Medical Facilities fourth quarter consolidated facility service revenue increases 10.9% to $64.4 million

Medical Facilities Corporation ("Medical Facilities" or "the Corporation") (TSX: DR.UN), today reported its financial results for the three- and twelve-month periods ended December 31, 2010. All amounts are expressed in U.S. dollars unless indicated otherwise.

Q4 Highlights (2010 vs 2009)

- 10.9% increase in facility service revenue - 23.1% increase in operating income - 11.0% increase in operating margin - Payout ratio of 68.6% (Q4 2009 75.1%)

Year 2010 Highlights (vs 2009)

- 5.1% increase in facility service revenue - 5.7% increase in operating income - Payout ratio unchanged

"A strong increase in revenue generated by orthopedic and neurosurgical cases produced a record year for Medical Facilities, achieving the highest level of revenue and operating income in our history. Despite a challenging environment and weakness in the first two quarters of the year, we saw our annual consolidated revenue grow by 5.1% and operating income by 5.7%. Favourable changes in the payor mix in fourth quarter further contributed to the stronger revenue. In addition, our cash available for distribution in U.S.-dollar terms increased by 10.7% for the full year compared to 2009, which offset the significant appreciation of the Canadian dollar," said Dr. Donald Schellpfeffer, CEO of Medical Facilities.

"To mitigate the effect on our operations of external pressures such as the slow economic recovery, restrictions on expansion of physician-owned hospitals imposed by healthcare reform, and the higher proportion of revenue from payors with lower reimbursement rates, our primary focus in 2010 was on cost control measures and physician recruitment initiatives. In 2011, in addition to continuing with these strategic initiatives, we are also monitoring the market for potential accretive acquisition opportunities while leveraging our recent capacity expansions to drive organic growth. We remain committed to optimizing the performance of our Centers and providing high-quality treatment and care to our patients, building a more productive work environment for physicians and staff, and offering competitive rates and streamlined business processes for our payors and reliable income and long-term value to our unitholders," concluded Dr. Schellpfeffer.

Financial Results -----------------

Three months ended December 31, 2010

For the three months ended December 31, 2010, Medical Facilities generated cash available for distribution ("CAFD") of Cdn$11.4 million or Cdn$0.401 per income participating security ("IPS") unit, and declared distributions (comprised of interest on subordinated notes and dividends on common shares) of Cdn$7.8 million or Cdn$0.275 per IPS unit, representing a payout ratio of 68.6% for the quarter.

Consolidated facility service revenue ("revenue") for the fourth quarter of 2010 increased by 10.9% to $64.4 million compared with $58.0 million in the fourth quarter of 2009. The increased revenue is primarily a reflection of a favourable case mix at most of the Centers which resulted in a 9.5% increase in aggregate average revenue per case along with higher pain management, imaging and anaesthesia revenues at some of the Centers partially offset by a higher proportion of cases covered by payors with lower reimbursement rates.

Consolidated operating expenses, including salaries and benefits, drugs and supplies, and general and administrative costs ("consolidated expenses") for the fourth quarter of 2010 totalled $37.8 million, or 58.7% of revenue, compared with consolidated expenses of $36.5 million, or 62.8% of revenue, a year ago. The $1.3 million increase consisted of increases in salaries and benefits ($0.8 million), drugs and supplies expenses ($0.4 million) and general, administrative and operating expenses ($0.1 million).

Consolidated operating income, before depreciation and amortization, interest expense, loss on foreign currency translation and minority interest ("consolidated operating income") for the fourth quarter of 2010 was $26.6 million, or 41.3% of revenue, compared with consolidated operating income of $21.6 million, or 37.2% of revenue, a year ago.

Consolidated net income for the fourth quarter of 2010 was $0.5 million, or a loss of $0.015 per IPS unit (basic and fully diluted), compared with a net loss of $0.2 million, or a loss of $0.009 per IPS unit (basic and fully diluted), in the comparable period last year.

Twelve months ended December 31, 2010

For the twelve months ended December 31, 2010, Medical Facilities generated CAFD of Cdn$37.8 million or Cdn$1.331 per IPS unit, and declared distributions (consisting of interest on subordinated notes and dividends on common shares) of Cdn$31.2 million or Cdn$1.100 per IPS unit, representing a payout ratio of 82.6% for the period.

Revenue for the twelve-month period ended December 31, 2010 grew by $10.5 million, or 5.1%, to $217.9 million from $207.4 million during the same period a year ago. This growth in revenue was driven by an aggregate increase in revenue of $13.3 million at the Corporation's specialty surgical hospitals ("SSHs") as a result of increases in orthopaedic and neurosurgery procedures, imaging revenue and pain management cases, partially offset by a higher proportion of cases covered by payors with lower reimbursement rates. Revenue was also affected by a decrease in surgical case volume and a less favourable case mix at the Corporation's ambulatory surgery center.

Consolidated expenses for the twelve months ended December 31, 2010 totalled $136.5 million, or 62.6% of revenue, compared with consolidated expenses of $130.4 million, or 62.9% of revenue, during the same period last year. The $6.1 million increase consisted of increases in drugs and supplies expenses of $3.1 million, salaries and benefits of $2.3 million, and general and administrative expenses of $0.7 million.

Consolidated operating income for the twelve months ended December 31, 2010 was $81.4 million, or 37.4% of revenue, compared with operating income of $77.0 million, or 37.1% of revenue, for the prior-year period.

Consolidated net loss for the twelve-month period ended December 31, 2010 totalled $0.6 million, or a loss of $0.053 per IPS unit (basic and fully diluted), compared with consolidated net loss of $0.7 million, or a loss of $0.027 per IPS unit (basic and fully diluted), during the same period in 2009.

As at December 31, 2010, the Corporation had consolidated net working capital of $62.8 million, including cash and cash equivalents of $31.6 million and patient accounts receivable of $40.8 million, compared with net working capital of $46.4 million, including cash and cash equivalents of $29.0 million and patient accounts receivable of $36.6 million, as at December 31, 2009. Long-term debt at the Centers' level, including the current portion, was $50.4 million as at December 31, 2010 compared with $43.8 million as at December 31, 2009.

Normal Course Issuer Bids -------------------------

Income Participating Securities

On April 22, 2010, the Corporation announced that it received regulatory approval for a normal course issuer bid ("IPS NCIB") to purchase up to 1,417,975 of its IPS units at prevailing market prices during the period from April 26, 2010 to April 25, 2011. All IPS units purchased under the IPS NCIB will be cancelled. By repurchasing and cancelling its units, Medical Facilities reduces the total amount of distributions payable, resulting in cash savings for the Corporation. The remaining unitholders also benefit from the NCIB as the distributable cash per unit increases.

Under the IPS NCIB, 16,100 IPS units of Medical Facilities were repurchased and cancelled during the fourth quarter at an average cost of Cdn$9.46 per unit, for a total consideration of Cdn$0.2 million. For the full year, 107,200 IPS units of Medical Facilities were repurchased and cancelled at an average cost of Cdn$9.24 per unit, for a total consideration of Cdn$1.0 million.

As at December 31, 2010, the Corporation had 28,316,749 IPS units or unit equivalents outstanding.

Convertible Secured Debentures

On November 22, 2010, the Corporation announced that it received regulatory approval for a normal course issuer bid ("Debentures NCIB") to purchase up to Cdn$3.4 million aggregate principal amount of its outstanding convertible secured debentures at prevailing market prices during the period from November 24, 2010 to November 23, 2011. All convertible secured debentures purchased under the Debentures NCIB will be cancelled. In 2010, the Corporation purchased Cdn$18,000 aggregate principal amount of convertible secured debentures for a total consideration of Cdn$19,255.

Medical Facilities' complete 2010 financial statements and Management Discussion & Analysis will be issued and filed on SEDAR on Friday, March 18, 2011 and will be available on the same day via Medical Facilities' website at www.medicalfacilitiescorp.ca.