NEEDHAM, Mass., Nov. 3 /PRNewswire/ -- The Meditrust Companies
("Meditrust" or "the Companies") (NYSE: MT) announced today funds from
operations (FFO), revenues, and net income for the quarter ended September 30,
1999. In late 1998 and early 1999, the Companies exited the horse racing and
golf businesses and accordingly have reflected the activities of the Santa
Anita Racetrack and the Cobblestone Golf Group as discontinued operations for
reporting financial results.
For the three months ended September 30, 1999, FFO was $75,027,000 or
$0.53 per diluted share (based on 141,100,000 shares), compared to $88,487,000
or $0.60 per diluted share (based on 146,683,000 shares) for the same period
in 1998. Revenues for the three months ended September 30, 1999 were
$235,722,000 versus $216,202,000 for the same period in 1998. Revenue
includes hotel operations for the three months ended September 30, 1999
compared to the period from July 17, 1998 (the date the Companies acquired La
Quinta Inns, Inc.) to September 30, 1998.
For the three months ended September 30, 1999, income from continuing
operations was $46,659,000 compared to a loss from continuing operations of
$18,566,000 for the same period in 1998. Income from continuing operations
for the three months ended September 30, 1999 includes other expenses of
$1,025,000 principally related to reorganization of the lodging segment
compared to $66,941,000 for the three months ended September 30, 1998, which
principally related to the implementation of the Companies' comprehensive
restructuring plan.
For the nine months ended September 30, 1999, FFO was $233,592,000 or
$1.63 per diluted share (based on 143,379,000 shares), compared to
$209,847,000 or $1.81 per diluted share (based on 115,967,000 shares) for the
same period in 1998. Revenues for the nine months ended September 30, 1999
were $702,740,000 versus $412,407,000 for the same period in 1998. The
increase in revenues is primarily attributable to the acquisition of La
Quinta.
For the nine months ended September 30, 1999, income from continuing
operations was $109,177,000 compared to $71,706,000 for the same period in
1998. Income from continuing operations for the nine months ended September
30, 1999 includes other income of $1,750,000 and other expenses of
$40,228,000. Other income is primarily related to lease breakage and mortgage
prepayment fees arising from healthcare asset sales and mortgage repayments.
Other expenses principally consist of costs related to a reorganization of the
lodging segment, certain separation agreements and implementation of the
comprehensive restructuring plan, which includes costs for professional and
advisory fees and costs arising from the early repayment and modification of
certain debt.
A summary of the funds from operations follows:
Three Months ended Nine Months ended
September 30, September 30,
(Unaudited) (Unaudited)
(In thousands except
per share amounts) 1999 1998 1999 1998
Net income (loss)
available to common
shareholders 59,365 (198,684) 118,876 (99,273)
Depreciation of real
estate & intangible
amortization 35,124 39,416 110,008 65,824
Other income (894) (1,750) (26,000)
Other expenses (1) 6,855 70,561 46,488 92,102
Gains on sales of
assets (2) (25,423) (40,030)
Provision for
discontinued operations 177,194 177,194
Funds From Operations
(FFO) 75,027 88,487 233,592 209,847
Amortization of debt
issuance costs and
other non-cash items 17,158 8,642 24,980 26,552
Other income 894 1,750 26,000
Other expenses (8,835) (9,273) (21,541)
Lodging capital
maintenance
expenditures (6,289) (4,980) (17,900) (4,980)
Golf capital maintenance
expenditures (1,501) (694) (2,031)
Separation agreement (25,000)
Funds Available for
Distribution (FAD) $77,955 $90,648 $207,455 $233,847
Diluted Per Share Data
FFO $0.53 $0.60 $1.63 $1.81
FAD $0.55 $0.62 $1.45 $2.02
(1) Includes golf course acquisition costs grouped with discontinued
operations
(2) Excludes the impact of income of discontinued operations for FFO
presentation
Healthcare
Healthcare related revenue for the three months ended September 30, 1999
was $74.5 million compared to $89.9 million in 1998. The decrease in revenue
is primarily the result of $673 million of healthcare asset sales and mortgage
repayments made during the last twelve months. Operating expenses, which
include rental property and general and administrative expenses, for the three
months ended September 30, 1999 were $4.6 million compared to $7.7 million in
1998. The decrease in operating expenses is primarily the result of
reductions in state tax exposure arising from a restructuring of certain
healthcare subsidiaries, and reductions in personnel and overhead expenses.
Resulting EBITDA was $69.9 million for the three months ended September 30,
1999 compared to $82.2 million in 1998.
During the three months ended September 30, 1999, Meditrust sold
healthcare properties and received mortgage repayments totaling $49 million
and completed $13 million in development financing for healthcare investments
that were committed to prior to 1999. Of the total, $8 million relates to the
financing of 15 assisted living facilities, $4 million relates to the
financing of 3 nursing homes, and $1 million relates to the financing of 8
medical office buildings. Meditrust had mortgage maturities and principal
repayments during the quarter of approximately $4 million.
As of September 30, 1999, Meditrust had financing commitments of
approximately $50 million for ongoing healthcare real estate projects. A
supplemental schedule is attached which presents the real estate portfolio as
of September 30, 1999.
A number of factors have negatively impacted the long-term care sector of
the healthcare industry. These include the government's shift to a Medicare
prospective payment system in the skilled nursing industry, increased labor
costs, tighter capital markets, and poor earnings performances by several of
the long-term care operators. Furthermore, the decline in long-term care
operators' stock prices coupled with their increased leverage has negatively
impacted the cost of capital for the healthcare REITs, therefore causing
investment spreads to tighten.
On October 14, 1999 Sun Healthcare Group ("Sun") filed for protection
under Chapter 11 of the US Bankruptcy Code. The Sun facilities in the
Meditrust portfolio consist of 38 leased and four mortgaged properties in
eleven states. All of the Sun facilities are cross-defaulted; the mortgaged
properties are cross-collateralized and the leased facilities are pooled by
lease expiration dates. If necessary, Meditrust has a plan in place for the
transition and ongoing operation of any of the Sun properties.
The assisted living sector of the healthcare industry has also been
negatively impacted in 1999. Operators of assisted living facilities are
experiencing fill-up periods of a longer duration, and are being impacted by
concerns regarding the potential of overbuilding, increased regulation and the
use of certain accounting practices. Accordingly, many of these operators
have pre-announced anticipated earnings shortfalls and have experienced a
significant decline in their stock prices. These factors have had a
detrimental impact on the liquidity of some assisted living operators, which
has caused growth plans to decelerate and may have a negative effect on
operating cash flows.
David F. Benson, chief executive officer of Meditrust Corporation,
commented, "Despite this difficult time for the entire healthcare industry,
our portfolio continues to display solid cash flow coverage of 1.5 to 1 for
the six months ended June 30, 1999. While we expect to see continued
volatility in the healthcare industry, we believe the demand for the services
provided by the long-term care and assisted living sectors remains very
strong."
Lodging
Lodging related revenue for the third quarter of 1999 (92 days) was
$160.3 million compared to $126.3 million for the 76-day post-acquisition
third quarter of 1998 which commenced on July 17, 1998. During the same
periods, recurring EBITDA increased to $74.1 million compared to
$61.5 million. The improvement in revenue is a result of the 16 additional
days in the 1999 period and the opening of 20 additional Inn & Suites hotels
since the end of the third quarter of 1998. The improvement in revenue was
partially offset by lower Revenue per Available Room (RevPAR) than expected.
During the third quarter of 1999, La Quinta experienced a decrease in RevPAR
of 2.9% to $42.56 from $43.85 in the comparable full quarter of 1998. The
RevPAR decrease was primarily due to a greater increase in the supply of
available rooms in the mid-price without food and beverage sector of the
lodging industry compared to the demand, particularly in the west south
central region where approximately 45% of La Quinta's rooms are located. The
decrease in RevPAR had a detrimental impact on EBITDA margins as fixed costs
were a higher percentage of revenue than the post-acquisition third quarter of
1998. As a result, recurring EBITDA margins for the third quarter of 1999
compared to the post-acquisition third quarter of 1998 decreased 2.5
percentage points to 46.2%. Supplementary schedules are attached which present
summary occupancy, Average Daily Rate (ADR) and RevPAR data.
On October 22, 1999 Meditrust announced that Ezzat Coutry resigned as
President and Chief Executive Officer of La Quinta Inns, Inc. to spend more
time with his family and to pursue other interests. The Meditrust Companies
Boards of Directors have designated a search committee to identify internal
and external candidates to fill the President and Chief Executive Officer
position and have retained a professional search firm to assist in its search.
William S. McCalmont, who has served as Senior Vice President and Chief
Financial Officer of La Quinta since October 1997, has assumed the additional
responsibilities of Interim President and Chief Executive Officer.
During September and October La Quinta realigned and streamlined its
operations, revenue management and sales organizations to enhance internal
growth. In this regard, the following changes were implemented:
-- Eliminated all 19 regional manager positions, all three division vice
president positions and separated the management of the La Quinta Inns
and the La Quinta Inn & Suites hotels. Seven regional vice president
positions supervising the operations of the La Quinta Inns were created
as well as two regional vice president positions supervising the
operations of the La Quinta Inn & Suites hotels.
-- Enhanced the revenue management focus by increasing the number of
revenue managers and re-aligning their responsibilities with those of
the regional vice presidents. This restructuring allows pricing
decisions to be managed centrally but retains the benefit of local
market information provided by the hotel general managers.
-- Expanded the national sales organization to pursue new national
accounts benefiting all La Quinta hotels, including the introduction of
new segment sales teams focused on key business lines such as
government entities, sports organizations and the insurance industry.
The creation of these sales teams allows La Quinta to eliminate its
area sales manager layer of management and push down local selling
efforts by deploying a greater number of sales directors at the hotel
level.
The Companies expect to begin to realize the financial benefits of this
restructuring during the year 2000. William S. McCalmont, Interim President
and Chief Executive Officer of La Quinta Inns, Inc., said, "By focusing on
internal growth and improving the efficiency of our operations, La Quinta will
be positioned to benefit from improving industry trends when the supply/demand
imbalance begins to moderate."
Meditrust's portfolio of hotels operating under the La Quinta name
included 232 Inns and 70 Inn & Suites hotels open as of September 30, 1999.
Meditrust completed $15 million of gross real estate investments in the
lodging segment during the quarter ended September 30, 1999 and La Quinta
opened 2 Inn & Suites hotels containing approximately 260 rooms and suites.
Status of Comprehensive Restructuring Plan
In November 1998 the Companies announced a comprehensive restructuring
plan, which in summary included the sale of over $1 billion of assets, the
repayment of $550 million of term debt, the resolution of the $277 million
forward equity transaction with the ultimate goal of separating the lodging
and healthcare divisions into two publicly traded REITs. The Companies have
successfully completed all aspects of the restructuring plan, with the
exception of the separation of the lodging and healthcare divisions. The
separation of the two divisions is principally dependent on the ability of
each division to obtain a separate credit facility, which has been hindered by
the contraction of the capital markets in response to the uncertainty
surrounding the healthcare and lodging industries. The Companies are unable
to predict when the capital markets will permit the separation to occur.
Mr. Benson commented, "We remain totally committed to enhancing
shareholder value. Despite the tight capital markets, we continue to evaluate
strategic alternatives to unleash the inherent value of the Companies for our
shareholders."
Debt Repayment
During 2000, $461 million of term debt matures, which principally consists
of $250 million in January and $207 million in July. The Companies expect to
repay the debt using a combination of its available line of credit and the
proceeds from the sale of assets. Meditrust had approximately
$283 million available on its revolving credit line at the end of the third
quarter.
Dividends
On October 15, 1999, Meditrust Corporation announced the board of
directors voted to declare a quarterly dividend of $0.46 cents per share to
shareholders of record on October 29, 1999. This is the fourth dividend
payment in 1999 and will be paid on November 15, 1999. The tax status of the
1999 dividends will be determined in January 2000 and will be distributed to
shareholders in a 1099-DIV form at that time.
A number of factors will impact Meditrust Corporation's cash flow and
taxable income for the year 2000. All of these factors will be considered in
establishing Meditrust Corporation's dividend policy for the year 2000.
Taking a preliminary look at taxable income for the year 2000, it appears that
to maintain Meditrust's REIT status the current dividend could be reduced by
as much as 50%. Consistent with past practices, in January 2000 the Board
will evaluate Meditrust Corporation's dividend policy.
The Meditrust Companies, with headquarters in Needham, Massachusetts,
consists of Meditrust Corporation, a REIT, and Meditrust Operating Company.
Today's news release, along with other news about The Meditrust Companies, is
available on the Internet at reit.com.
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