

Operator

This concludes the Q&A portion of your conference. I would now like to turn the call back over to Mr. Ed Aldag for closing remarks. You may proceed.

Edward Aldag

Again I want to thank all of you for joining us today and we certainly appreciate your continued support and interest in Medical Properties Trust. And as always, please feel free to give myself, Charles Lambert or Steve Hamner a call. Thank you.

Operator

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.

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Source: Medical Properties Trust, Inc., Q4 2008 Earnings Call Transcript
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