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Medical Properties Trust, Inc. (NYSE:MPW)

Q1 2010 Earnings Call

May 06, 2010 11:00 am ET

Executives

Mike Stewart - EVP and General Counsel

Steven Hamner - EVP and CFO

Ed Aldag - Chairman, President and CEO

Analysts

Kevin Ellich - RBC Capital Markets

Karin Ford - KeyBanc

Michael Mueller - JPMorgan

Jerry Doctrow - Stifel Nicolaus

John Sikes - Nomura International

Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2010 Medical Properties Trust Incorporated Earnings Conference Call. My name is Shenyl and I’ll be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’ call, Mr. Mike Stewart, Executive Vice President and General Counsel. Please proceed.

Mike Stewart

Good morning. Welcome to the Medical Properties Trust conference call to discuss our first quarter 2010 financial results. With me today are Edward K. Aldag Jr., Chairman, President and Chief Executive Officer of the company and Steven Hamner, Executive Vice President and Chief Financial Officer.

Our press release was distributed this morning and has been furnished on 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 that same section.

During the course of this call, we will make projections and certain other statements that maybe considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in our underlying such forward-looking statements.

We refer you to the company’s reports filed with the Securities and Exchange Commission for discussion of the factors that could cause the company’s actual results or future events to differ materially from those expressed in this call.

The information being provided today is as of this date only and except as required by the Federal Securities Laws the company does not undertake a duty to update any such information.

In addition, during the course of the conference call, we will 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 the 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 will now turn the call over to our Chief Executive Officer, Ed Aldag.

Ed Aldag

Thank you Mike and thank all of you for joining us today on our first quarter 2010 earnings call. Operationally, we experienced another solid quarter for MPT. Overall, our portfolio continued to strengthen and enhanced our company’s EBITDA release coverage position. Despite the fact that we compute lease covered ratios using the more conservative approach of EBITDAR, our lease covered ratios continue to be some of the highest in the industry.

However, even more exciting than the continued strong coverage ratios of the quarter, are the events that happened just post closing of the first quarter. First, we embarked on a major recapitalization of the company looking to the future. Secondly, we sold our largest prime facility back to Prime reducing our exposure to our largest tenant and providing us with good reinvestment opportunities, and thirdly we negotiated and consummated an early payoff in full of our participation in the Shasta taking any uncertainty out of our future cash flows from their timing. First let me go over the operational results for the first quarter.

With the exception of the disappointment at Monroe Hospital, our overall portfolio continued to strengthen this position. The EBITDAR lease covered ratio for our acute care hospital portfolio year-over-year increased slightly to just over six times. Our largest acute care operative Prime increased their coverage year-over-year to more than 6.5 times. Monroe Hospital is currently not performing where we believe it should be. As you will recall we and Monroe Hospital brought in a new hospital management company in the later part of 2009 to implement a strategy that takes the facility to the next level.

After three more months we jointly concluded that this management company had Monroe moving in the wrong direction. So we quickly acted with Monroe Hospital to terminate their contract. We still believe that this facility is a good hospital in a good market and in a good location. However, we have concluded along with Monroe Hospital that the hospital needs another management company to get it to the level we all know we can achieve.

To this end, we have reopened negotiations with several non-for-profit systems as well as a few for-profit entities. However, the time delay has cost us to take a conservative approach and take a $12 million reserve against our investment there. Our LTACH and rehab hospital portfolio EBITDAR lease covered remained essentially flat year-over-year at approximately 2.16 times for the LTACH and 3.17 times for the rehabs.

Our tenants that have publicly reported their first quarter results have all posted strong results. Health management associates saw admissions from continuing operations grow over 4.5%, revenue increased 10.3% year-over-year with EBITDA increasing 8.6%. Community health system also saw an increase in admissions; their increase was approximately 3% with EBITDA increasing 7.4% year-over-year. HealthSouth also reported strong results including an increase in EBITDA of 8.1%.

As you all know, we announced in late 2009 that we would be resuming our acquisition activities in 2010. As we entered into 2010 we saw the capital markets both equity and debt returning to more normalized activities with terms where we could make significant numbers of accretive acquisitions. As most of you know we had approximately $350 million of debt maturities coming due in 2011. We made the decision that it would be most beneficial to the company to do a major recapitalization all at once to provide for significant liquidity for our investment opportunities and into refinance all short term debt.

In mid April we completed the largest equity raise MPT has made to date netting approximately $279 million. In conjunction with the equity offering, we commenced the debt restructuring totaling approximately $450 million. Steve will go over the details of this in a few minutes but there are three important takeaways from the recap. We have provided for more than $500 million in liquidity for acquisition opportunities. Two, we pushed out our debt maturities beyond 2015 and three both the equity raise and debt raise were and have been very well received in the market. Both were and are oversubscribed. In addition, last week we sold our largest Prime property back to Prime at our cost after two and half years.

In addition, Prime repaid their $20 million Shasta working capital loan almost 10 years early in addition to a couple of other working capital loans for a total of $115 million. This transaction pushed our total Prime exposure down from 38% of our portfolio to approximately 32%. With this addition of $115 million our liquidity as previously mentioned has increased to over $500 million. We are confident we can put this to work at rates higher than we are receiving on our Prime Centinela investment.

For the past year and half, we have been explaining to the markets our unique Shasta investment. Some of you will recall that due to our collateral of the Shasta operations for the entire HPA transaction which included River Oaks we were able to retain an interest in the Shasta profit of essentially 50% of the cash flow over the lights of 10 year lease of up to $15 million to $20 million depending upon our ability to collect some of the old Shasta receivables. This past quarter we were able to collect almost $8 million on the receivables and last week we negotiated with Prime to pay us $12 million right away to settle the cash flow participation. This $12 million was collected from Prime last week.

While the accounting doesn’t work this way, the economics are that we have in effect reduced our economic investment in River Oaks to less than $20 million. The entire Shasta transaction has been a positive testament to our team’s ability to underwrite our investment decisions that over the long term of our leases in good and bad economic environments protect our returns and capital. With regard to River Oak, we are currently negotiating with several potential buyers for the South Campus in and as state. If we are successful, one of these parties will take the property in its post Hurricane condition and relieve us from the new [launches] and hassles of dealing with the restoration on that campus.

On the North Campus we have concluded that we would be able to lease the building to several different healthcare operators and in this case as is often the case we believe the parts together will be worth more than the whole. We are currently negotiating with several very interested parties. With our equity rates complete and our debt structuring almost complete, we are excited about our acquisition possibilities. We continue to feel good about our ability to put this money to work in a timely fashion and goods returns. As it stands now, we have a very low debt ratio, strong liquidity and no debt maturities issues in exciting opportunities.

At this time, I would like to ask Steve to go through the quarterly results in more detail and update you on our guidance. Steve?

Steve Hamner

Thanks Ed. Good morning everyone. I will present the key elements of our first quarter 2010 financial results, then I want to describe some of our April and May activities and then we will open up the call for your questions. For the first quarter of 2010 we reported normalized FFO and AFFO of approximately $15.7 million and $16.8 million or $0.20 and $0.21 per diluted share respectively. After adjusting for certain non-routine expenses totaling about $1.5 million or $0.02 per share, normalized FFO and AFFO of $0.22 and $0.23 is consistent with our expectations and consensus estimates.

These non-routine items consisted of property related expenses of about $600,000 related to our River Oaks and Sharpstown properties and litigation cost of approximately $900,000. The litigation costs relate to the trial in Houston concerning the Town and Country Hospital in which the jury completely have indicated MPT of all claims asserted by six limited partners of the hospital’s former operator.

We have been indemnified for these costs and we do expect to recover them but we have elected not to recognize any recovery until it is actually received. Net income for the three months ended March 31 was a negative $2.8 million or negative $0.04 per diluted share. Net income for the quarter includes the effect of the $12 million impairment charge related to our loan and advances to the operator of Monroe Hospital in Bloomington and I will explain that more in just a moment.

In comparison to the first quarter of last year, 2010 per share amounts were affected by an increase in the weighted average diluted common shares outstanding to $79.2 million for the three months ended March 31, 2010 from 76.4 million shares for the same period in 2009. Total revenues for the three months ended March 31, 2010 were $33.7 million compared with approximately $32 million last year. With respect to Monroe, at the end of 2009, our intent was that the existing operator lessee would continue to be responsible for the long-term operation in daily management of the hospital.

Late in 2009 the lessee contracted with a third party operator to manage the daily affairs of the hospital pursuant to a plan to rationalize cost and increased revenues. Under this plan MPT would be the beneficiary of a substantial majority of hospital cash flows as to the source of repayment of our loans and advances. During the first quarter as Ed mentioned it became apparent that the third-party manager was not going to execute the operational plan as we had anticipated and that contract was terminated.

As a result, and pursuant to our rights under the lease and loan documents, we have begun discussions with several hospital companies that have expressed interest in acquiring certain of the assets of the existing lessee and separately the real estate. If such a transaction was to be completed it would likely change the nature and value of the assets that we would retain on a longer term basis. Accordingly we have estimated the value that our present loan collateral would have in such a transaction and based on those estimates recorded an impairment of our working capital loan and advances in the amount of a $12 million.

This has no effect on the carrying amount of our investment in the Monroe Hospital real estate. There are no bonding agreements with any perspective new operator yet and there is no assurance that we will complete any transactions related to Monroe. Effective April 1, we expect to recognize interest income on the Monroe loan only as it is received.

We will take your questions about quarterly result in just a minute but first let me describe some important events that have happened since March 31, events that Ed has already alluded to because the first quarter was a very busy and productive time for us as we consciously laid the foundation for what we expect will be a period of important and renewed growth for MPT. Most of the participants on this call are familiar with MPT’s capital structure and maturities and with the fact that we had consciously and carefully positioned the company to endure the financial conditions of the past 24 months.

That careful planning and patients in the face of some brightening economic conditions has served us well now that markets have stabilized and strong companies are being rewarded with investor’s confidence and affordable capital. We are of course among those companies. As Ed mentioned in April we completed a stock offering of almost 30 million shares generating approximately $279 million in net proceeds. Prior to that in February and March we sold another $900,000 through our after market program generating net proceeds of an additional approximately $9.5 million.

By the way our diluted outstanding common share is now 111,239,982. We have also announced our plans to refinance our main credit facility that generally matures in November 2011 with the new $450 million facility split between a three year $300 million revolver and a six year $150 million term loan B facility. We expect to use the aggregate proceeds of the equity offerings in the term loan B issuance to retire our existing revolver which had a balance of $84 million on March 31, our $31 million term loan to Keybanc and we have in fact already repaid this and the second $64 million term loan.

Finally we have tendered for any and all of our November 2011 exchangeable notes that have a balance of $138 million. Our tender offer at 103 would require total tender payments of approximately $142 million. From a maturity perspective, these transactions mean that we will only have about $132 million in total maturities through the next five years. The remainder of our funded debt or a total of approximately $275 million will not mature until 2016.

Separate from our equity and debt capital raising we recently sold to an affiliate of Prime, our Centinela Hospital Medical Center for proceeds of $75 million and in conjunction with that we also received early repayment, as Ed mentioned, of several non-mortgage loans previously made to Prime in the aggregate amount of $40 million. One of the goals of these transactions was to reduce our concentration of revenue from Prime and we improved that key ratio from 38% to 32% of pro forma revenue. We do expect to continue to invest in Prime properties although our further expectation is that our investments in non-Prime tenants will grow faster than in new investments with Prime.

To summarize then subject to completion of the credit facility and the tender of our exchangeable notes, MPT will have a completely unfunded revolver with $300 million in availability, net cash from our debt and equity offerings totaling approximately $110 million and $115 million in proceeds from Prime sale and note repayments. This will total in excess of $525 million of immediately available resources or investment in new hospital real estate assets.

Historically, MPT’s policy has been and it remains that we do not give estimates of future quarterly financial results. Alternatively, we have provided estimates of a range of what annualized FFO would be based solely on assumptions about a specific portfolio and that’s what we have done in the press release this morning. Based on those assumptions we believe our annualized FFO per share based on fully investing our available resources will range between $0.94 and $0.97 per diluted share.

The primary relevant assumptions are as follows: completion of $520 million of new investments at initial year rates of between nine and three quarters and 10.5% and escalation provision similar to our historical experience. Second all in term loan B interest rate of 6% and the revolver rate of 3.75%. Any effect on these rates or possibly fixing the rates going forward is not reflected in our estimate.

Estimated general and administrative expense of approximately $5.5 million to $6 million per quarter of which $1.5 million is non-cash share based compensation expense. Exclusion of any property related operating expenses such as those that we are presently incurring in River Oaks and Sharpstown and finally exclusion of other unique and non-routine items of income and expense such as lawsuit recoveries, write-offs of straight line rent, asset impairments, property sales and other similar items. There is of course no assurance that any of these assumptions will prove accurate including those about the amount of investments, lease rate and interest expense. Should we be successful in investing $520 million under the assumption I just described, our total debt to total asset value leverage ratio would approximate 42%. And before we move onto questions, I think it’s important to describe one more very important transaction that we completed last month that Ed has already eluded to. Most of you will remember that when we had to replace the operator at our Shasta hospital, we entered a new lease with the newly formed affiliate of Prime and on November 1, 2008 that affiliate initiated operations and began to operate the Shasta hospital. In order for the new prime operator to have some assurance of adequate liquidity for a hospital who’d previous operator had generated a substantial cash loss on a monthly basis, MPT committed to a $20 million non recourse working capital loan as six month deferral rent payments and certain other concessions to our difficulty arrangements.

With these concessions, we negotiated an agreement. They gave us the opportunity to earn up to 50% of the facilities net cash flow up to a range between $15 and 20 million over the initial ten year term of the lease. This agreement also provided as I mentioned, the between $15 and 20 million that additional $5 million being conditioned upon how much of our $8 million in operating loans to the prior operator we would collect. So we had the potential to earn an additional $20 million in cash flow participation if Prime Shasta was able to profitably operate the hospital. So what is actually occurred?

Of the $8 million in loans to the prior operator, we have already collected $7.25 million and we expect to fully collect the remainder, a tremendous outcome given the circumstances of the transition in late 2008. Because Prime Shasta has operated the hospital for more than three months without a Medicare provider number, we’re therefore unable to build for services to Medicare patients, MPT fully funded the $3 million working capital loan. This was interest only agreement that was not due until 2018. However, we negotiated with Prime to include this loan in those that were re-paid as part of the $40 million that I mentioned earlier. So we have now been fully re-paid on that $20 million working capital loan. And we also negotiated with Prime to fully pay immediately, the amount of the cash flow participation that could have been earned subjected to continue profitability over the next nine years.

So taking into account the fact that we expect to collect the entire amount of our $8 million to the old operator, the uncertainty of future cash flows over the next nine years and the time value of money, we agree to accept $12 million in full satisfaction settlement of our participation agreement with Prime. And we did in fact receive the $12 million last week. Ed mentioned this already but the importance of Shasta is not just that we have created an additional $12 million for our shareholders. When we made our original $100 million in Shasta in River Oaks, we had carefully evaluated the underlying value of not just the real estate but the long term potential for profitable hospital operations that our investment could provide to us.

We were certainly disappointed when the original operators failed to realize that value but we were none the less confident that we knew how to create future value through the assets that’s served as our security.

And while the public markets focus on quarterly measurement and a detailed accounting rules do not clearly lay out the tremendous economic success of our original investment, that success is nonetheless real. As a result of $100 million investment, we now have real estate lease to Prime Shasta with a value to us $63 million. We have approximately $7 million in cash that we received as security upon the prior operator’s default and we have collected an additional $12 million in settlement of our cash flow participation. And we remain confident that we will realize the value of at least the $31 million carrying amount of our River Oaks and Sharpstown real estate. Over the long term of our typical lease arrangement, these investments should generate and in fact have already generated substantial returns for our shareholders. The Shasta success is a great demonstration of the MPT business model. We’ve put together a group of healthcare professionals who were able to discern and create opportunities for our shareholders to earn very attractive stable returns from the hospital sector of the U.S. healthcare economy.

And with those comments, I will turn the call back to the operator and she will open it up for any questions that you may have. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Justin Bieber of UBS. Justin, your line is open. If your line is on mute Justin, please un-mute it on your end. Your next question comes from the line of Kevin Ellich of RBC Capital Markets

Kevin Ellich - RBC Capital Markets

Hi yes, good morning. Actually this is Eric Knor on for Kevin Ellich this morning. Just have a couple of questions I guess from. One, kind of wondering how the acquisition pipeline is shaping up and what your appetizers for asset type in science? And also is there still a disconnect between buyer and seller patients or as I get close a little bit?

Ed Aldag

Eric, the last, the answer, the question. Let’s answer the question is that it is closed dramatically. We’ve always as we said previously had good opportunity through out the credit crisis. So obviously, we weren’t making any acquisition in late 2008 and all of 2009 but the opportunities were there. We never had the huge disconnects that you’ve seen in some of the other commercial real estate avenues in the, in our specific segment of the healthcare segment which is hospitals. Going forward, we continue to see the same mix of our portfolio that we have now, approximately 75% acute care hospitals with the remaining portion split fairly evenly between various post acute type operators. The pipeline obviously is extremely strong, we feel very good about it, we wouldn’t have as much liquidity and capital that we have now to put to work. It is always been our policy to announce acquisitions when they actually close but due to the offering that we have, you probably know as we put in the offering information, we had a, we have a non bonding letter of intent on $75 million worth of properties in Texas is pretty separate properties. That continues to move along well and we hope to build a report on that soon. And we feel very confident that we’re built to put the rest of the money to work very shortly.

Kevin Ellich - RBC Capital Markets

All right, thank you. And I have just one other question. Do you have any additional assets that are I guess are under performing or feeling the effects of the economy such as the wellness centers?

Ed Aldag

The wellness centers are truly the only facilities that had any effect from the economy. And just to remind you that the total about $15 million investment in all six of those wellness centers. They however are performing better now. They are improving as the economy improves.

Kevin Ellich - RBC Capital Markets

All right. That’s all my questions. Thank you.

Operator

Your next question comes from the line of Karin Ford of KeyBanc

Karin Ford - KeyBanc

Hi, good morning. Just want to start out with the clarification on your guidance. The $0.94 to 0.97 is that an update to your guidance or is that a hypothetical scenario or does the previous guidance still stand?

Steve Hamner

Well, its clearly an update. Its again based on our status quote portfolio as it is today plus the assumption that will make $520 million of additional acquisitions and rate between nine and three quarters and ten and a half, considering the other assumptions that I went through a little earlier.

Karin Ford - KeyBanc

So you’re fully expecting to be able to do the full size 20 this year?

Steve Hamner

No. I don’t think we put a time scale on it. We certainly think in the foreseeable future whether I mean, could be this year. As you know Karin sometimes, our wobbly head really have price tags and you can do half of that with a single transaction. We’re not anticipating that certainly not for thinking that but over the turn of the next several quarters, we certainly expect to be able to put that money to work

Karin Ford - KeyBanc

Okay. Next question just relates to Centennial, can you tell us what the lease rate was on that and what the interest rates were on the re-paid $40 million alone?

Steve Hamner

The lease rate on Centennial was just nine, it was mid nine and the loan to a little above ten.

Karin Ford - KeyBanc

10? Thanks. And then, are you guys seeing any additional competition coming into the acquisition environment? I heard that there might be potential new IPO’s in the hospital sector? Are you guys seeing additional institutions or capital coming in to the sector?

Steve Hamner

Yes. We have not run across any additional competition and looking for properties out there as we have stated a number of times previously that market is very large and we actually would like some additional competition to help sell the whole concept not only to the operators but the investor market as well.

Karin Ford - KeyBanc

That’s helpful. Final question just relate to acquisition expenses, do you anticipate significant acquisition expenses going forward through the year?

Steve Hamner

We don’t have heavy acquisition expenses. Normally, we won’t start incurring third party cost until we have an agreement where the sellers unless he fund those cost. Now as we have added to or acquisition staff and as we come out of the economic conditions of the last couple of years, we certainly got lot more active, we are doing a lot more flying around the country, we are doing a lot more visiting. And so those expenses kind of on a marginal basis clearly have increased but nothing to the extent that you get a lot of attention.

Ed Aldag

We don’t expect add any to our staff for the acquisition process. We did that in ‘09.

Karin Ford - KeyBanc

Right. And your DG&A guidance that you gave includes whatever cost you think you might have on that front?

Steve Hamner

That’s right. Exactly.

Operator

Next question comes from the line of Michael Mueller of JPMorgan

Michael Mueller - JPMorgan

Hi, few questions. First of all just want to clarify on the South Campus River Oaks. Ed were you basically saying it’s going to be sold it sounds like but more in as if you recalled that tight condition or are you talking about sale as opposed to somebody taking leasing out from you?

Steve Hamner

Well, we’ve always talked about sale on the South Campus that was the most preferable round for us. The hurdle that we have had throughout this entire process has been the hurricane damage and the insurance restoration and coordination with Texas Department of Health. We are currently in discussion, we don’t have any contracts with anyone, any binding contract with anyone at this point to take the property and as is basis. That would be extremely beneficial to us from time, from every aspect, from time stand point and the hassles of dealing with a very small property that is taken of management team.

Michael Mueller - JPMorgan

Okay. Second question in terms of Monroe, Steve kind of going back to your comments about the interest, can you let us know how much interest was booked into FFO from that loan in Q1? And then, how much will be booked into it from FFO going forward? And what’s embedded in your own run rate guidance as well for that?

Steve Hamner

Well, going forward, there’s nothing.

Michael Mueller - JPMorgan

Okay. And how much was in Q1?

Steve Hamner

In the neighborhood of $500,000.

Michael Mueller - JPMorgan

Okay. So $500,000 in Q1, nothing going forward. And is it your own going forward in the run rate guidance as well?

Steve Hamner

Correct.

Michael Mueller - JPMorgan

Okay. And then lastly, I mean can we just talk a little bit about the run rate guidance and appreciate that you guys have a lot of cash just staring down the pipeline in terms of putting it to work but Q2’s FFO and Q3 arguably good looking, what are the different and what the run rate implying, so can you, I mean if you do back of the envelope, just doing during the call is a rough of ballpark if you excluded the $500 million of capital deployment just want to what is the starting point today before you had done that path of putting the capital back out to work? Is that normalized comparable number somewhere in the 70s, in a low 70s? Is that how we should be thinking about the starting point?

Steve Hamner

No I mean, I have to say to get into quarterly detail.

Michael Mueller - JPMorgan

Well, I mean just thinking about the annual impact and because basically you are talking about $500 million reserve acquisitions, I’m assuming it’s about $100 million that would be funded with cash and the rest funded with debt on the credit line at 3% or 4%, is that the right way to think of it?

Steve Hamner

I’m wondering if you consider in that number the sales Centinela and the repayment of those loans.

Michael Mueller - JPMorgan

Okay. So that would weigh on that a little more?

Steve Hamner

I think you are in the right ballpark there although my guess if you factored in those transaction, it might be a little less.

Michael Mueller - JPMorgan

Okay. And then last question. Just in terms of the $70 million of properties that are under contract, what’s the best guess in terms of timing when they come potentially close?

Steve Hamner

Mike, we hope that they we will close within the next 30 to 45 days.

Operator

Your next comes from the line of Jerry Doctrow with Stifel Nicolaus

Jerry Doctrow - Stifel Nicolaus

Hi, can you hear me okay?

Ed Aldag

Sure.

Jerry Doctrow - Stifel Nicolaus

Great. Just a couple of things, lot have been covered. River Oaks, obviously we have been talking about their acquisition releases things for a long time, it always seems like it just around the corner, so my first I guess take away that this stuff is sort firmer than it has been and frame for a transaction?

Ed Aldag

Well Jerry, we haven’t included anything from River Oaks and the guidance that Steve just went over a little while ago. So from that standpoint, we have included nothing in there. From the very beginning of time, we have always talked about the most likely scenario on the smaller campus. Shasta would be a sale and then on the larger campus, it would either a sale or a lease arrangement whether we always felt very confident that we can do very well in a leasing scenario for the North Campus. We are in detailed negotiations at this point but I hesitate to say that we are right around the corner, you never know.

Jerry Doctrow - Stifel Nicolaus

And the issue with the insurance settlement, is that resolved or by selling the South Campus basically that no longer an issue, IR going to take deal with it?

Ed Aldag

That would be the case if that happens on the South Campus. We would still have to deal with them North Campus but its much easier scenario.

Jerry Doctrow - Stifel Nicolaus

Just a couple of other lauds and so Bucks is done is there any, your getting income and stuff on that just remind me the updated that.

Ed Aldag

Yeah. Buck is doing exceptionally well. They increased their surgeries in the first quarter by over 400%, they are in access of one time lease covered at this point, its performing exceptionally well.

Jerry Doctrow - Stifel Nicolaus

I think cash lease payment

Ed Aldag

That’s correct.

Jerry Doctrow - Stifel Nicolaus

Then, it was at some point you were sound like using secured debt to buy stuff, I don’t hear that in this scenario. Is that still an option for you or not really out there just given market conditions

Ed Aldag

Yes, really given the market conditions, I guess the CMBS market is hoping to set above the surface now but it will long time before that works down to hospital and real estate. So that’s not in our business plan at all.

Jerry Doctrow - Stifel Nicolaus

Okay, that’s fine. And then last thing I got to raise, if we read the proxy you were given incentive awards in the was based on FFO or the board shows if I read it to ignore the equity offering. That to five sort of higher incentive payment, I guess I want to understand if I am reading that the right way and honestly we heard from a number of investors about this real problems with sort of the way that this dilution was sort of assumed away. Can you just give me a little color on and make sure we are reading at the right way.

Steve Hamner

Well, the target was that based on the equity offering is the nominal target, not a I mean I having trouble reconciling to the Board ignored something it followed very, just lead them with the formula.

Jerry Doctrow - Stifel Nicolaus

I thought the way we are reading it, it was in FFO basis and offering wasn’t built in when they’re looking at the growth. Maybe I can take up with you offline.

Operator

(Operator Instructions) Your next question comes from the line of John Sykes with Nomura

John Sikes - Nomura International

Hi, good morning. Just with respect to Monroe the reserve that you have taken is that all related to the impairment of the asset or is that also sort of the impairment and future expenses to maintain and continue the asset I guess you could say.

Ed Aldag

Well, it’s not the real estate, I just want to clarify that. It’s the working capital loan that we made to Monroe over the last three years. The real estate is not impaired. In fact, we have reasons to be very, very encouraged about the value of the real estate and what we could sell it for. It doesn’t include any future operating cost because first, we are not responsible for that and secondly we don’t, we expect the hospital operations itself will cover those cost.

Steve Hamner

John, we still operating. It just not for the operating at the level we think at all of the operating.

John Sikes - Nomura International

Okay. And then just kind of I may have missed this but can you just breakdown the debt balances as of the end of the quarter and I am just trying to figure out cash interest and working capital change components if there were any that were significant?

Steve Hamner

Yes. At the end of the quarter which of course is obsolete now. We had the existing credit facility which had a balance of about $64 million on the term loan portion and revolver balance of about $84 million. We had the key loan term loan of $30 million. There is a single asset revolver from Colonial now, BB&T for $41 million. We had a total of $125 million in senior unsecured notes that are due in 2016. We have of course the exchangeable note due in 2011 that we extended for. That had a balance, a loan balance of $138 million at the end of quarter. And then we had another exchangeable issue that due in 2013 with the balance of $82 million. And finally we had a single mortgage loan with the balance over the less than nine million.

Total debt at the end of the quarter of about $573 million.

John Sikes - Nomura International

And just cash interest, what was that at the end of the quarter?

Steve Hamner

Cash interest in all of those?

John Sikes - Nomura International

Yeah. all I need is that one cash interest number, the aggregate cash interest that you paid for the quarter?

Steve Hamner

3.62 million.

John Sikes - Nomura International

Okay. Thanks a lot.

Operator

Your next question comes from the line of Michael Mueller from JPMorgan

Michael Mueller - JPMorgan

Steve, I think you covered this and I may have missed it but did you say how much of that converts were likely to be tendered?

Steve Hamner

We don’t leave tender for any all.

Michael Mueller - JPMorgan

Do you have a sense as to how much will tender?

Steve Hamner

We really don’t. Tender expires tomorrow at midnight.

Operator

That concludes the Q&A session. I know like to turn the call back over Ed Aldag.

Ed Aldag

Thank you operator and thank you all of you again for your interest in Medical Properties Trust. And as always, if you have any additional questions after the call, feel free to call myself, Steve Hamner or Charles Lambert. Thank you very much.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.

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Source: Medical Properties Trust, Inc. Q1 2010 Earnings Call Transcript
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