Jim, there was another article on the reorganization in the online Wall Street Journal this morning. The Bass Family owns about 9% of MT & is talking about increasing that percentage to 13% as part of the reorganization. Here's the whole article:
November 12, 1998
Meditrust Plans Major Restructuring;
Company Will Split Into Two REITs
By BARBARA MARTINEZ
Staff Reporter of THE WALL STREET JOURNAL
Meditrust Cos. plans to announce Thursday a major restructuring that will split the real-estate investment trust into separate health-care and hotel companies. The move follows an ill-fated expansion that has sent the company's stock down 56% this year.
As part of its restructuring, Meditrust, based in Needham, Mass., will sell more than $1 billion of assets, including the Santa Anita Racetrack in California, to pay down debt. It also will slash its dividend 26%.
Expansion in Past Year
The actions follow a tumultuous year for the health-care REIT, in which its founder left and its share price plummeted. Many of its problems stem from an expansion into different types of real estate, launched more than a year ago, that included the purchase of golf courses, hotels and the racetrack. In addition, the company, which has $7 billion in real-estate assets, is burdened by $3.38 billion in debt and a $277 million forward-equity swap.
Meditrust's stock, which was trading at about $36 earlier this year, closed unchanged Wednesday at $16 in composite trading on the New York Stock Exchange.
The problems at Meditrust come at a time when a rival REIT, Patriot American Hospitality Inc. in Dallas, is considering restructuring itself to resolve a crisis created by too much short-term debt, including forward-equity offerings. REITs are prone to problems, because they pay out most of their operating income as dividends. They often borrow to grow and then sell more stock to reduce their debt -- a big hurdle when stock prices fall. This year, REIT shares are down more than 20%, according to DJ Global Indexes.
Expectations that Meditrust would take some sort of action have swirled since August, when Abraham Gosman, the company's chairman and chief executive officer, was succeeded by Thomas M. Taylor. Mr. Taylor, in addition to serving as interim chairman of Meditrust, is president of an investment firm with close ties to the Bass family of Fort Worth, Texas. The Bass family is Meditrust's largest shareholder, with a 9% stake.
"This plan will give us a great deal of flexibility and will leave us in two businesses that we know very well," said Mr. Taylor, 56 years old, in an interview.
Details of Split
Mr. Taylor said Meditrust will divide itself into two separately traded REITs by the end of next year. One REIT will hold health-care assets, which mainly consist of nursing-home and long-term-care facilities all over the country, while the other REIT will contain all of Meditrust's hotel properties, which mainly consist of La Quinta Inns and La Quinta Inn & Suites hotels.
The company also plans to sell a portfolio of assets that includes its golf-related real estate and operating properties, the Santa Anita Racetrack, and about $550 million of noncore health-care properties.
In connection with the restructuring, the company plans to take charges of $248 million for the third quarter of 1998, and as much as $200 million more, primarily in the fourth quarter. Meditrust is expected to announce Thursday a third-quarter loss of $198.7 million, or $1.42 a share, which compares with net income of $42.1 million, or 57 cents a share, in the year-earlier period. The company expects to report funds from operation of $88.5 million, or 60 cents a share, compared with $48.8 million, or 66 cents a share, a year earlier.
Meditrust said it also intends to cut its dividend to a minimum of $1.84 a year from $2.48. Meditrust said the new dividend, which could increase during the year, is more in line with its peers and will provide about $100 million in additional cash to fulfill existing investment commitments and to reduce debt.
The health-care REIT that will be created by the split will look much like the Meditrust that investors knew before Mr. Gosman launched his acquisition drive.
Perils of Paired-Share Structure
Meditrust's woes began in 1997, when it paid $383 million to acquire Santa Anita Cos. for its paired-share REIT structure. The paired share enabled Meditrust to operate certain businesses normally outside the purview of REITs, while still enjoying tax exemptions. But soon after the acquisition was completed, Congress severely limited the benefits of paired-share structures.
Meditrust said it expects to use its $1 billion in asset sales to pay down about $525 million in debt. The company said it has letters of intent to sell about $400 million of health-care properties and is close to signing a definitive agreement to sell the Santa Anita racetrack, which is expected to close at the end of 1998. The company declined to name the buyer or the sale price. J.P. Morgan & Co. and Goldman, Sachs & Co. are advising Meditrust on its revamping.
The lodging REIT to be created by the split would retain the paired-share structure for its portfolio of more than $2.5 billion of investments.
Meditrust also expects to announce Thursday it agreed to settle its $277 million forward-equity contract with Merrill Lynch & Co. before its February 1999 expiration. The contract had loomed as a major uncertainty for investors. In February of this year, Meditrust agreed to sell 8.5 million shares of Meditrust stock at $32.625 and deliver the stock by February 1999 to Merrill Lynch. The bet was that if the stock price would climb during that period, Meditrust would have to put up fewer shares. But if the stock price fell, Meditrust would have to issue more than 8.5 million shares, thereby diluting the holdings of current shareholders.
Meditrust now plans to pay off half of that obligation with cash from asset sales, and plans to pay the other half of the contract from the proceeds of the sale of some type of equity security, likely a preferred security. "We believe this arrangement should remove market uncertainty, with the ultimate objective of minimizing possible dilution to funds from operation," said David Benson, interim chief executive.
Mr. Benson is expected to continue serving as interim chief executive until the end of next year, when the company is split is two. Then, Mr. Benson is expected to become chief executive and president of the health-care REIT. Ezzat Coutry, president and chief executive of La Quinta Inns, which Meditrust acquired this year, will hold those positions in the lodging REIT.
Meditrust said it will call for a special shareholders meeting for a vote to allow Mr. Taylor and the Bass family the flexibility to increase their ownership in Meditrust to 13% from 9%. "We're putting our time and our money where our mouth is," Mr. Taylor said.
Copyright, The Wall Street Journal, November 12, 1998.
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