UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ___ to ____
<TABLE>
<CAPTION>
<S> <C>
Commission file number 0-9109 Commission file number 0-9110
MEDITRUST CORPORATION MEDITRUST OPERATING COMPANY
--------------------- ---------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
-------- --------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
---------- ----------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
197 First Avenue, Suite 300 197 First Avenue, Suite 100
Needham Heights, Massachusetts 02194-9127 Needham Heights, Massachusetts 02194-9127
- ----------------------------------------- -----------------------------------------
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(781) 433-6000 (781) 453-8062
-------------- --------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
</TABLE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No__.
The number of shares outstanding of each of the issuers' classes of common
stock, as of the close of business on April 30, 1998 were:
Meditrust Corporation 98,375,178
Meditrust Operating Company 97,069,801
<PAGE>
THE MEDITRUST COMPANIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information Page(s)
-------
Item 1. Financial Statements
The Meditrust Companies
Combined Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 3
Combined Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 (unaudited) 4
Combined Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited) 5
Meditrust Corporation
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 6
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 (unaudited) 7
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 (unaudited) 8
Meditrust Operating Company
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 9
Consolidated Statement of Operations for the three months
ended March 31, 1998 (unaudited) 10
Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 (unaudited) 11
Notes to Combined Consolidated Financial Statements (unaudited) 12-20
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 21-31
Part II. Other Information
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 32
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
</TABLE>
2
<PAGE>
THE MEDITRUST COMPANIES
PART I. FINANCIAL INFORMATION
COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- ------------
<S> <C> <C>
(In thousands) (Unaudited)
Assets
Real estate investments, net (Note 3) $3,022,605 $2,935,772
Cash and cash equivalents 90,526 43,732
Fees, interest and other receivables 41,662 29,439
Goodwill 193,256 194,893
Other assets, net (Note 5) 111,655 120,055
---------- ----------
Total assets $3,459,704 $3,323,891
========== ==========
Liabilities and Shareholders' Equity
Indebtedness (Note 4):
Notes payable, net $ 900,946 $ 900,594
Convertible debentures, net 228,307 234,000
Bank notes payable, net 49,643 179,527
Bonds and mortgages payable, net 64,013 63,317
---------- ----------
Total indebtedness 1,242,909 1,377,438
Deferred revenue 8,334 9,054
Accounts payable, accrued expenses and other liabilities 101,247 111,159
Deferred income taxes 501 501
---------- ----------
Total liabilities 1,352,991 1,498,152
---------- ----------
Commitments and contingencies (Notes 3 and 9) -- --
Shareholders' equity (Notes 4, 5, 6 and 11):
Paired Preferred Stock, $.20 combined par value; 6,000
shares authorized; no shares issued or outstanding
Paired Series Common Stock, $.20 combined par value;
30,000 shares authorized; 8,500 and no paired shares of Series A
Non-Voting Convertible Common Stock issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 1,700
Paired Common Stock, $.20 combined par value; 270,000
shares authorized; 88,421 and 88,128 paired shares
issued and outstanding at March 31, 1998 and
December 31, 1997, respectively 17,684 17,626
Additional paid-in-capital 2,282,226 2,001,086
Distributions in excess of net income (194,897) (192,973)
---------- ----------
Total shareholders' equity 2,106,713 1,825,739
---------- ----------
Total liabilities and shareholders' equity $3,459,704 $3,323,891
========== ==========
</TABLE>
The accompanying notes, together with the Notes to the Combined Consolidated
Financial Statements incorporated by reference in the Companies'
Form 10-K for the year ended December 31, 1997, are an
integral part of these financial statements.
3
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
(In thousands, except
per Share amounts)
Revenue:
Rental $ 43,997 $32,293
Interest 38,688 35,672
Horse racing 36,511
Other (Note 3) 26,000
-------- -------
Total revenue 145,196 67,965
-------- -------
Expenses:
Interest 25,453 18,115
Depreciation and amortization 11,271 6,087
Amortization of goodwill 1,576 389
General and administrative 4,384 2,321
Horse racing operations 28,196
Rental property operations 1,265
Income from unconsolidated joint venture (111)
Other (Note 7) 21,541
-------- -------
Total expenses 93,575 26,912
-------- -------
Net income $ 51,621 $41,053
======== =======
Basic earnings per Paired Common Share (Note 10) $ .56 $ .56
======== =======
Diluted earnings per Paired Common Share (Note 10) $ .56 $ .55
======== =======
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
4
<PAGE>
THE MEDITRUST COMPANIES
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,621 $ 41,053
Depreciation of real estate 10,347 5,972
Goodwill amortization 1,576 389
Shares issued for compensation 182 608
Equity in income of joint venture, net of dividends received 289
Other depreciation, amortization and other items, net 4,843 359
Other non cash expenses (Note 7) 15,600
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
AVAILABLE FOR DISTRIBUTION 84,458 48,381
Net change in other assets and liabilities (19,573) (16,425)
--------- ----------
Net cash provided by operating activities 64,885 31,956
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equity offering 277,313
Proceeds from borrowings on bank notes payable 170,000 111,000
Repayment of bank notes payable (300,000) (25,000)
Equity offering and debt issuance costs (5,636) (39)
Principal payments on bonds and mortgages payable (6,876) (254)
Distributions to shareholders (53,545) (43,474)
Proceeds from stock options 1,105 1,923
--------- ---------
Net cash provided by financing activities 82,361 44,156
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate and development funding (286,710) (51,057)
Investment in real estate mortgages and development funding (78,491) (64,049)
Prepayment proceeds and principal payments received
on real estate mortgages 259,102 4,190
Proceeds from sale of real estate 4,709
Working capital advances and acquisition of receivables, net
of repayments and collections 938 (1,704)
Investment in equity securities (Note 5) (552)
--------- ----------
Net cash used in investing activities (100,452) (113,172)
--------- ----------
Net increase (decrease) in cash and cash equivalents 46,794 (37,060)
Cash and cash equivalents at:
Beginning of period 43,732 42,726
--------- ---------
End of period $ 90,526 $ 5,666
========= =========
</TABLE>
Supplemental disclosure of cash flow information (Note 2)
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
5
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
(In thousands) (Unaudited)
Assets
Real estate investments, net (Note 3) $3,022,605 $2,935,772
Cash and cash equivalents 63,377 24,059
Fees, interest and other receivables 32,905 26,859
Goodwill 161,033 162,408
Due from Meditrust Operating Company 15,311 18,490
Other assets, net (Note 5) 83,785 91,948
---------- ----------
Total assets $3,379,016 $3,259,536
========== ==========
Liabilities and Shareholders' Equity
Indebtedness (Note 4):
Notes payable, net $ 900,946 $ 900,594
Convertible debentures, net 228,307 234,000
Bank notes payable, net 49,643 179,527
Bonds and mortgages payable, net 64,013 63,317
---------- ----------
Total indebtedness 1,242,909 1,377,438
Deferred income 6,949 7,705
Accounts payable, accrued expenses and other liabilities 61,166 82,153
---------- ----------
Total liabilities 1,311,024 1,467,296
---------- ----------
Commitments and contingencies (Notes 3 and 9) -- --
Shareholders' equity (Notes 4, 5, 6 and 11):
Preferred Stock, $.10 par value; 6,000 shares authorized;
no shares issued or outstanding
Series Common Stock, $.10 par value; 30,000 shares authorized;
8,500 and no shares of Series A Non-Voting Convertible Common Stock
issued and outstanding at March 31, 1998 and
December 31, 1997, respectively 850
Common Stock, $.10 par value; 270,000 shares authorized;
89,726 and 89,433 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 8,973 8,943
Additional paid-in-capital 2,265,513 1,988,798
Distributions in excess of net income (194,216) (192,373)
---------- ----------
2,081,120 1,805,368
Note receivable - Meditrust Operating Company (13,128) (13,128)
---------- -----------
Total shareholders' equity 2,067,992 1,792,240
---------- ----------
Total liabilities and shareholders' equity $3,379,016 $3,259,536
========== ==========
</TABLE>
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
6
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
(In thousands, except
per Share amounts)
Revenue:
Rental $ 43,656 $ 32,293
Interest 38,512 35,672
Rent from Meditrust Operating Company 6,781
Interest from Meditrust Operating Company 492
Other (Note 3) 26,000
--------- --------
Total revenue 115,441 67,965
--------- --------
Expenses:
Interest 25,417 18,115
Depreciation and amortization 10,458 6,087
Amortization of goodwill 1,375 389
General and administrative 3,794 2,321
Rental property operating 1,265
Income from unconsolidated joint venture (111)
Other (Note 7) 21,541
--------- --------
Total expenses 63,739 26,912
--------- --------
Net income $ 51,702 $ 41,053
========= ========
Basic earnings per Common Share (Note 10) $ .56 $ .56
========= ========
Diluted earnings per Common Share (Note 10) $ .55 $ .55
========= ========
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
7
<PAGE>
MEDITRUST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,702 $ 41,053
Depreciation of real estate 10,347 5,972
Goodwill amortization 1,375 389
Shares issued for compensation 179 608
Equity in income of joint venture, net of dividends received 289
Other depreciation, amortization and other items, net 4,030 359
Other non cash expenses (Note 7) 15,600
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
AVAILABLE FOR DISTRIBUTION 83,522 48,381
Net change in other assets and liabilities (23,992) (16,425)
--------- ----------
Net cash provided by operating activities 59,530 31,956
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equity offering 272,044
Proceeds from borrowings on bank notes payable 170,000 111,000
Repayment of bank notes payable (300,000) (25,000)
Equity offering and debt issuance costs (5,531) (39)
Principal payments on bonds and mortgages payable (6,876) (254)
Proceeds from intercompany borrowings, net of repayments 3,065
Distributions to shareholders (53,545) (43,474)
Proceeds from stock options 1,083 1,923
--------- ---------
Net cash provided by financing activities 80,240 44,156
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate and development funding (286,710) (51,057)
Investment in real estate mortgages and development funding (78,491) (64,049)
Prepayment proceeds and principal payments received
on real estate mortgages 259,102 4,190
Proceeds from sale of real estate 4,709
Working capital advances and acquisiton of receivables, net
of repayments and collections 938 (1,704)
Investment in equity securities (Note 5) (552)
--------- ---------
Net cash used in investing activities (100,452) (113,172)
--------- ---------
Net increase (decrease) in cash and cash equivalents 39,318 (37,060)
Cash and cash equivalents at:
Beginning of period 24,059 42,726
--------- ---------
End of period $ 63,377 $ 5,666
========= =========
</TABLE>
Supplemental disclosure of cash flow information (Note 2)
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
8
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
(In thousands) (Unaudited)
Assets
Cash and cash equivalents $ 27,149 $ 19,673
Fees, interest and other receivables 8,757 2,580
Other current assets, net 4,023 3,078
-------- --------
Total current assets 39,929 25,331
-------- --------
Investment in common stock of Meditrust Corporation 37,581 37,581
Goodwill 32,223 32,485
Property, plant and equipment, less accumulated depreciation of $984
and $171, respectively 9,347 10,529
Artwork 14,500 14,500
-------- --------
Total assets $133,580 $120,426
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 19,316 $ 14,180
Payable to owners, trainers and breeders 13,881 5,939
Deferred compensation 2,759 3,977
Accrued payroll 2,080 3,491
Other liabilities 2,045 1,419
Due to Meditrust Corporation 15,311 18,490
-------- --------
Total current liabilities 55,392 47,496
-------- --------
Note payable to Meditrust Corporation 13,128 13,128
Deferred revenue 1,385 1,349
Deferred income taxes 501 501
-------- --------
Total liabilities 70,406 62,474
-------- --------
Commitments and contingencies (Note 9) -- --
Shareholders' equity (Notes 4, 5, 6 and 11):
Preferred Stock, $.10 par value; 6,000 shares authorized; no shares
issued or outstanding
Series Common Stock, $.10 par value; 30,000 shares authorized; 8,500 and no
shares of Series A Non-Voting Convertible Common Stock issued and
outstanding at March 31, 1998 and December 31, 1997, respectively 850
Common Stock, $.10 par value; 270,000 shares authorized;
88,421 and 88,128 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively 8,842 8,813
Additional paid-in-capital 54,163 49,739
Retained earnings (deficit) (681) (600)
-------- ---------
Total shareholders' equity 63,174 57,952
-------- --------
Total liabilities and shareholders' equity $133,580 $120,426
======== ========
</TABLE>
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
9
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ended March 31, 1998
(Unaudited)
1998
----
(In thousands, except
per Share amounts)
Revenue:
Horse Racing:
Wagering commissions $25,931
Admission related 10,580
-------
Total horse racing 36,511
Interest 176
Other 341
-------
Total revenue 37,028
-------
Expenses:
Horse racing operations 28,196
Depreciation and amortization 813
Amortization of goodwill 201
Interest and other 36
Interest to Meditrust Corporation 492
General and administrative 590
Rent to Meditrust Corporation 6,781
-------
Total expenses 37,109
-------
Loss before income taxes $ (81)
Provision for income taxes --
-------
Net loss $ (81)
=======
Basic earnings per Common Share (Note 10): $ --
=======
Diluted earnings per Common Share (Note 10): $ --
=======
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
10
<PAGE>
MEDITRUST OPERATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1998
(Unaudited)
1998
----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (81)
Amortization of goodwill 201
Shares issued for compensation 3
Other depreciation and amortization 813
Net change in other assets and liabilities 4,419
-------
Net cash provided by operating activities 5,355
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from equity offering 5,269
Equity offering costs (105)
Repayment of intercompany borrowings, net of borrowings (3,065)
Proceeds from stock options 22
-------
Net cash provided by financing activities 2,121
-------
Net increase in cash and cash equivalents 7,476
Cash and cash equivalents at:
Beginning of period 19,673
-------
End of period $27,149
=======
Supplemental disclosure of cash flow information (Note 2)
The accompanying notes, together with the Notes to the
Combined Consolidated Financial Statements incorporated by reference
in the Companies' Form 10-K for the year ended
December 31, 1997, are an integral part of these financial statements.
11
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted in this Form 10-Q in
compliance with the Rules and Regulations of the Securities and Exchange
Commission. However, in the opinion of Meditrust Corporation ("Realty") and
Meditrust Operating Company and subsidiaries ("Operating Company" and
collectively the "Companies" or "The Meditrust Companies"), the disclosures
contained in this Form 10-Q are adequate to make the information presented
not misleading. See the Companies' Annual Report on Form 10-K and 10-K/A
for the year ended December 31, 1997 (and the Reports on Form 8-K and 8-K/A
dated February 26, 1998, incorporated by reference therein) for additional
information relevant to significant accounting policies followed by the
Companies.
Basis of Presentation
In the opinion of the Companies' management, the accompanying unaudited
combined consolidated financial statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly
their financial position as of March 31, 1998 and their results of
operations for each of the three-month periods ended March 31, 1998 and
1997 and cash flows for each of the three-month periods ended March 31,
1998 and 1997. The results of operations for the three-month period
ended March 31, 1998 are not necessarily indicative of the results which
may be expected for any other interim period or for the entire year.
Certain reclassifications have been made to the 1997 presentation to
conform to the 1998 presentation.
2. Supplemental Cash Flow Information
----------------------------------
The Meditrust Companies:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
(In thousands)
Interest paid during the period................................ $44,120 $29,931
Interest capitalized during the period......................... 1,652 1,881
Non-cash investing and financing transactions:
Value of real estate acquired:
Land and buildings..................................... 7,118
Accumulated depreciation of buildings sold................ 1,561
Increase (reduction) in real estate mortgages net of
participation reduction................................ 461 (64)
Change in market value of equity securities in excess
of cost................................................ 3,971 (1,159)
Value of Shares issued for conversion of debentures ...... 5,962 2,552
</TABLE>
12
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Supplemental Cash Flow Information, Continued
---------------------------------------------
Meditrust Corporation:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
(In thousands)
Interest paid during the period................................ $44,120 $29,931
Interest capitalized during the period 1,652 1,881
Non-cash investing and financing transactions:
Value of real estate acquired:
Land and buildings..................................... 7,118
Accumulated depreciation of buildings sold................ 1,561
Increase (reduction) in real estate mortgages net of
participation reduction................................ 461 (64)
Change in market value of equity securities in excess
of cost................................................ 3,971 (1,159)
Value of Shares issued for conversion of debentures....... 5,849 2,552
Meditrust Operating Company:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
--------------
<S> <C>
(In thousands)
Interest paid during the period................................ $54
Non-cash investing and financing transactions:
Value of Shares issued for conversion of debentures....... 113
</TABLE>
3. Real Estate Investments
The following is a summary of Realty's real estate investments:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
(In thousands)
Land $ 316,750 $ 249,852
Buildings and improvements, net of accumulated depreciation
of $133,054 and $124,582 1,420,134 1,223,255
Real estate mortgages and loans receivable 1,252,675 1,432,825
Investment in unconsolidated joint venture, net of accumulated
depreciation of $625 and $250 29,176 29,840
Assets held for sale, net of accumulated depreciation
and other provisions of $11,439 3,870
---------- ----------
$3,022,605 $2,935,772
========== ==========
</TABLE>
13
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Real Estate Investments, Continued
----------------------------------
During the three months ended March 31, 1998, Realty acquired five
assisted living facilities and twenty-one medical office buildings for
$217,081,000. Realty also acquired five golf courses for $40,965,000. In
addition, during the three month period ended March 31, 1998, Realty
provided net funding of $9,628,000 for the construction of nine assisted
living facilities. Realty also provided net funding of $19,036,000 for
ongoing construction of facilities it currently owns which were already
in the portfolio prior to 1998.
Also during the three months ended March 31, 1998, Realty provided
permanent mortgage financing of $37,335,000 for one long-term care
facility and for 135 acres of development stage property. Realty also
provided $2,122,000 in additions to permanent mortgages already in the
portfolio.
Realty commenced new development funding of $1,991,000 relating to one
long-term care facility. Realty also provided $37,043,000 for ongoing
construction of mortgaged facilities already in the portfolio.
During the three months ended March 31, 1998, Realty received $4,709,000 from
the sale of a long-term care facility. There was no gain or loss realized on
the sale.
From time to time, Realty enters into transactions with related parties. As
of March 31, 1998, Realty had total commitments of $330,162,000 of which
$254,863,000 were funded to entities in which the Companies' Chairman and
Chief Executive Officer owned or was expected to own a controlling equity
interest or a minority interest. Realty expects to enter into additional
transactions with related parties in the future. All of the terms and
conditions of such transactions are subject to approval by the independent
Directors of Realty. During 1996 and 1997, Realty provided mortgage financing
in the aggregate amount of $82,270,000 (of which $74,313,000 had been funded
through January 1998) to certain limited partnerships in which the Companies'
Chairman and Chief Executive Officer holds a minority equity interest, for
the construction and/or permanent financing of 11 medical office buildings.
During January 1998, Realty acquired all of the assets of, or all of the
partnership interests in such limited partnerships for an aggregate purchase
price of $110,528,000, and currently leases the medical office buildings
directly to the occupants thereof.
On February 23, 1998, Realty entered into a letter of intent for the
construction and permanent financing of a medical office building to be
located in Morristown, New Jersey, with a committed amount of $25,695,000,
with an entity in which the Companies' Chairman and Chief Executive Officer
holds a 12% minority equity interest. This transaction closed in April 1998.
On March 4, 1998 Realty provided acquisition financing in the amount of
$24,228,723 to an entity in which the Companies' Chairman and Chief Executive
Officer owns a 42.5% equity interest and Realty's Chief Operating Officer
owns a 2.5% equity interest, for the development of 135 acres of land in
Jupiter, Florida, $17,835,000 of which had been funded as of March 31, 1998.
During the three months ended March 31, 1998, Realty received principal
payments on real estate mortgages of $259,102,000. Included in this amount
was a $122,000,000 prepayment of mortgage investments for which a prepayment
and make-whole gain of $26,000,000 was received and has been classified as
other income in the consolidated statements of income.
At March 31, 1998, Realty was committed to provide additional financing of
approximately $219,281,000 relating to five medical office buildings, eight
long-term care facilities, and 36 assisted living facilities which are
currently under construction as well as additions to existing facilities in
the portfolio.
14
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Indebtedness and Shareholders' Equity
-------------------------------------
On February 26, 1998, the Companies entered into two transactions with
Merrill Lynch International, a UK-based broker/dealer subsidiary of Merrill
Lynch & Co., Inc. ("MLI"). Pursuant to the terms of a stock purchase
agreement, MLI agreed to purchase 8,500,000 shares of Series A Non-Voting
Convertible Common Stock from each of the Companies at a purchase price of
$32.625 per share. The Series A Non-Voting Convertible Common Stock is
non-voting paired series common stock that will convert to paired common
stock of the Companies ("Shares") on the earlier of (a) the business day
following the date on which the stockholders of the Companies have approved
the proposed merger of Realty with La Quinta Inns, Inc. ("La Quinta") or
(b) the date of any termination of the La Quinta merger agreement. Net
proceeds from this private placement of securities of approximately
$272,000,000 were used by the Companies to repay existing indebtedness.
Separately, the Companies and MLI entered into a purchase price adjustment
agreement under which Meditrust will, within one year from the date of
MLI's purchase, adjust the original $32.625 purchase price per share based
on the market price of the Shares at the time of the adjustment, by
receiving Shares from MLI or by issuing additional Shares to MLI.
The Series A Non-Voting Convertible Common Stock will receive the same
dividend as the Companies' Common Stock, however, the guaranteed minimum
return is LIBOR plus 75 basis points. Any difference between LIBOR plus 75
basis points and the dividend payments received by the shareholders will be
included in an adjustment amount under the purchase price adjustment
agreement. The Companies expect the annual dividend to exceed LIBOR plus 75
basis points.
This transaction has been accounted for as an equity transaction with the
shares treated as outstanding from their date of issuance for both basic
and diluted earnings per share purposes. The accounting treatment for this
transaction is expected to be reviewed by the Emerging Issues Task Force
(EITF). The Securities and Exchange Commission has concluded that until the
EITF has an opportunity to perform a full review of this transaction,
future transactions of this type will be accounted for as debt. For
previously completed transactions such as the Companies', the Securities
and Exchange Commission will not object to the accounting treatment
reflected in the Quarterly Report on Form 10-Q.
During the three months ended March 31, 1998, $220,000 of principal amount of
9% convertible debentures were converted into 9,788 Shares; $5,027,000 of
principal amount of 7% convertible debentures were converted into 197,231
Shares; $50,000 of principal amount of 7.5% convertible debentures were
converted into 1,660 Shares and $665,000 of principal amount of 6 7/8%
convertible debentures were converted into 21,521 Shares.
Realty has a total of $365,000,000 in unsecured lines of credit, bearing
interest at the lenders' prime rate or LIBOR plus .875%. A total of
$311,000,000 was available at March 31, 1998.
15
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Comprehensive Income and Investment in Equity Securities
As of January 1, 1998, the Companies adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income".
SFAS 130 establishes standards for the reporting and display of comprehensive
income and its components; however, the adoption of this statement has no
impact on the Companies' net income or shareholders' equity. SFAS 130
requires, among other things, unrealized gains or losses on the Companies'
available-for-sale investments to be included in other comprehensive income.
During 1996 and 1997, Realty invested approximately $26,982,000 in exchange
for 14,285,000 shares of common stock, representing a 19.99% interest in
Nursing Home Properties Plc (NHP Plc), a property investment group which
specializes in the financing, through sale and leaseback transactions, of
nursing homes located in the United Kingdom. Realty does not have the right
to vote more than 9.99% of the shares of NHP Plc. As of March 31, 1998 the
market value of this investment was $34,522,000 and is included in other
assets in the accompanying balance sheet. The resulting difference between
the current market value and cost, $7,540,000, is included in shareholders'
equity in the accompanying balance sheet.
The following is a summary of the Companies' comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Net income $51,621 $41,053
======= =======
Other comprehensive income:
Change in market value of equity
securities in excess of cost 3,971 (1,159)
------- -------
Comprehensive income $55,592 $39,894
======= =======
</TABLE>
6. Distributions Paid to Shareholders
----------------------------------
On February 13, 1998, Realty paid a dividend of $.60625 per Share to
shareholders of record on January 30, 1998.
7. Other expenses
--------------
During the three months ended March 31, 1998, the Companies pursued a
strategy of diversifying into new business lines including hospitality and
golf (See Note 9). Consistent with this strategy, Realty commenced a
reevaluation of its intentions with respect to certain existing health care
real estate facilities and other assets.
As a result of continued deteriorating performance at two owned psychiatric
facilities and the corresponding impact on Realty's resources, management has
committed to a plan to sell these facilities as soon as practicable.
Accordingly, Realty has recorded a provision of $10.5 million to adjust the
carrying value of these facilities and related working capital receivables to
estimated fair value less costs to sell as of March 31, 1998. In addition, as
part of the continuing evaluation of its existing health care real estate
portfolio, Realty has also provided for the establishment of a $3 million
valuation reserve as of March 31, 1998.
Realty also has held other assets and receivables that are unrelated to its
historical primary business of health care financing. Management has
determined that protracted collection efforts for these assets is currently
an inefficient use of its resources and therefore has recorded a provision
of approximately $5.1 million to reduce the carrying value of these assets
to net realizable value as of March 31, 1998.
Additionally, Realty incurred approximately $3 million of non-recurring
costs related to the evaluation of certain acquisition targets which it is
no longer pursuing at March 31, 1998.
16
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Newly Issued Accounting Standards
---------------------------------
Financial Accounting Standards Board Statement No. 131 ("FAS 131")
"Disclosure about Segments of an Enterprise and Related Information" is
effective for financial statements issued for periods beginning after
December 15, 1997. FAS 131 requires disclosures about segments of an
enterprise and related information regarding the different types of
business activities in which an enterprise engages and the different
economic environments in which it operates. Due to the Companies' plans
for acquisitions of companies in a variety of business segments, the
Companies are in the process of evaluating the effect of the
implementation of FAS 131.
During the three months ended March 31, 1998 the Companies adopted Emerging
Issues Task Force No. 97-11 (EITF 97-11): Accounting for Internal Costs
Relating to Real Estate Property Acquisitions. The adoption of EITF 97-11 did
not and is not expected to have a material impact on the Companies' financial
position or results of operations.
9. Contingencies
-------------
On January 8, 1998 the Companies received notice that they were named as a
defendant in an action entitled, Lynn Robbins v. William J. Razzouk, et al;
Civil Action No. 98CI-00192 filed January 7, 1998 in the District Court of
Bexar County, Texas and on January 20, 1998 the Companies received notice
that they were named as a defendant in an action entitled, Adele Brody v.
William J. Razzouk, et al., Civil Action No. 98CI-00456 filed January 12,1998
in the District Court of Bexar County, Texas. The complaints, which have been
consolidated into one action, (i) allege, in part, that La Quinta and its
directors violated their fiduciary duty, duty of care and loyalty to La
Quinta shareholders by entering into a merger agreement with the Companies
without having first invited other bidders, and the Companies aided and
abetted La Quinta and its directors in the alleged breaches, and (ii) seek
injunctive relief enjoining the merger with La Quinta and compensatory
damages. The defendants and counsel for the class plaintiffs have negotiated
and entered into an agreement in principle to settle the action, dated on or
about May 8, 1998 (the "Memorandum of Understanding"). The Memorandum of
Understanding sets forth the principal bases for the settlement which include
the issuance of a series of press releases prior to the meetings of the
shareholders of the Companies and La Quinta to consider the La Quinta merger
agreement and the inclusion of a section describing the Forward Equity
Transaction with MLI in the joint proxy statement/prospectus prepared for the
La Quinta's shareholder meetings. The proposed settlement will be contingent
upon execution of an appropriate and satisfactory stipulation of settlement
and related documents, and Final Court Approval of the settlement (as defined
in the Memorandum of Understanding) by the Texas Court. La Quinta has agreed
to pay counsel for the class plaintiffs attorney's fees in an amount not to
exceed $700,000 in the event such settlement is consummated.
The Companies are also a party to a number of other claims and lawsuits
arising out of the normal course of business; the Companies believe that
none of these claims or pending lawsuits, either individually or in the
aggregate, will have a material adverse affect on the Companies' business
or on their consolidated financial position or results of operations.
17
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Contingencies, Continued
------------------------
On March 26, 1998, Representative William Archer, Chairman of the House
Ways and Means Committee, and Senator William V. Roth, Jr., Chairman of the
Senate Finance Committee, introduced identical legislation to limit the
grandfathered status of paired share real estate investment trusts (a
"REIT"). Under the proposed legislation, the anti-pairing rules provided in
the Internal Revenue Code of 1986, as amended (the "Code") would apply to
real property interests acquired after March 26, 1998 by the Companies, or
a subsidiary or partnership in which a ten percent or greater interest is
owned by the Companies unless (i) the real property interests are acquired
pursuant to a written agreement which was binding on March 26, 1998 and all
times thereafter or (ii) the acquisition of such real property interests
was described in a public announcement or in a filing with the SEC on or
before March 26, 1998.
Under this legislation as currently proposed, the properties to be acquired
from La Quinta would not be subject to these anti-pairing rules. However,
there is no assurance that the legislation will be adopted in its current
form, with a consequence that the properties to be acquired from La Quinta
or other properties of the Companies could become subject to the
anti-pairing rules of the Code in the future. In addition, the proposed
legislation also provides that a property held by the Companies that is not
subject to the anti-pairing rules would become subject to such rules in the
event of an improvement placed in service after December 31, 1999 that
changes the use of the property and the cost of which is greater than 200
percent of (i) the undepreciated cost of the property (prior to the
improvement) or (ii) in the case of property acquired where there is a
substituted basis (e.g., the properties to be acquired from La Quinta), the
fair market value of the property on the date it was acquired by the
Companies. There is an exception for improvements placed in service before
January 1, 2004 pursuant to a binding contract in effect on December 31,
1999 and at all times thereafter. This proposed restriction on property
improvements would apply to the properties to be acquired from La Quinta,
as well as all other properties owned by the Companies, and would limit the
ability of the Companies to improve or change the use of those properties
after December 31, 1999. Restructuring the operations of Realty and
Operating Company to comply with the proposed legislation may cause the
Companies to incur substantial tax liabilities, to recognize an impairment
loss on their goodwill asset or otherwise adversely affect the Companies.
On January 3, 1998, the Companies signed a definitive merger agreement
with La Quinta providing for, among other transactions, the merger of La
Quinta with and into Realty. The total consideration for the transaction
will amount to $26.00 per share of La Quinta, in a combination of newly
issued Shares of the Companies and cash, subject to certain cap and
collar mechanisms. The transaction is expected to close in the second
quarter of 1998. Since the last week of January 1998, the Companies'
stock price has decreased which may result in more Shares being issued by
the Companies to complete the transaction than was originally expected.
Depending upon how many additional Shares, if any, are issued, the
transaction may not be as accretive, on a per Share basis, as had
previously been disclosed.
18
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Contingencies, Continued
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which the Companies will acquire all of the
outstanding preferred and common stock of Cobblestone for Shares valued
at approximately $241,000,000. In addition, under the terms of the
agreement, approximately $169,000,000 of Cobblestone debt and associated
costs will be either refinanced or assumed as a condition of closing. The
transaction is anticipated to close in the second quarter of 1998.
10.Earnings Per Share
Combined consolidated earnings per Share is computed as follows:
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
-----------------------------------------
(In thousands, except per Share amounts) Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $51,621 91,428 $.56
Effect of Dilutive Securities:
Stock Options 336
Contingently issuable Shares to MLI (Note 4) 143
Diluted EPS:
---------------------------------------------
Income available to common shareholders $51,621 91,907 $.56
=============================================
For the three months ended March 31, 1997
-----------------------------------------
(In thousands, except per Share amounts) Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Income available to common shareholders $41,053 73,828 $.56
Effect of Dilutive Securities:
Stock Options 266
Diluted EPS:
---------------------------------------------
Income available to common shareholders $41,053 74,094 $.55
=============================================
</TABLE>
Weighted average common shares of Realty for purposes of computing Basic
EPS were 92,734,000 and 73,828,000 and for Diluted EPS were 93,213,000
and 74,094,000 for the three month periods ended March 31, 1998 and 1997,
respectively. Weighted average common shares of Operating Company for
purposes of computing Basic and Diluted EPS for the three month period
ended March 31, 1998 were 91,428,000 and 91,907,000, respectively.
19
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Earnings Per Share, Continued
Operating Company holds common shares of Realty which are unpaired
pursuant to a stock option plan approved by the shareholders. The common
shares held totaled 1,305,000 as of March 31, 1998. These shares affect
the calculation of Realty's net income per common share but are
eliminated in the calculation of net income per paired common share for
The Meditrust Companies.
Convertible debentures outstanding for the three month periods ended
March 31, 1998 and 1997 are not included in the computation of diluted
EPS because the inclusion would result in an antidilutive effect.
11. Subsequent Event
On April 14, 1998, Realty declared a dividend of $.61125 per Share
payable on May 15, 1998 to shareholders of record on April 30, 1998.
20
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain matters discussed may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although The
Meditrust Companies (the "Companies") consisting of Meditrust Corporation
("Realty") and Meditrust Operating Company ("Operating"), believe the statements
are based on reasonable assumptions, the Companies can give no assurance that
their expectations will be attained. Actual results and timing of certain events
could differ materially from those projected in or contemplated by the
forward-looking statements due to a number of factors, including, without
limitation, general economic and real estate conditions, the availability of
equity and debt financing for acquisitions and renovations, interest rates,
competition for hotel and golf services in a given market, the enactment of
legislation impacting the Companies' status as a paired share real estate
investment trust ("REIT") or Realty's status as a REIT and other risks detailed
from time to time in the filings of Realty and Operating with the Securities and
Exchange Commission, including, without limitation, quarterly reports on Form
10-Q, reports on Form 8-K, and annual reports on Form 10-K.
The basis of presentation includes Management's Discussion and Analysis of
Financial Condition and Results of Operations for the combined and separate SEC
registrants. Management of the Companies believe that combined presentation is
most beneficial to the reader. However it should be noted that combined results
of operations for the three months ended March 31, 1997 are principally related
to the activity of Realty.
On November 5, 1997, Meditrust merged with Santa Anita Realty Enterprises, Inc.,
with Santa Anita Realty Enterprises, Inc. as the surviving corporation, and
Meditrust Acquisition Company merged with Santa Anita Operating Company, with
Santa Anita Operating Company as the surviving corporation (hereafter referred
to as the "Merger" or "Mergers"). Upon completion of the Mergers, Santa Anita
Realty Enterprises, Inc. changed its corporate name to "Meditrust Corporation"
and Santa Anita Operating Company changed its corporate name to "Meditrust
Operating Company." The Mergers were accounted for as reverse acquisitions
whereby Meditrust and Meditrust Acquisition Company were treated as the
acquirers for accounting purposes. Accordingly, the financial history is that of
Meditrust and Meditrust Acquisition Company prior to the Mergers. For the three
month period ended March 31, 1997, all Share and per Share amounts have been
retroactively adjusted to reflect the 1.2016 exchange of shares of beneficial
interest for paired common shares of the Companies.
The Meditrust Companies - Combined Results of Operations
Three months ended March 31, 1998 vs. Three months ended March 31, 1997
Revenue for the three months ended March 31, 1998 was $145,196,000 compared to
$67,965,000 for the three months ended March 31, 1997, an increase of
$77,231,000. Revenue growth was primarily attributable to the addition of horse
racing revenue of $36,511,000, increased rental income of $11,704,000 and
increased interest income of $3,016,000. Horse racing revenue during the three
month period ended March 31, 1998 is seasonally high as the track was open
with live racing for the entire period. The rental and interest income increases
resulted from additional real estate investments made over the last twelve
months net of mortgage prepayments. Other income for the three months ended
March 31, 1998 included a nonrecurring $26,000,000 prepayment and make-whole
gain as a result of approximately $120,000,000 in
21
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Meditrust Companies - Combined Results of Operations, Continued
mortgage investments that were repaid prior to their maturity.
For the three months ended March 31, 1998, total expenses increased by
$66,663,000. A significant portion of the expense growth was attributed to the
addition of horse racing operations which included costs of $28,196,000. Horse
racing operating costs incurred during the three month period ended March 31,
1998 were seasonally high as the track was open with live racing for the entire
period. Interest expense increased by $7,338,000 due to increases in debt
outstanding resulting from additional real estate investments made over the past
twelve months. Depreciation and amortization increased by $6,371,000, as a
result of increased real estate investments, associated debt issuance costs and
amortization of goodwill as a result of the Merger. General and administrative
expenses increased by $2,063,000, principally due to a higher level of operating
costs associated with portfolio growth and as a result of the Merger. Rental
property operating expenses were incurred during the three months ended March
31, 1998 of which $1,265,000 related to management of medical office buildings,
a significant portion of which were for owned properties.
During the three months ended March 31, 1998, the Companies pursued a strategy
of diversifying into new business lines including hospitality and golf (See Note
9). Consistent with this strategy, Realty commenced a reevaluation of its
existing health care real estate portfolio and other assets.
As a result of continued deteriorating performance at two owned psychiatric
facilities and the corresponding impact on Realty's resources, management has
committed to a plan to sell these facilities as soon as practicable.
Accordingly, Realty has recorded a provision of $10.5 million to adjust the
carrying value of these facilities and related working capital receivables to
estimated fair value less costs to sell as of March 31, 1998. As part of the
continuing evaluation of its existing health care real estate portfolio, Realty
has also provided for the establishment of a $3 million valuation reserve as of
March 31, 1998.
Realty also has held other assets and receivables that are unrelated to its
historical primary business of health care financing. Management has determined
that further collection efforts for these assets is currently an inefficient
use of its resources and therefore has recorded a provision of approximately
$5.1 million to reduce the carrying value of these assets to net realizable
value as of March 31, 1998.
Additionally, Realty has recorded approximately $3 million of non-recurring
costs related to the evaluation of certain acquisition targets which it is no
longer pursuing at March 31, 1998.
Net income for the three months ended March 31, 1998 was $51,621,000 compared to
$41,053,000 for the three months ended March 31, 1997, an increase of
$10,568,000 or 26%. Net income per share of paired common stock of the Companies
(a "Share") was unchanged at $0.56 for the three months ended March 31, 1998 and
1997. The per Share amount remained unchanged primarily due to dilution caused
by the issuance of additional Shares related to the Merger with the Santa Anita
Companies. Per Share amounts for 1997 have been restated to reflect the exchange
of Meditrust Shares of Beneficial Interest for Shares of the Companies pursuant
to the Merger with the Santa Anita Companies. In connection with the Merger,
24,822,000 additional Shares are now outstanding.
Combined Liquidity and Capital Resources
As of March 31, 1998, the Companies' gross real estate investments totaled
approximately $3,167,723,000, consisting of 216 long-term care facilities, 186
retirement and assisted living facilities, 31 medical office buildings, 26
rehabilitation hospitals, six alcohol and substance abuse treatment facilities
and psychiatric hospitals, five golf courses, one acute care hospital campus,
one racetrack, a 50% interest in a fashion mall and land held for development.
As of March 31, 1998, the Companies' outstanding commitments for additional
financing totaled approximately $219,281,000 for the completion of 36 assisted
living facilities, eight long-term care facilities and five medical office
buildings currently under construction and additions to existing facilities in
the portfolio.
22
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Combined Liquidity and Capital Resources, Continued
The Companies provide funding for their investments through a combination of
long-term and short-term financing including both debt and equity. The Companies
obtain long-term financing through the issuance of Shares, long-term unsecured
notes, convertible debentures and the assumption of mortgage notes. The
Companies obtain short-term financing through the use of bank lines of credit
which are replaced with long-term financing as appropriate. From time to time,
the Companies may utilize interest rate caps or swaps to attempt to hedge
interest rate volatility. It is the Companies' objective to match mortgage and
lease terms with the terms of their borrowings. The Companies attempt to
maintain an appropriate spread between their borrowing costs and the rate of
return on their investments. When development loans convert to sale/leaseback
transactions or permanent mortgage loans, the base rent or interest rate, as
appropriate, is fixed at the time of such conversion. There is, however, no
assurance that the Companies will satisfactorily achieve, if at all, the
objectives set forth in this paragraph.
On January 3, 1998, the Companies signed a definitive merger agreement with La
Quinta Inns, Inc. ("La Quinta") providing for, among other transactions, the
merger of La Quinta with and into Realty. The total consideration for the
transaction will amount to $26.00 per share of La Quinta, in a combination of
newly issued Shares in the Companies and cash, subject to certain cap and collar
mechanisms. The transaction is expected to close in the second quarter of 1998.
Since the last week of January 1998, the Companies' stock price has decreased
which may result in more Shares being issued by the Companies to complete the
transaction than was originally expected. Depending upon how many additional
Shares, if any, are issued, the transaction may not be as accretive, on a per
Share basis, as had previously been disclosed.
On January 9, 1998, the Board of Directors of Realty declared a distribution of
$.60625 per Share which was paid on February 13, 1998, to shareholders of record
on January 30, 1998.
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which the Companies will acquire all of the outstanding
preferred and common stock of Cobblestone for Shares valued at approximately
$241,000,000. In addition, under the terms of the agreement, approximately
$154,000,000 of Cobblestone debt and associated costs will be either refinanced
or assumed as a condition of closing. The transaction is anticipated to close in
the second quarter of 1998.
On February 26, 1998, the Companies entered into two transactions with Merrill
Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co.,
Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement, MLI agreed to
purchase 8,500,000 shares of Series A Non-Voting Convertible Common Stock from
each of the Companies at a purchase price of $32.625 per share. The Series A
Non-Voting Convertible Common Stock is non-voting paired common stock that will
convert to Shares on the earlier of (a) the business day following the date on
which the stockholders of the Companies have approved the La Quinta merger
transaction or (b) the date of any termination of the La Quinta merger
agreement. Net proceeds from this private placement of securities of
approximately
23
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Combined Liquidity and Capital Resources, Continued
$272,000,000 were used by the Companies to repay existing indebtedness.
Separately, the Companies and MLI entered into a purchase price adjustment
agreement under which Meditrust will, within one year from the date of MLI's
purchase, adjust the original $32.625 purchase price per share based on the
market price of the Shares at the time of the adjustment, by receiving Shares
from MLI or by issuing additional Shares to MLI.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Companies' common stock, however, the guaranteed minimum return is LIBOR
plus 75 basis points. Any difference between LIBOR plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under a purchase price adjustment agreement. The Companies expect the
annual dividend to exceed the LIBOR plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for this
transaction is expected to be reviewed by the Emerging Issues Task Force (EITF).
The Securities and Exchange Commission has concluded that until the EITF has an
opportunity to perform a full review of this transaction, future transactions of
this type will be accounted for as debt. For previously completed transactions
such as the Companies', the Securities and Exchange Commission will not object
to the accounting treatment reflected in the Quarterly Report on Form 10-Q.
As of May 11, 1998, Realty had unsecured revolving lines of credit expiring
September 23, 1999 in the aggregate amount of $365,000,000 bearing interest at
the lender's prime rate (8.5%) or LIBOR plus .875% (6.5% at May 11, 1998). A
total of $311,000,000 was available from all credit facilities at May 11, 1998.
In addition, the Companies have filed a shelf registration statement with the
Securities and Exchange Commission under which the Companies may issue, upon
effectiveness, $2,000,000,000 of securities including Shares, preferred stock,
debt, series common stock, convertible debt and warrants to purchase Shares,
Preferred Shares, debt, series common stock and convertible debt.
The Companies had shareholders' equity of $2,106,713,000 and debt constituted
37% of the Companies' total capitalization as of March 31, 1998.
The Companies believe that their various sources of capital are adequate to
finance their operations as well as pending acquisitions, mortgage financings
and future dividends. Over the next twelve months, as the Companies identify
appropriate investment opportunities, the Companies may raise additional capital
through the sale of Shares, series common stock or preferred stock, the use of a
forward equity transaction, the issuance of additional long-term debt or through
a securitization transaction.
24
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
Realty - Results of Operations and Liquidity and Capital Resources
Three months ended March 31, 1998 vs. Three months ended March 31, 1997
Revenue for the three months ended March 31, 1998 was $115,441,000 compared to
$67,965,000 for the three months ended March 31, 1997, an increase of
$47,476,000. Revenue growth was primarily attributable to increased rental
income of $18,144,000 and increased interest income of $3,332,000. The rental
and interest income increases resulted from additional real estate investments
made over the last twelve months net of mortgage prepayments and include rent of
$6,781,000 collected from Operating related to horse racing. Other income for
the three months ended March 31, 1998 included a nonrecurring $26,000,000
prepayment and make-whole gain as a result of approximately $120,000,000 in
mortgage investments that were repaid.
For the three months ended March 31, 1998, total expenses increased by
$36,827,000. Interest expense increased by $7,302,000 due to increases in debt
outstanding resulting from additional real estate investments made over the past
twelve months. Depreciation and amortization increased by $5,357,000, as a
result of increased real estate investments, associated debt issuance costs and
amortization of goodwill as a result of the Merger. General and administrative
expenses increased by $1,473,000, principally due to a higher level of operating
costs associated with portfolio growth and as a result of the Merger. Rental
property operating expenses of $1,265,000 incurred during the three months ended
March 31, 1998 were related to management of medical office buildings, a
significant portion of which were for owned properties.
During the three months ended March 31, 1998, the Companies pursued a strategy
of diversifying into new business lines including hospitality and golf (See Note
9). Consistent with this strategy, Realty commenced a reevaluation of its
existing health care real estate portfolio and other assets.
As a result of continued deteriorating performance at two owned psychiatric
facilities and the corresponding impact on Realty's resources, management has
committed to a plan to sell these facilities as soon as practicable.
Accordingly, Realty has recorded a provision of $10.5 million to adjust the
carrying value of these facilities and related working capital receivables to
estimated fair value less costs to sell as of March 31, 1998. As part of the
continuing evaluation of its existing health care real estate portfolio, Realty
has also provided for the establishment of a $3 million valuation reserve as of
March 31, 1998.
Realty also has held other assets and receivables that are unrelated to its
historical primary business of health care financing. Management has determined
that further collection efforts for these assets is currently an inefficient
use of its resources and therefore has recorded a provision of approximately
$5.1 million to reduce the carrying value of these assets to net realizable
value as of March 31, 1998.
Additionally, Realty has recorded approximately $3 million of non-recurring
costs related to the evaluation of certain acquisition targets which it is no
longer pursuing at March 31, 1998.
Net income for the three months ended March 31, 1998 was $51,702,000 compared to
$41,053,000 for the three months ended March 31, 1997, an increase of
$10,649,000 or 26%. Net income per common share was unchanged at $0.56 for the
three months ended March 31, 1998 and 1997. The per share amount remained
unchanged primarily due to dilution caused by the issuance of additional Shares
related to the Merger with the Santa Anita Companies. Per share amounts for 1997
have been restated to reflect the exchange of Meditrust Shares of Beneficial
Interest for Shares of the Companies pursuant to the Merger with the Santa Anita
Companies.
Realty - Liquidity and Capital Resources
As of March 31, 1998, Realty's gross real estate investments totaled
approximately $3,167,723,000, consisting of 216 long-term care facilities, 186
retirement and assisted living facilities, 31 medical office buildings, 26
rehabilitation hospitals, six alcohol and substance abuse treatment facilities
and psychiatric hospitals, five golf courses, one acute care hospital campus,
one racetrack, a 50% interest in a fashion
25
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
Realty - Liquidity and Capital Resources, Continued
mall and land held for development. As of March 31, 1998, Realty's outstanding
commitments for additional financing totaled approximately $219,281,000 for the
completion of 36 assisted living facilities, eight long-term care facilities and
five medical office buildings currently under construction and additions to
existing facilities in the portfolio.
Realty provides funding for investments through a combination of long-term and
short-term financing including both debt and equity. Realty obtains long-term
financing through the issuance of equity, long-term unsecured notes, convertible
debentures and the assumption of mortgage notes. Realty obtains short-term
financing through the use of bank lines of credit which are replaced with
long-term financing as appropriate. From time to time, Realty may utilize
interest rate caps or swaps to attempt to hedge interest rate volatility. It is
the objective of Realty to match mortgage and lease terms with the terms of its
borrowings. Realty attempts to maintain an appropriate spread between borrowing
costs and the rate of return on investments. When development loans convert to
sale/leaseback transactions or permanent mortgage loans, the base rent or
interest rate, as appropriate, is fixed at the time of such conversion. There
is, however, no assurance that Realty will satisfactorily achieve, if at all,
the objectives set forth in this paragraph.
On January 3, 1998, the Companies signed a definitive merger agreement with La
Quinta Inns, Inc. ("La Quinta") providing for, among other transactions, the
merger of La Quinta with and into Realty. The total consideration for the
transaction will amount to $26.00 per share of La Quinta, in a combination of
newly issued Shares of the Companies and cash, subject to certain cap and collar
mechanisms. The transaction is expected to close in the second quarter of 1998.
Since the last week of January 1998, the Companies' stock price has decreased
which may result in more Shares being issued by the Companies to complete the
transaction than was originally expected. Depending upon how many additional
Shares, if any, are issued, the transaction may not be as accretive, on a per
Share basis, as had previously been disclosed.
On January 9, 1998, the Board of Directors of Realty declared a distribution of
$.60625 per Share which was paid on February 13, 1998, to shareholders of record
on January 30, 1998.
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which the Companies will acquire all of the outstanding
preferred and common stock of Cobblestone for Shares valued at approximately
$241,000,000. In addition, under the terms of the agreement, approximately
$169,000,000 of Cobblestone debt and associated costs will be either refinanced
or assumed as a condition of closing. The transaction is anticipated to close in
the second quarter of 1998.
On February 26, 1998, the Companies entered into two transactions with Merrill
Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co.,
Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement, MLI agreed to
purchase 8,500,000 shares of Series A Non-Voting Convertible Common Stock from
each of the Companies at a purchase price of $32.625 per share. The Series A
Non-Voting Convertible Common Stock is non-voting paired common stock that will
convert to
26
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Shares on the earlier of (a) the business day following the date on which the
stockholders of the Companies have approved the La Quinta merger transaction or
(b) the date of any termination of the La Quinta merger agreement. Net proceeds
from this private placement of securities of approximately $272,000,000 were
used by the Companies to repay existing indebtedness. Separately, the Companies
and MLI entered into a purchase price adjustment agreement under which Meditrust
will, within one year from the date of MLI's purchase, adjust the original
$32.625 purchase price per share based on the market price of the Shares at the
time of the adjustment, by receiving Shares from MLI or by issuing additional
Shares to MLI.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Companies' common stock, however, the guaranteed minimum return is LIBOR
plus 75 basis points. Any difference between LIBOR plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under a purchase price adjustment agreement. The Companies expect the
annual dividend to exceed the LIBOR plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for this
transaction is expected to be reviewed by the Emerging Issues Task Force (EITF).
The Securities and Exchange Commission has concluded that until the EITF has an
opportunity to perform a full review of this transaction, future transactions of
this type will be accounted for as debt. For previously completed transactions
such as the Companies', the Securities and Exchange Commission will not object
to the accounting treatment reflected in the Quarterly Report or Form 10-Q.
As of May 11, 1998, Realty had unsecured revolving lines of credit expiring
September 23, 1999 in the aggregate amount of $365,000,000 bearing interest at
the lender's prime rate (8.5%) or LIBOR plus .875% (6.6% at May 11, 1998). A
total of $311,000,000 was available from all credit facilities at May 11, 1998.
In addition, the Companies have filed a shelf registration statement with the
Securities and Exchange Commission under which the Companies may issue, upon
effectiveness, $2,000,000,000 of securities including Shares, preferred stock,
debt, series common stock, convertible debt and warrants to purchase Shares,
Preferred Shares, debt, series common stock and convertible debt.
Realty had shareholders' equity of $2,067,992 and debt constituted 38% of total
capitalization as of March 31, 1998.
Realty believes that various sources of capital available over the next twelve
months are adequate to finance pending acquisitions, mortgage financings and
dividends. Over the next twelve months, as Realty identifies appropriate
investment opportunities, Realty may raise additional capital through the sale
of Shares, series common stock or preferred stock, the use of a forward equity
transaction, the issuance of additional long-term debt or through a
securitization transaction.
27
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating - Results of Operations and Liquidity and Capital Resources
Three months ended March 31, 1998
Operating currently derives its revenue primarily from thoroughbred horse racing
activities and golf course activities which were $36,511,000 and $341,000,
respectively, during the three months ended March 31, 1998. Live thoroughbred
horse racing at Santa Anita Racetrack totaled 65 days during the three months
ended March 31, 1998. Horse racing is a seasonal business and the entire racing
season for 1998 is scheduled to consist of 86 racing days. As a result, horse
racing revenues in the first quarter are not indicative of what future quarters
in 1998 will generate. Interest income was $176,000 for the three month period
March 31, 1998.
Horse racing and golf operating costs were $34,977,000 including $6,781,000 in
rent paid to Realty pursuant to the terms of the lease agreement for Santa Anita
Racetrack. Rent expense is determined by wagering levels, commission rates and
contractual amounts. The operating margin was somewhat lower than originally
anticipated, partially as a result of the impact on racetrack attendance during
the "El Nino" weather pattern that recently affected the area. Interest expense
was $528,000 primarily for a Note payable to Realty. Depreciation and
amortization expense was $1,014,000 primarily for depreciation of racing related
equipment, furniture and fixtures which were amortized and matched with
seasonally high revenues and amortization of goodwill as a result of the Merger.
General and administrative expenses were $590,000 principally for compensation
and consulting arrangements as a result of the Merger.
As a result, a net loss of $81,000 occurred for the three months ended March 31,
1998.
Operating - Liquidity and Capital Resources
Operating provides funding from racetrack operations and through a combination
of long-term and short-term financing including both debt and equity. Operating
obtains long-term financing through the issuance of common shares and unsecured
notes. Operating obtains short-term financing through borrowings from Realty.
On January 3, 1998, the Companies signed a definitive merger agreement with La
Quinta Inns, Inc. ("La Quinta") providing for, among other transactions, the
merger of La Quinta with and into Realty. The total consideration for the
transaction will amount to $26.00 per share of La Quinta, in a combination of
newly issued Shares in the Companies and cash, subject to certain cap and collar
mechanisms. The transaction is expected to close in the second quarter of 1998.
Since the last week of January 1998, the Companies' stock price has decreased
which may result in more Shares being issued by the Companies to complete the
transaction than was originally expected. Depending upon how many additional
Shares, if any, are issued, the transaction may not be as accretive, on a per
Share basis, as had previously been disclosed.
On January 11, 1998, Realty signed a definitive merger agreement with
Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc.,
("Cobblestone"), under which the Companies will acquire all of
28
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating - Liquidity and Capital Resources, Continued
the outstanding preferred and common stock of Cobblestone for Shares valued at
approximately $241,000,000. In addition, under the terms of the agreement,
approximately $169,000,000 of Cobblestone debt and associated costs will be
either refinanced or assumed as a condition of closing. The transaction is
anticipated to close in the second quarter of 1998.
On February 26, 1998, the Companies entered into two transactions with Merrill
Lynch International, a UK-based broker/dealer subsidiary of Merrill Lynch & Co.,
Inc. ("MLI"). Pursuant to the terms of a stock purchase agreement, MLI agreed to
purchase 8,500,000 shares of Series A Non-Voting Convertible Common Stock from
each of the Companies at a purchase price of $32.625 per share. The Series A
Non-Voting Convertible Common Stock is non-voting paired common stock that will
convert to Shares on the earlier of (a) the business day following the date on
which the stockholders of the Companies have approved the La Quinta merger
transaction or (b) the date of any termination of the La Quinta merger
agreement. Net proceeds from this private placement of securities of
approximately $272,000,000 were used by the Companies to repay existing
indebtedness. Separately, the Companies and MLI entered into a purchase price
adjustment agreement under which Meditrust will, within one year from the date
of MLI's purchase, adjust the original $32.625 purchase price per share based on
the market price of the Shares at the time of the adjustment, by receiving
Shares from MLI or by issuing additional Shares to MLI.
The Series A Non-Voting Convertible Common Stock will receive the same dividend
as the Companies' common stock, however, the guaranteed minimum return is LIBOR
plus 75 basis points. Any difference between LIBOR plus 75 basis points and the
dividend payments received by the shareholders will be included in an adjustment
amount under a purchase price adjustment agreement. The Companies expect the
annual dividend to exceed the LIBOR plus 75 basis points.
This Forward Equity Transaction has been accounted for as an equity transaction
with the shares treated as outstanding from their date of issuance for both
basic and diluted earnings per share purposes. The accounting treatment for this
transaction is expected to be reviewed by the Emerging Issues Task Force (EITF).
The Securities and Exchange Commission has concluded that until the EITF has an
opportunity to perform a full review of this transaction, future transactions of
this type will be accounted for as debt. For previously completed transactions
such as the Companies', the Securities and Exchange Commission will not object
to the accounting treatment reflected in the Quarterly Report on Form 10-Q.
The Companies have filed a shelf registration statement with the Securities and
Exchange Commission under which the Companies may issue, upon effectiveness,
$2,000,000,000 of securities including Shares, preferred stock, debt, series
common stock, convertible debt and warrants to purchase Shares, preferred stock,
debt, series common stock and convertible debt.
Operating had shareholders' equity of $63,174,000 as of March 31, 1998.
29
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY
AND SUBSIDIARIES
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating - Liquidity and Capital Resources, Continued
Operating believes that various sources of capital available over the next
twelve months are adequate to finance operations as well as pending
acquisitions. Over the next twelve months, as Operating identifies appropriate
investment opportunities, Operating may raise additional capital through the
sale of Shares, series common stock or preferred stock, the use of a forward
equity transaction, the issuance of additional long-term debt or through a
securitization transaction.
Recent Legislative Developments
On March 26, 1998, Representative William Archer, Chairman of the House Ways and
Means Committee, and Senator William V. Roth, Jr., Chairman of the Senate
Finance Committee, introduced identical legislation to limit the grandfathered
status of paired share real estate investment trusts (a "REIT"). Under the
proposed legislation, the anti-pairing rules provided in the Internal Revenue
Code of 1986, as amended (the "Code") would apply to real property interests
acquired after March 26, 1998 by the Companies, or a subsidiary or partnership
in which a ten percent or greater interest is owned by the Companies unless (i)
the real property interests are acquired pursuant to a written agreement which
was binding on March 26, 1998 and all times thereafter or (ii) the acquisition
of such real property interests was described in a public announcement or in a
filing with the SEC on or before March 26, 1998.
Under this legislation as currently proposed, the properties to be acquired from
La Quinta would not be subject to these anti-pairing rules. However, there is no
assurance that the legislation will be adopted in its current form, with a
consequence that the properties to be acquired from La Quinta or other
properties of the Companies could become subject to the anti-pairing rules of
the Code in the future. In addition, the proposed legislation also provides that
a property held by the Companies that is not subject to the anti-pairing rules
would become subject to such rules in the event of an improvement placed in
service after December 31, 1999 that changes the use of the property and the
cost of which is greater than 200 percent of (i) the undepreciated cost of the
property (prior to the improvement) or (ii) in the case of property acquired
where there is a substituted basis (e.g., the properties to be acquired from La
Quinta), the fair market value of the property on the date it was acquired by
the Companies. There is an exception for improvements placed in service before
January 1, 2004 pursuant to a binding contract in effect on December 31, 1999
and at all times thereafter. This proposed restriction on property improvements
would apply to the properties to be acquired from La Quinta, as well as all
other properties owned by the Companies, and would limit the ability of the
Companies to improve or change the use of those properties after December 31,
1999. Restructuring the operations of Realty and Operating to comply with the
proposed legislation may cause the Companies to incur substantial tax
liabilities, to recognize an impairment loss on their goodwill asset or
otherwise adversely affect the Companies.
30
<PAGE>
Newly Issued Accounting Standards
Financial Accounting Standards Board Statement No. 131 ("FAS 131") "Disclosure
about Segments of an Enterprise and Related Information" is effective for
financial statements issued for periods beginning after December 15, 1997. FAS
131 requires disclosures about segments of an enterprise and related information
regarding the different types of business activities in which an enterprise
engages and the different economic environments in which it operates. Due to the
Companies' plans for acquisitions of companies in a variety of business
segments, the Companies are in the process of evaluating the effect of the
implementation of FAS 131.
Year 2000
The Companies are assessing the potential impact on information systems as a
result of reaching the year 2000. Presently, Realty believes their current
systems are year 2000 compliant and would not expect any costs associated to be
material to the Companies' financial position or results of operations.
Operating is in the process of determining what, if any, cost would be incurred
to remedy existing information systems. Additionally, the Companies will assess
the costs, if any, required to remedy business operations of acquired companies
in the future.
31
<PAGE>
MEDITRUST CORPORATION AND MEDITRUST OPERATING COMPANY AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On January 8, 1998 the Companies received notice that they were named
as a defendant in an action entitled, Lynn Robbins v. William J.
Razzouk, et al; Civil Action No. 98CI-00192 filed January 7, 1998 in
the District Court of Bexar County, Texas and on January 20, 1998 the
Companies received notice that they were named as a defendant in an
action entitled, Adele Brody v. William J. Razzouk, et al., Civil
Action No. 98CI-00456 filed January 12,1998 in the District Court of
Bexar County, Texas. The complaints, which have been consolidated into
one action, (i) allege, in part, that La Quinta and its directors
violated their fiduciary duty, duty of care and loyalty to La Quinta
shareholders by entering into a merger agreement with the Companies
without having first invited other bidders, and the Companies aided
and abetted La Quinta and its directors in the alleged breaches, and
(ii) seek injunctive relief enjoining the merger with La Quinta and
compensatory damages. The defendants and counsel for the class
plaintiffs have negotiated and entered into an agreement in principle
to settle the action, dated on or about May 8, 1998 (the "Memorandum
of Understanding"). The Memorandum of Understanding sets forth the
principal bases for the settlement which include the issuance of a
series of press releases prior to the meetings of the shareholders of
the Companies and La Quinta to consider the La Quinta merger agreement
and the inclusion of a section describing the Forward Equity
Transaction with MLI in the joint proxy statement/prospectus prepared
for the Companies' and La Quinta's shareholder meetings. The proposed
settlement will be contingent upon execution of an appropriate and
satisfactory stipulation of settlement and related documents, and
Final Court Approval of the settlement (as defined in the Memorandum
of Understanding) by the Texas Court. The Companies and/or La Quinta
have agreed to pay counsel for the class plaintiffs attorney's fees in
an amount not to exceed $700,000 in the event such settlement is
consummated.
Item 2. Changes in Securities
---------------------
(c) Forward Equity Transaction
On February 26, 1998, the Companies entered into two transactions with
Merrill Lynch International, a UK-based broker/dealer subsidiary of
Merrill Lynch & Co., Inc. ("MLI"). Pursuant to the terms of a stock
purchase agreement, MLI agreed to purchase 8,500,000 shares of Series A
Non-Voting Convertible Common Stock from each of the Companies at a
purchase price of $32.625 per share. The Series A Non-Voting Convertible
Common Stock is non-voting paired series common stock that will convert
to Shares on the earlier of (a) the business day following the date on
which the stockholders of the Companies have approved the proposed
merger of Realty with La Quinta or (b) the date of any termination of
the La Quinta merger agreement. The aggregate offering price for the
Series A Non-Voting Convertible Common Stock was $277,312,500, less an
aggregate private placement discount to MLI of 2%, or $5,546,250. Net
proceeds from this private placement of securities of approximately
$272,000,000 were used by the Companies to repay existing indebtedness.
The transaction was exempt from the registration requirements of the
Securities Act of 1933 (the "Act") by virtue of the safe harbor
exemption provided by Rule 506 of Regulation D promulgated under the
Act. Separately, the Companies and MLI entered into a purchase price
adjustment agreement under which Meditrust will, within one year from
the date of MLI's purchase, adjust the original $32.625 purchase price
per share based on the market price of the Shares at the time of the
adjustment, by receiving Shares from MLI or by issuing additional Shares
to MLI.
The Series A Non-Voting Convertible Common Stock will receive the same
dividend as the Companies' Common Stock, however, the guaranteed minimum
return is LIBOR plus 75 basis points. Any difference between LIBOR plus
75 basis points and the dividend payments received by the shareholders
will be included in an adjustment amount under the purchase price
adjustment agreement. The Companies expect the annual dividend to exceed
LIBOR plus 75 basis points.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Title Method of Filing
- ------- ----- ----------------
<S> <C> <C>
27.1 Financial Data Schedule Filed herewith
27.2 Financial Data Schedule Incorporated by reference to Exhibit 27 to the
Companies' Joint Current Report on Form 8-K,
event date February 26, 1998.
27.3 Restated Financial Data Schedule Filed herewith
27.4 Restated Financial Data Schedule Filed herewith
</TABLE>
(b) Reports on Form 8-K. During the quarter ended March 31, 1998,
the Companies filed the following Current Reports on Form 8-K:
1. Joint Current Report on Form 8-K, event date January 3, 1998, which
includes a description of the proposed merger with La Quinta Inns, Inc.;
2. Joint Current Report on Form 8-K, event date January 3, 1998, which
includes pro forma financial information with respect to the proposed
merger with La Quinta Inns, Inc.;
3. Joint Current Report on Form 8-K, event date January 4, 1998, which
contains a press release of the Companies;
4. Joint Current Report on Form 8-K, event date January 11, 1998, which
includes a description of the proposed merger with Cobblestone Holdings,
Inc.;
5. Joint Current Report on Form 8-K, event date January 11, 1998, which
further describes the proposed merger with Cobblestone Holdings, Inc.;
6. Joint Current Report on Form 8-K, event date February 24, 1998, which
describes the Companies' diversification and growth strategy;
7. Joint Current Report on Form 8-K, event date February 26, 1998, which
contains financial statements of the Companies;
8. Joint Current Report on Form 8-K/A, event date February 26, 1998, which
contains revised financial statements of the Companies;
9. Joint Current Report on Form 8-K, event date March 16, 1998, which further
describes the proposed merger with Cobblestone Holdings, Inc.; and
10.Joint Current Report on Form 8-K, event date March 31, 1998, which includes
financial statements of La Quinta Inns, Inc.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Meditrust Corporation
May 15, 1998 /s/ Laurie T. Gerber
--------------------
Laurie T. Gerber
Chief Financial Officer
Meditrust Operating Company
May 15, 1998 /s/ Abraham D. Gosman
---------------------
Abraham D. Gosman
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1998 and the Consolidated Statement
of Income for the three months ended March 31, 1998 of Meditrust Corporation
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000314661
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 63,377
<SECURITIES> 0
<RECEIVABLES> 32,905
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,885,247
<DEPRECIATION> 144,493
<TOTAL-ASSETS> 3,379,016
<CURRENT-LIABILITIES> 0
<BONDS> 1,242,909
0
0
<COMMON> 2,275,336
<OTHER-SE> (194,216)
<TOTAL-LIABILITY-AND-EQUITY> 3,379,016
<SALES> 0
<TOTAL-REVENUES> 115,441
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,417
<INCOME-PRETAX> 51,702
<INCOME-TAX> 0
<INCOME-CONTINUING> 51,702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,702
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1998 and the Consolidated Statement
of Operations for the three months ended March 31, 1998 of Meditrust Operating
Company and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000314749
<NAME> MEDITRUST OPERATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 27,149
<SECURITIES> 0
<RECEIVABLES> 8,757
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,023
<PP&E> 10,331
<DEPRECIATION> 984
<TOTAL-ASSETS> 133,580
<CURRENT-LIABILITIES> 55,392
<BONDS> 13,128
0
0
<COMMON> 63,855
<OTHER-SE> (681)
<TOTAL-LIABILITY-AND-EQUITY> 133,580
<SALES> 0
<TOTAL-REVENUES> 37,028
<CGS> 0
<TOTAL-COSTS> 28,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 528
<INCOME-PRETAX> (81)
<INCOME-TAX> 0
<INCOME-CONTINUING> (81)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1995 and the Consolidated
Statement of Income for the year ended December 31, 1995 of Meditrust and is
qualified in its entirety by reference to such financial statements. Share
amounts were adjusted in computing Earnings Per Share to reflect the November
1997 merger of Meditrust with and into Santa Anita Realty Enterprises, Inc.
("Santa Anita," and now known as "Meditrust Corporation") in which shareholders
of Meditrust received 1.2016 shares of Santa Anita in exchange for each share of
Meditrust held.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 44,248
<SECURITIES> 0
<RECEIVABLES> 20,406
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 669,175
<DEPRECIATION> 77,204
<TOTAL-ASSETS> 1,891,852
<CURRENT-LIABILITIES> 0
<BONDS> 762,291
0
0
<COMMON> 1,192,612
<OTHER-SE> (130,857)
<TOTAL-LIABILITY-AND-EQUITY> 1,891,852
<SALES> 0
<TOTAL-REVENUES> 209,369
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,163
<INCOME-PRETAX> 119,972
<INCOME-TAX> 0
<INCOME-CONTINUING> 119,972
<DISCONTINUED> 0
<EXTRAORDINARY> 33,454
<CHANGES> 0
<NET-INCOME> 86,518
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1996 and the Consolidated Statement
of Income for the three months ended March 31, 1996 of Meditrust and is
qualified in its entirety by reference to such financial statements. Share
amounts were adjusted in computing Earnings Per Share to reflect the November
1997 merger of Meditrust with and into Santa Anita Realty Enterprises, Inc.
("Santa Anita," and now known as "Meditrust Corporation") in which shareholders
of Meditrust received 1.2016 shares of Santa Anita in exchange for each share of
Meditrust held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 92,607
<SECURITIES> 0
<RECEIVABLES> 17,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 875,986
<DEPRECIATION> 82,140
<TOTAL-ASSETS> 2,096,570
<CURRENT-LIABILITIES> 0
<BONDS> 673,809
0
0
<COMMON> 1,495,621
<OTHER-SE> (130,581)
<TOTAL-LIABILITY-AND-EQUITY> 2,096,570
<SALES> 0
<TOTAL-REVENUES> 59,327
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,105
<INCOME-PRETAX> 35,533
<INCOME-TAX> 0
<INCOME-CONTINUING> 35,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,533
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of June 30, 1996 and the Consolidated Statement of
Income for the six months ended June 30, 1996 of Meditrust and is qualified in
its entirety by reference to such financial statements. Share amounts were
adjusted in computing Earnings Per Share to reflect the November 1997 merger of
Meditrust with and into Santa Anita Realty Enterprises, Inc. ("Santa Anita," and
now known as "Meditrust Corporation") in which shareholders of Meditrust
received 1.2016 shares of Santa Anita in exchange for each share of Meditrust
held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 43,316
<SECURITIES> 0
<RECEIVABLES> 19,901
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 955,177
<DEPRECIATION> 87,418
<TOTAL-ASSETS> 2,150,762
<CURRENT-LIABILITIES> 0
<BONDS> 715,976
0
0
<COMMON> 1,498,253
<OTHER-SE> (132,353)
<TOTAL-LIABILITY-AND-EQUITY> 2,150,762
<SALES> 0
<TOTAL-REVENUES> 121,500
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,596
<INCOME-PRETAX> 75,776
<INCOME-TAX> 0
<INCOME-CONTINUING> 75,776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,776
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of September 30, 1996 and the Consolidated
Statement of Income for the nine months ended September 30, 1996 of Meditrust
and is qualified in its entirety by reference to such financial statements.
Share amounts were adjusted in computing Earnings Per Share to reflect the
November 1997 merger of Meditrust with and into Santa Anita Realty Enterprises,
Inc. ("Santa Anita," and now known as "Meditrust Corporation") in which
shareholders of Meditrust received 1.2016 shares of Santa Anita in exchange for
each share of Meditrust held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 51,184
<SECURITIES> 0
<RECEIVABLES> 21,418
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 846,663
<DEPRECIATION> 92,863
<TOTAL-ASSETS> 2,298,979
<CURRENT-LIABILITIES> 0
<BONDS> 866,172
0
0
<COMMON> 1,505,870
<OTHER-SE> (134,031)
<TOTAL-LIABILITY-AND-EQUITY> 2,298,979
<SALES> 0
<TOTAL-REVENUES> 186,301
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,450
<INCOME-PRETAX> 116,497
<INCOME-TAX> 0
<INCOME-CONTINUING> 116,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,497
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1996 and the Consolidated
Statement of Income for the year ended December 31, 1996 of Meditrust and is
qualified in its entirety by reference to such financial statements. Share
amounts were adjusted in computing Earnings Per Share to reflect the November
1997 merger of Meditrust with and into Santa Anita Realty Enterprises, Inc.
("Santa Anita," and now known as "Meditrust Corporation") in which shareholders
of Meditrust received 1.2016 shares of Santa Anita in exchange for each share of
Meditrust held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 42,726
<SECURITIES> 0
<RECEIVABLES> 20,178
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,006,260
<DEPRECIATION> 98,082
<TOTAL-ASSETS> 2,316,875
<CURRENT-LIABILITIES> 0
<BONDS> 858,760
0
0
<COMMON> 1,520,455
<OTHER-SE> (135,514)
<TOTAL-LIABILITY-AND-EQUITY> 2,316,875
<SALES> 0
<TOTAL-REVENUES> 254,024
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,216
<INCOME-PRETAX> 157,976
<INCOME-TAX> 0
<INCOME-CONTINUING> 157,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,976
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1997 and the Consolidated Statement
of Income for the three months ended March 31, 1997 of Meditrust and is
qualified in its entirety by reference to such financial statements. Share
amounts were adjusted in computing Earnings Per Share to reflect the November
1997 merger of Meditrust with and into Santa Anita Realty Enterprises, Inc.
("Santa Anita," and now known as "Meditrust Corporation") in which shareholders
of Meditrust received 1.2016 shares of Santa Anita in exchange for each share of
Meditrust held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,666
<SECURITIES> 0
<RECEIVABLES> 22,013
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,155,399
<DEPRECIATION> 104,054
<TOTAL-ASSETS> 2,386,372
<CURRENT-LIABILITIES> 0
<BONDS> 942,649
0
0
<COMMON> 1,524,344
<OTHER-SE> (137,934)
<TOTAL-LIABILITY-AND-EQUITY> 2,386,372
<SALES> 0
<TOTAL-REVENUES> 67,965
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,115
<INCOME-PRETAX> 41,053
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,053
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of June 30, 1997 and the Consolidated Statement of
Income for the six months ended June 30, 1997 of Meditrust and is qualified in
its entirety by reference to such financial statements. Share amounts were
adjusted in computing Earnings Per Share to reflect the November 1997 merger of
Meditrust with and into Santa Anita Realty Enterprises, Inc. ("Santa Anita," and
now known as "Meditrust Corporation") in which shareholders of Meditrust
received 1.2016 shares of Santa Anita in exchange for each share of Meditrust
held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 29,148
<SECURITIES> 0
<RECEIVABLES> 25,677
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,252,477
<DEPRECIATION> 110,429
<TOTAL-ASSETS> 2,566,604
<CURRENT-LIABILITIES> 0
<BONDS> 1,108,705
0
0
<COMMON> 1,527,625
<OTHER-SE> (139,860)
<TOTAL-LIABILITY-AND-EQUITY> 2,566,604
<SALES> 0
<TOTAL-REVENUES> 138,979
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,378
<INCOME-PRETAX> 83,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 83,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,000
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of September 30, 1997 and the Consolidated
Statement of Income for the nine months ended September 30, 1997 of Meditrust
and is qualified in its entirety by reference to such financial statements.
Share amounts were adjusted in computing Earnings Per Share to reflect the
November 1997 merger of Meditrust with and into Santa Anita Realty Enterprises,
Inc. ("Santa Anita," and now known as "Meditrust Corporation") in which
shareholders of Meditrust received 1.2016 shares of Santa Anita in exchange for
each share of Meditrust held.
</LEGEND>
<RESTATED>
<CIK> 0000313749
<NAME> MEDITRUST CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 24,985
<SECURITIES> 0
<RECEIVABLES> 28,679
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,287,150
<DEPRECIATION> 117,206
<TOTAL-ASSETS> 2,719,379
<CURRENT-LIABILITIES> 0
<BONDS> 1,261,716
0
0
<COMMON> 1,531,167
<OTHER-SE> (142,047)
<TOTAL-LIABILITY-AND-EQUITY> 2,719,379
<SALES> 0
<TOTAL-REVENUES> 213,723
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,831
<INCOME-PRETAX> 125,052
<INCOME-TAX> 0
<INCOME-CONTINUING> 125,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,052
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
