Medical Properties Trust Inc (MPW) 2010 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the First Quarter 2010 Medical Properties Trust Incorporated Earnings Conference Call. My name is Chanel, and I will be your coordinator for today. (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's call, Mr. Mike Stewart, Executive Vice President, General Counsel. Please proceed.

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 ACC. 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 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 known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in this call. The information we have 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.

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 enhance our company's EBITDAR lease coverage position. Despite the fact that we compute lease coverage ratios using the more conservative approach of EBITDAR, our lease coverage 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 its position. The EBITDAR lease coverage ratio for our acute care hospital portfolio year-over-year increased slightly to just over six times. Our largest acute care operator, 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 latter part of 2009 to implement a strategy to take the facility to the next level. After three 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 it can achieve. To this end, we have re-opened negotiations with several not for profit systems as well as a few for-profit entities. However, the time delay has caused us to take a conservative approach and take a $12 million reserve against our investment there.

Our LTACH and rehab hospital portfolio's EBITDAR lease coverage remained essentially flat year-over-year at approximately 2.16 times for the LTACHs 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 by 4.5%. Revenue increased 10.3% year-over-year, with EBITDA increasing 8.6%. Community Health Systems 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 of 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 a 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 to 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 a 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 have 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 over-subscribed. In addition, last week we sold our largest Prime property back to Prime, at our cost after two-and-a-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 additional $115 million, our liquidity as previously mentioned is increased to over $500 million. We are confident we could put this to work at rates higher than we were receiving on our Prime Centinela investment.

For the past year-and-a-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 profits of essentially 50% of the cash flow over the life of the 10-year lease of up to $15 million to $20 million depending on 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 Oaks, we are currently negotiating with several potential buyers for the South Campus in an as-is state. If we are successful, one of these parties will take the property in its post-hurricane condition and relieve us of the nuances and hassles of dealing with the restoration on that campus.

On the north campus, we have concluded that we will 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're currently negotiating with several very interested parties.

With our equity raise 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 at good returns. As it stands now, we have a very low debt ratio, strong liquidity, and no debt maturities issues and exciting opportunities. At this time, I'd like to ask Steve to go through the quarterly results in more detail and update you on our guidance. Steve?

Thanks Ed, good morning, everyone. I'll 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'll 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 & Country Hospital, in which the jury completely vindicated 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. I'll 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 an 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 costs and increase revenues.

Under this plan, NPT would be the beneficiary of a substantial majority of hospital cash flows, as the source of repayment or 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 $12 million. This has no effect on the carrying amount of our investment in the Monroe Hospital real estate.

There are no binding agreements with any prospective 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'll take your questions about quarterly results in just a minute, but first let me describe some important events that have happened since March 31, the events that Ed has already alluded to.

Because, the first quarter was a very busy and productive time for us, as we consciously lay 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 patience in the face of some frightening economic conditions has served us well now that markets have stabilized and strong companies are being rewarded with investors 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 shares through our At The Market program, generating net proceeds of an additional approximately $9.5 million. By the way, our total diluted outstanding common shares is now 111,239,982.

We have also announced our plans to refinance our main credit facility that generally matures in November 2011, with a 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 and the new Term Loan B issuance to retire existing revolver, which had a balance of $84 million on March 31. Our $30 million term loan to Key Bank, and we have in fact already repaid this, and a 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 of 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 the Prime sale and note repayments. This will total an excess of $525 million of immediately-available resources for 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 9.75% and 10.5%, and escalation provisions similar to our historical experience. Second, all-in Term Loan B interest rate of 6% and a revolver rate of 3.75%. Any effect on these rates of 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 rates, and interest expense.

Should we be successful in investing $520 million under the assumptions I just described, our total debt to total asset value leverage ratio would approximately 42%. Now, before we move on to questions, I think it's important to describe one more very important transaction that we completed last month, that Ed has already alluded to. Most of you will remember that when we had to replace the operator at our Shasta Hospital, we entered a new lease with a 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 whose previous operator had generated substantial cash losses on a monthly basis, MPT committed to a $20 million, non-recourse working capital loan, a six month deferral of rent payments, and certain other concessions to our typical lease arrangements. For these concessions, we negotiated an agreement that gave us the opportunity to earn up to 50% of the facility's net cash flow, up to a range between $15 million and $20 million over the initial ten-year term of the lease.

This agreement also provided, as I mentioned, between $15 million 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 has 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 had to operate the hospital for more than three months without a Medicare Provider number, and was therefore unable to bill for services to Medicare patients, MPT fully funded the $20 million working capital loan. This was an interest-only agreement that was not due until 2018.

However, we negotiated with Prime to include this loan in those that were repaid as part of the $40 million that I mentioned earlier. So, we have now been fully repaid 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 subject to continued profitability over the next nine years.

So, taking into account the fact that we expect to collect the entire amount of our $8 million loan to the old operator, the uncertainty of future cash flows over the next nine years, and the time value of money, we agreed to accept $12 million in full satisfaction and settlement of our participation agreements 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 investment in Shasta and 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 nonetheless confident that we knew how to create future value through the assets that served as our security. While the public markets focus on quarterly measurements and the 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 our $100 million investment, we now have real estate leased to Prime Shasta with a value to us of $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. 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 put together a group of healthcare professionals who are able to discern and create opportunities for our shareholders, to earn very attractive, stable returns from the hospital sector of the US 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?

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

Yes, good morning, actually this is Erik North on for Kevin Ellich this morning. I just have a couple of questions, I guess. One, kind of wondering how the acquisition pipeline is shaping up and what your appetite is for asset type and size?

And also, is there still a disconnect between buyer and seller expectations, or has that gap closed a little bit?

Erik, the last question, the last answer to that question is that it is closed dramatically. We've always, as we said previously, had good opportunities throughout the credit crisis. Obviously, we weren't making any acquisitions 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 our particular segment of the healthcare segment, which is hospitals.

Going forward, you'll continue to see the same mix of our portfolio that we have now, approximately 75% acute care hospitals with remaining portion split fairly evenly between various post-acute type operators. The pipeline obviously is extremely strong. We feel very good about it, or we wouldn't have as much liquidity and capital that we have now to put to work. It has always been our policy to announce acquisitions when they actually close, but due to the offerings that we have, you probably know as we put in the offering information, we have a non-binding letter of intent on $75 million worth of properties in Texas, it's three 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'll be able to put the rest of the money to work very shortly.

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

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

All right, that's all my questions, thank you.

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

Hi, good morning. Just wanted to start out with 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?

Well, it's clearly an update. It's again based on our status quo portfolio as it is today, plus the assumption that we'll make $520 million of additional acquisitions at rates between 9.75% and 10.5%, considering the other assumptions that I went through a little earlier.

So, you're fully expecting to be able to do the full %520 million this year?

No, I don't think we've put a time scale on it. We certainly think in the foreseeable future, could be this year, as you know Karin, sometimes our properties have really high price tags and you could do half of that with a single transaction. We're not anticipating that, certainly not predicting that, but over the term of the next several quarters we certainly expect to be able to put that money to work.

Okay. Next question just relates to Centinela. Can you tell us what the lease rate was on that, and then what the interest rates were on the repaid $40 million in loans?

Yes, the lease rate on Centinela was what, mid-9's, and the loans were a little above 10.

Okay, thanks. And then, are you guys seeing any additional competition coming into the acquisition environment? I'd heard that there might be some potential new IPO's in the hospital sector. Are you guys seeing any institutional capital coming into the sector?

We have not run across any additional competition in looking for properties out there. As we have stated a number of times previously, the 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 investment market as well.

That's helpful. Final question just relates to acquisition expenses. Do you anticipate significant acquisition expenses going forward through the year?

No, we don't have heavy acquisition expenses. Normally we won't start incurring third-party costs until we have an agreement where the seller, the Lessee, funds those costs. Now, as we have added to our acquisition staff and as we've come out of the economic conditions of the last couple of years, we've certainly got a lot more active, we're doing a lot more flying around the country, we're doing a lot more visiting, and so those expenses kind of on a marginal basis, clearly have increased. But nothing, nothing to the extent that you'd get a lot of attention.

But again, we don't expect to add any to our staff for the acquisition process. We did that in '09.

Right. And your, the G&A guidance that you gave includes whatever costs you think you might have on that front?

That's right, exactly.

Great, thank you.

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

Oh, hi. A 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 an as-is, if you would call it that, type condition? But you were talking about a sale, as opposed to somebody taking and leasing it from you?

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

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 run rate guidance as well for that?

Going forward, there's nothing.

Okay. And how much was in Q1?

In the neighborhood of $500,000.

Okay, so $500,000 in Q1, nothing going forward.

Right.

And that's not, and it's zero going forward in the run rate guidance as well?

Correct.

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

No, I mean I hesitate to get into a quarterly detail.

Well, I mean, just thinking about the annual impact, then? Because basically, you're talking about $500 million of acquisitions, I'm assuming that'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?

Yes. I'm wondering if you've considered in that number the sale of Centinela and the repayment of those loans.

Okay, so that would weigh on that a little more?

Yes, I think you're in the right ball park there, although my guess if you factored in those transactions, it might be a little less.

Okay. 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 can potentially close?

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

Okay. Okay, sounds great, thank you.

Thanks.

Your next question comes from the line of Jerry Doctrow of Stifel Nicolaus.

Hi, can you hear me okay?

Sure.

Great, just a couple things. A lot has been covered. River Oaks, obviously we've been talking about sort of acquisitions released in things for a long time. It always seems like it's like, just around the corner. So, are we, am I supposed to take away that this stuff is sort of firmer than it's been, and framed for a transaction?

Well, Jerry, we haven't included anything from River Oaks in the guidance that Steve just wet over a little while ago. So. From that standpoint, we've included nothing in there. From the very beginning of time we've always talked about the most likely scenario on the smaller campus, Sharpstown, would be a sell, and then on the larger campus it would either be a sell or a lease arrangement, but that we always felt very confident that we could 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're right around the corner. You never know.

And the issue with the insurance settlement, is that resolved or by selling the South Campus basically as-is, that's no longer an issue and the buyer's going to take, deal with it?

That would be the case, if that happens on the South Campus. We would still have it to deal with on the North Campus, but it's a much easier scenario.

And just a couple other little odds and ends. So, [Bucks] is done, and is there any, you're getting income and stuff on that? Just remind me the update of that?

Yes, Bucks is doing exceptionally well. They increased their surgeries in the first quarter by over 400%. They're in excess of a one-times lease coverage at this point, that it's performing exceptionally well.

--(inaudible) cash lease payment?

That's correct.

And then, at some point you were talking about using secured debt to buy stuff. I don't sort of hear that in this scenario. Is that still an option for you, or not really out there, just giving market conditions?

Yes, given the market conditions, I guess the CNBS market is poking its head above the surface now, but it'll be a long time before that works down to hospital real estate, so that's not in our business plan at all.

Okay, that's fine. And the last thing I've got to raise, we read the proxy, you were given incentive awards and they were based on FFO, and the Board chose if I read it, to ignore the (technical difficulty) equity offering. (technical difficulty) justified sort of a higher incentive payment. I guess I want to understand, if I'm reading that the right way, and honestly we've heard from a number of investors about (technical difficulty) just real problems with sort of the way the dilution was sort of assumed away. Can you just give me a little color on (technical difficulty) [thing that makes you], and if we're reading it the right way?

Well, the target was, was set based on the equity offering. It's a nominal target, not I mean, I'm having trouble reconciling to the Board ignored something, it followed very stringently the formula.

I thought the way we're reading it, it was an FFO basis, and (technical difficulty) the offering wasn't built in when they were looking at the growth. (technical difficulty) Maybe I can take it up with you offline?

Yes, that might be good.

Okay, thanks.

(Operator Instructions) Your next question comes from the line [John Sikes] of Nomura.

Yeah, hi. Good morning. Just with respect to Monroe, the reserve that you've 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?

Well, it's not the real estate, I just want to clarify that. It's the working capital loan that we've made to Monroe over the last three years. The real estate is nor impaired We have reason 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 costs, because first, we're not responsible for that, and secondly we don't -- we expect the hospital operations itself will cover those costs.

The hospital was still operating, it's just not for operating at the level we think it ought to be operating.

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

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 have a total of $125 million in senior unsecured notes, that are due in 2016. We have of course the exchangeable notes due in 2011 that we've tendered for, that had a loan balance of $138 million at the end of the quarter. And then we have another exchangeable issue that's due in 2013 with a balance of $82 million, and finally we have a single mortgage loan with a balance of a little less than $9 million. Total debt at the end of the quarter of about $573 million.

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

Talking about cash interest spends on all of those?

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

Yes, one second. $3,862,000.

Okay. Thanks a lot.

Uh-huh.

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

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

We did not, we've tendered for any and all.

Okay, do you have a sense as to how much we'll tender?

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

Okay, okay great, thanks.

Um-hmm.

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

Thank you, Operator, and thank 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.

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