Meditrust History

Company History:

The largest health care real estate investment trust company in the United States, Meditrust maintained investments in 233 health care facilities spread across 34 states. With $1.3 billion invested in the subacute sector of the health care industry, Meditrust ranked as the leader in health care real estate investment and as the second largest real estate investor in the country, regardless of the industry in which the investments were made. By focusing on investing in long-term care facilities, Meditrust expanded quickly during the late 1980s and early 1990s, its growth fueled by prudent management and by a rapidly expanding real estate investment industry, which in one year, from 1993 to 1994, doubled in financial magnitude form $20 billion to $40 billion.

In 1978, a wealthy Bostonian named Abraham D. Gosman purchased approximately 85,000 shares of a Massachusetts-based bank holding company called Multibank Inc. Multibank controlled seven banks scattered throughout the state, had assets of roughly $1 billion, and presented Gosman with what appeared to be a suitable investment opportunity. He later related to the Wall Street Journal that his acquisition of Multibank stock, which ceded him slightly more than a five percent stake in the holding company, was intended "purely as an investment." Quickly, however, Gosman's investment escalated into much more, evolving into what was heralded at the time as one of the most contentious bank battles in Massachusetts history, a struggle that indirectly led to the formation of Meditrust seven years later.

In the 50 years separating his birth and his acquisition of Multibank stock, Gosman had become a multi-millionaire, rising from his blue-collar roots as the son of a factory foreman to become an affluent member of Boston society, an ascension that began shortly after World War II, when Gosman finished his college education. After he graduated from the University of New Hampshire, Gosman used an $800 loan from his mother to start his own business--a company that laminated shoes--then used the proceeds to diversify his interests into the real estate development business. Gosman built apartment buildings and nursing homes in Massachusetts and in neighboring Connecticut, becoming enormously wealthy in the process. By the late 1970s, his ascension to the upper echelon of Massachusetts' business and social circles was complete, and he could count among his friends a prestigious collection of big-city mayors, U.S. senators, and influential business leaders. He was a triumphant success and not reticent to admit it. When asked by a Wall Street Journal reporter whether he was worth millions of dollars, Gosman replied, "Go on." When asked next if he was worth multi-millions, he invitingly responded, "You can go on some more."

Shortly after investing in Multibank, Gosman approached the holding company's president and chair, David L. Lynch, about becoming a director of the company, not an unusual request considering that Gosman's more than five percent stake in Multibank represented the largest held by a single shareholder. However, Lynch refused Gosman's request, later claiming he didn't know who Gosman was at the time of the request. This touched off the debacle that eventually led to the formation of Meditrust and more immediately led to a bitter struggle between Gosman and Multibank. Gosman was angered by Lynch's rebuff, then became enraged when he learned that no member of the Multibank board had ever even heard of him. The indignities became too much to bear, and Gosman quickly sought to make his presence known. Over the course of the next two months, he doubled his stake in Multibank, raising his interest to more than ten percent and returned to the company's board of directors, this time asking not for a directorship, but for Lynch's position as chairperson of the company. Not surprisingly, those attending the meeting who were not familiar with the name Abraham D. Gosman, now certainly were. The board rejected Gosman's attempted usurpation, declaring in the Wall Street Journal that Gosman's proposal was not "in the best interests of Multibank, its stockholders, or bank depositors." Gosman, however, was not deterred.

After the board's rejection, Gosman doubled his interest in Multibank again, controlling, by this time, roughly 23 percent of the company. Then Gosman began to enlist the support of some of his influential friends who were also Multibank shareholders, including former U.S. Senator Edward W. Brooke, the former mayor of Boston, John F. Collins, and New Hampshire's former bank commissioner, Vincent B. Dunn. With these reputable personalities behind him, Gosman charged, among various other allegations, that Multibank's dividend payments were too low. A legal imbroglio ensued; detective agencies were hired, public relations firms became involved, and charges and countercharges were filed, leading to an eventual resolution that gave Gosman an enviable return on what initially began as "purely an investment."

In the spring of 1981, Multibank's shareholders, after having voted against Gosman's takeover of the company, authorized the bank holding company to pay $30 per share to Gosman for the 353,241 shares he had acquired, many at $20 per share. With the profits realized from his rancorous association with Multibank, Gosman turned to a more familiar line of business, the development of nursing homes, and began acquiring nursing homes and other health care related properties. These properties would form the foundation for Gosman's new company, The Mediplex Group, Inc., a Wellesley, Massachusetts-based operator of nursing homes and other health care facilities.

Mediplex grew rapidly during the five years following its creation, with revenues climbing to roughly $80 million by the middle of the decade, representing a 32 percent compound annual increase from 1981's sales. By the mid-1980s, Mediplex's success had drawn the attention of Avon Products, Inc., an enormous cosmetics manufacturer that was diversifying into several other business lines, including health care. Avon's entrance in the health care field had begun in 1984, when the company acquired Foster Medical Corp., the country's largest home health care products and services company. After several smaller health care related acquisitions in 1984 and 1985, including Kagle Home Health Care and Retirement Inns of America, Inc., Avon acquired Gosman's Mediplex Group in 1986, adding the nursing home operator to the cosmetic company's burgeoning health care division in a transaction valued at roughly $250 million. Part of the deal between Gosman and Avon stipulated that Mediplex Group could remain under Gosman's stewardship; in fact, Avon encouraged Gosman to remain, offering him an additional $60 million if Mediplex Group achieved pre-determined profit objectives within a three-year period. Gosman opted to continue building his five-year old business, reasoning that Mediplex Group would benefit enormously under the benevolent and financially stable Avon corporate umbrella. However, he also had other business interests in addition to his five-year old Mediplex Group, one of which was his nearly one year-old trust company named Meditrust.

Meditrust had been formed in April 1985, eight months prior to Avon's acquisition of Mediplex Group, and its stock began trading in October. Established by Gosman as a business trust for Mediplex Group's health care properties, Meditrust invested in the health care facilities operated by Mediplex, then gradually developed a diversified clientele, becoming part of a soon-to-be rapidly growing niche in the real estate investment industry known as REITs, or Real Estate Investment Trusts. REITs like Meditrust owed their proliferation to the Real Estate Investment Act of 1961, which sought to encourage public investment in real estate and established rules for REIT operation. REITs operated essentially like other trusts, enabling a group of investors to invest in properties managed by appointed trustees. According to regulations established by the Real Estate Investment Act of 1961 and ensuing legislation, REITs had to distribute, among other qualification standards, at least 95 percent of their income--generated by developing or administering real estate property&mdashø shareholders. By operating as such, REITs were exempt from corporate taxation, which provided Gosman with a financially prudent course to develop, finance, and administer Mediplex Group's growth.

Mediplex Group provided Meditrust with its initial business, but not long after the health care REIT's formation, it began investing in health care facilities operated by other health care companies and, in the process, spread its investments among various niches in the health care industry. Before the decade was through, Meditrust maintained investments in six types of health care facilities, the first type being, not coincidentally, long-term care facilities, the primary type of health care facilities operated by Mediplex Group. Other health care facilities in which Meditrust invested included rehabilitation hospitals, alcohol and substance abuse treatment facilities, psychiatric hospitals, retirement homes, and medical office buildings. The path toward attaining this diversification began when the company's stock was first listed on the New York Stock Exchange in October 1985, when Meditrust's management, the trustees headed by Gosman, began investing in facilities operated by Mediplex Group.

Through the proceeds gained from the issuance of stock in 1986, Meditrust acquired two alcohol and substance abuse treatment facilities and two long-term care facilities, all four of which were owned by Mediplex Group. In an arrangement similar to others that followed, Meditrust then leased these properties back to Mediplex Group, which, as it had before the sale to Meditrust, operated the facilities. The following year, Meditrust purchased a hospital company and a 172-bed long-term care facility from its familiar partner Mediplex Group. That same year, during which revenues reached $25.5 million, Meditrust became involved in a partnership to develop three rehabilitation hospitals, which, upon completion, were to be leased by Continental Medical Systems, Inc.

By mid-1988, after acquiring a long-term health care center from Integrated Health Services, Inc. in January, Meditrust's assets amounted to $428 million, a total that would more than double in the next four years despite the debilitative effects of a national recession. In June 1988, Meditrust acquired a long-term care facility in Medina, Ohio, the Riverbend Nursing Home in Grand Blanc, Michigan, a psychiatric hospital named Kentfield Rehabilitation Hospital, and a 90-bed psychiatric hospital in West Monroe, Louisiana. These acquisitions rounded out Meditrust's investment portfolio, which by this point included holdings in alcohol and substance abuse treatment centers, long-term care facilities, rehabilitation hospitals, psychiatric facilities, and retirement communities.

As Meditrust entered the 1990s, it stood on stable financial ground, having experienced considerable growth during its first five years of existence. Annual revenues had climbed to $89 million by 1990, up by nearly a quarter from the previous year's total, and net income had soared 35 percent, rising from $22 million to $29 million. Following these encouraging results, economic conditions throughout the country soured, forcing many industries to halt expansion and prepare for the potentially deleterious effects of a recession. Particularly hard hit was the real estate industry, but despite the economic climate Meditrust continued to demonstrate robust financial performance. With the closing of an $86 million mortgage financing deal in April 1992, nearly seven years to the day after the trust company's formation, Meditrust's real estate portfolio surpassed $1 billion in assets, 30 percent of which was invested in facilities operated by Mediplex Group. By then the largest of the ten REITs in the nation that specialized in health care investments, Meditrust maintained an interest in 142 health care facilities scattered throughout 25 states, from which the trust company generated $132 million in revenues and recorded $51 million in net income.

By the beginning of 1993, the number of health care facilities in which Meditrust maintained an investment had increased to 170 and its geographic scope had expanded to include four more states. A majority of these facilities--nearly 70 percent--were long-term care facilities, a segment of the health care industry in which Meditrust continued to increase its presence. After exploring more than $3.5 billion worth of investment opportunities during the year, Meditrust invested roughly $230 million in 30 health care facilities, 26 of which were long-term care facilities, catering to an increasingly aging U.S. population. Revenues surged forward again in 1993, reaching $150.8 million, while net income swelled to $63.6 million.

As Gosman and Meditrust's approximately 40 other employees searched for investment opportunities in 1994 and beyond, demographics of the U.S. population suggested a greater need for long-term care facilities in the future. In that direction the trust company charted its future, planing to increase its investments in long-term care facilities and complement those holdings with investments in the other five established areas of Meditrust's involvement.

Principal Subsidiaries: New England Finance Corp.; Pacific Finance Corp.; Mediplex of Queens, Inc.

Further Reading:

• "Financing Business," Wall Street Journal, August 22, 1986, p. 27.
• Gilpin, Kenneth N., "Vital Signs Improve for the Nursing Home Industry," New York Times, February 27, 1994.
• "Health Care Trust Acquires 5 Facilities for $55 Million," Wall Street Journal, January 8, 1988, p. 30.
• Lynch, Mitchell C., "Multibank Is Fighting Fiercely to Resist Quiet Multimillionaire's Bid for Control," Wall Street Journal, December 29, 1980, p. 15.
• Marcom, John Jr., "Avon to Purchase Mediplex Group for $220 Million," Wall Street Journal, January 24, 1986, p. 8.
• "Mediplex Group Sets Acquisition," Wall Street Journal, March 15, 1985, p. 3.
• "Meditrust Acquires Four Specialty Health Facilities," Modern Health Care, June 17, 1988, p. 60.
• "Meditrust Announces Offering of $175 Million of Equity and Convertible Debt," Barron's, February 15, 1993, p. 67.
• "Meditrust Buys a Hospital Firm," Wall Street Journal, January 5, 1987, p. 24.
• "Meditrust Buys 172-Bed Center," Wall Street Journal, October 6, 1987, p. 57.
• "Meditrust Net Income, Cash Flow Jump in 1990," Modern Health Care, February 25, 1991, p. 38.
• "Meditrust Raises $175 Million in Offering," Modern Health Care, February 15, 1993, p. 74.
• "Meditrust Real Estate Assets Top $1 Billion," Modern Health Care, May 25, 1992, p. 39.
• Marcial, Gene G., "Health Care Crunch, Hah!," Business Week, August 30, 1993, p. 70.
• "Multibank Plan to Purchase Dissident's Stake Is Approved," Wall Street Journal, May 27, 1981, p. 18.
• Suskind, Ron, "Head-Trauma Firm's Records Seized by Federal Agents in Fraud Inquiry," Wall Street Journal, October 28, 1992, p. A8.

Source: International Directory of Company Histories, Vol. 11. St. James Press, 1995.

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