<PAGE> 1
______________
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to .........
Commission file number 1-9321
UNIVERSAL HEALTH REALTY INCOME TRUST
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 23-6858580
------------------------------- ----------------------
(State or other jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 265-0688
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Number of shares of common stock outstanding at April 30, 1996 - 8,952,340
Page One of Eleven Pages
<PAGE> 2
UNIVERSAL HEALTH REALTY INCOME TRUST
I N D E X
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Statements of Income
Three Months Ended --March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . Three
Condensed Balance Sheets -- March 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Four
Condensed Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . Five
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . Six & Seven
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . . . . . . . . Eight, Nine & Ten
PART II. OTHER INFORMATION AND SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . .Eleven
</TABLE>
Page Two of Eleven Pages
<PAGE> 3
PART I. FINANCIAL INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1996 1995
------ ------
<S> <C> <C>
REVENUES (Note 2):
Base rental - UHS facilities $3,433 $3,316
Base rental - Non-related parties 966 727
Bonus rental 759 657
Interest 185 214
------ ------
5,343 4,914
------ ------
EXPENSES:
Depreciation & amortization 880 825
Interest expense 548 415
Advisory fees to UHS 251 228
Other operating expenses 194 143
------ ------
1,873 1,611
------ ------
Income before equity in income of partnership 3,470 3,303
Equity in income of partnership 113 -
------ ------
NET INCOME $3,583 $3,303
====== ======
NET INCOME PER SHARE $0.40 $0.37
====== ======
Weighted average number of shares and
equivalents 8,957 8,947
====== ======
</TABLE>
See accompanying notes to these condensed financial statements.
Page Three of Eleven Pages
<PAGE> 4
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- -----------
1996 1995
--------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
REAL ESTATE INVESTMENTS:
Buildings & improvements $129,961 $129,961
Accumulated depreciation (23,848) (22,986)
-------- --------
106,113 106,975
Land 17,927 17,927
Mortgage loans receivable, net 6,445 6,444
Reserve for investment losses (133) (158)
-------- --------
Net Real Estate Investments 130,352 131,188
OTHER ASSETS:
Cash 82 139
Bonus rent receivable - UHS 661 606
Rent receivable - non-related parties 197 13
Investment in partnership 4,976 --
Deferred charges, net 477 516
Deposits -- 308
-------- --------
$136,745 $132,770
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $29,460 $25,375
Note payable to UHS 1,036 1,021
Accrued interest 188 157
Accrued expenses & other liabilities 733 676
Tenant reserves, escrows, deposits and
prepaid rentals 507 544
SHAREHOLDERS' EQUITY:
Preferred shares of beneficial interest,
$.01 par value; 5,000,000 shares
authorized; none outstanding -- --
Common shares, $.01 par value;
95,000,000 shares authorized; issued
and outstanding: 1996 - 8,952,340
1995 - 8,947,192.................... 90 89
Capital in excess of par value............ 128,643 128,643
Cumulative net income .................... 87,579 83,996
Cumulative dividends ..................... (111,491) (107,731)
-------- --------
TOTAL SHAREHOLDERS' EQUITY ......... 104,821 104,997
-------- --------
$136,745 $132,770
======== ========
</TABLE>
See accompanying notes to these condensed financial statements.
Page Four of Eleven Pages
<PAGE> 5
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Cash Flows
(amounts in thousands, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,583 $3,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 880 825
Amortization of interest rate cap 31 31
Changes in assets and liabilities:
Rent receivable (239) 15
Accrued expenses & other liabilities 57 21
Tenant escrows, deposits & prepaid rents (37) 50
Construction & mortgage loan interest receivable - 3
Accrued interest 31 (15)
Reserve for investment losses (25) (93)
Deferred charges & other 5 (22)
------ ------
Net cash provided by operating activities 4,286 4,118
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in partnership (4,668) -
Acquisition of real property - (23)
Advances under construction note receivable - (487)
------ ------
Net cash used in investing activities (4,668) (510)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings 4,085 165
Dividends paid (3,760) (3,758)
------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 325 (3,593)
------ ------
(Decrease) Increase in cash (57) 15
Cash, beginning of period 139 2
------ ------
CASH, END OF PERIOD $82 $17
------ ------
Supplemental disclosures of cash flow information:
Interest paid $471 $385
</TABLE>
See accompanying notes to these condensed financial statements.
Page Five of Eleven Pages
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UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
(1) GENERAL
The financial statements included herein have been prepared by the Trust,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments which, in the opinion of the
Trust, are necessary to fairly present results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Trust believes that the accompanying disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements, accounting
policies and the notes thereto included in the Trust's Annual Report on Form
10-K for the year ended December 31, 1995.
(2) RELATIONSHIP WITH UNIVERSAL HEALTH SERVICES, INC.
During the first three months of 1996 and 1995 approximately 76% and 81%,
respectively, of the Trust's gross revenues were earned under the terms of the
leases with wholly-owned subsidiaries of Universal Health Services, Inc.
("UHS"). UHS has unconditionally guaranteed the obligations of its
subsidiaries under the leases. Below is the detailed listing of the revenues
received from UHS and other non-related parties for the three months ended
March 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Base rental - UHS facilities $ 3,433,000 $ 3,316,000
Base rental - Non-related parties 966,000 727,000
----------- -----------
Total base rental 4,399,000 4,043,000
----------- -----------
Bonus rental - UHS facilities 648,000 657,000
Bonus rental - Non-related parties 111,000 0
----------- -----------
Total bonus rental 759,000 657,000
----------- -----------
Interest - Non-related parties 185,000 214,000
----------- -----------
Total revenues $ 5,343,000 $ 4,914,000
=========== ===========
</TABLE>
UHS owned approximately 8% percent of the Trust's outstanding common shares as
of March 31, 1996. The Trust has granted UHS an option to purchase Trust
shares in the future at fair market value to enable UHS to maintain a 5%
interest in the Trust. The Trust has no salaried employees and the Trust's
officers are all employees of UHS and receive no cash compensation from the
Trust.
(3) DIVIDENDS
A dividend of $.42 per share or $3,760,000 in the aggregate was declared by the
Board of Trustees on March 1, 1996 and was paid on March 29, 1996 to
shareholders of record as of March 15, 1996.
Page Six of Eleven Pages
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(4) FINANCING
During 1993, the Trust funded $6.5 million for the purchase of the real assets
of the Madison Irving Medical Center, by Crouse Irving Memorial Properties,
located in Syracuse, New York. The loan, which can be prepaid without penalty
at any time, has a fifteen-year repayment term. The Trust has received prepaid
commitment fees related to this mortgage note receivable totaling $65,000. The
unearned portion ($55,000 as of March 31, 1996) is being recognized as income
over the fifteen-year repayment term. The loan accrues interest monthly at a
margin over the one month LIBOR or at a margin over the five-year Treasury
rate. The interest rate is selected at the borrower's option. Interest on the
mortgage loan, including amortization of prepaid commitment fees, accrued at an
average rate of 11.2% and 11.7% for the three months ended March 31, 1996 and
1995, respectively.
(5) ACQUISITIONS
In December of 1995 and January of 1996, the Trust invested $5 million to
acquire a 50% partnership interest in three medical office buildings located on
the Campus of Desert Samaritan Hospital in Phoenix, Arizona. The three
buildings total approximately 219,000 gross square feet and are leased to
several tenants including the Samaritan Health System and FHP Inc., a health
maintenance organization.
Page Seven of Eleven Pages
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The matters discussed in this report as well as the news releases issued from
time to time by the Trust contain certain forward-looking statements that
involve risks and uncertainties, including the fact that a substantial portion
of the Trust's revenues are dependent on one operator, Universal Health
Services, Inc., all the Trust's lessees and mortgagors are involved in the
health industry which is undergoing substantial changes and is subject to
increased pressure from government reimbursement programs and other third party
payors, certain of the Trust's facilities have had cash flow less than 1.5
times lease payments, leases may not be renewed at the end of their terms which
could require the Trust to find other operators for those facilities and enter
into leases on terms potentially less favorable to the Trust than current
leases.
RESULTS OF OPERATIONS
The Trust currently has fifteen investments located in ten states. These
investments include: (i) ownership of four acute care, one comprehensive
rehabilitation and two psychiatric hospitals leased to subsidiaries of
Universal Health Services, Inc. ("UHS"); (ii) ownership of one comprehensive
rehabilitation hospital leased to a subsidiary of HEALTHSOUTH Corporation;
(iii) ownership of one sub-acute care facility leased to THC-Chicago, Inc.
("THC"), an indirect wholly-owned subsidiary of Community Psychiatric Centers
("CPC"); (iv) ownership of one medical office building leased to several
tenants including an outpatient surgery center operated by Columbia/HCA
Healthcare, Corporation ("Columbia"); (v) ownership of a medical office
building on the campus of a hospital owned by Columbia; (vi) ownership of one
single tenant and two multi-tenant medical office buildings located in
Kingwood, Texas; (vii) a mortgage loan made to Crouse Irving Memorial
Properties for the purchase of the real assets of the Madison Irving Medical
Center, an ambulatory treatment center; (viii) a 50% partnership interest in
three medical office buildings located on the campus of Desert Samaritan
Hospital in Phoenix, Arizona, and; (ix) ownership of the real estate assets of
Lake Shore Hospital, to which the Trust received free and clear title during
the second quarter of 1995. The Trust has been, and will continue to, actively
market the property of Lake Shore Hospital in an effort to sell or lease the
facility to a qualified operator. The leases to the subsidiaries of UHS are
guaranteed by UHS and are cross-defaulted with one another. The lease to the
subsidiary of HEALTHSOUTH Corporation is guaranteed by HEALTHSOUTH Corporation,
the lease on the sub-acute care facility to THC is guaranteed by CPC and the
leases to the outpatient surgery center and the medical office building on the
campus of a Columbia hospital, are guaranteed by Columbia. The lease on the
single tenant medical office building located in Kingwood, Texas is guaranteed
by Columbia.
The first quarter dividend of $.42 per share or $3,760,000 in the aggregate was
paid on March 29, 1996.
For the quarters ended March 31, 1996 and 1995 net income totaled $3,583,000
and $3,303,000 or $.40 and $.37 per share on net revenues of $5,343,000 and
$4,914,000, respectively. The $429,000 increase in net revenue was primarily
attributable to a $239,000 increase in base rental from non-related parties, a
$117,000 increase in base rental from UHS facilities and a $102,000 increase in
bonus rentals, which are computed as a percentage of each facility's revenue in
excess of base year amounts or CPI increases in excess of base year amounts.
Page Eight of Eleven Pages
<PAGE> 9
The increase in base rentals from non-related parties resulted primarily from
the acquisitions of medical office buildings during the third and fourth
quarters of 1995. The increase in the base rental from UHS facilities was
attributable to the purchase by the Trust of additional real estate assets
related to McAllen Medical Center and additional base rental generated from the
Westlake Medical Center ("Westlake") swap transaction which occurred during the
third quarter of 1995. In exchange for the real estate assets of Westlake and
the termination of the lease, the Trust received substitution properties valued
at approximately $19 million (the Trust's original purchase price of Westlake)
consisting of additional real estate assets which were owned by UHS but related
to three acute care facilities, of which the Trust owns the real estate and
which are operated by UHS (McAllen Medical Center, Inland Valley Regional
Medical Center and Wellington Regional Medical Center).
These additional real estate assets represented major additions and expansions
made to these facilities by UHS since the purchase of the facilities by the
Trust from UHS in 1986. The Trust also purchased from UHS, additional real
estate assets related to McAllen Medical Center for approximately $1.9 million
in cash. Total annual base rental payments from UHS to the Trust on the
substituted properties is $2.4 million which equals the total base and bonus
rental earned by the Trust on the Westlake facility during 1994 ($2.1 million
base and $300,000 bonus).
Approximately $12,000 and $33,000 of the Trust's bonus rental for the three
months ended March 31, 1996 and 1995, respectively, were attributable to
special Medicaid reimbursement programs which relate to an acute care hospital
owned by the Trust. The facility, which participates in the Texas Medical
Assistance Program, became eligible and received additional reimbursements from
the state's disproportionate share hospital fund since the facility met certain
conditions of participation and served a disproportionately high share of the
state's low income patients. Pursuant to the terms of this program, as renewed
for the period of September, 1995 through August, 1996, the annual bonus rental
payments to the Trust related to revenues generated under this program will be
reduced to approximately $40,000 per year. This program is scheduled to
terminate in August, 1996 and the Trust cannot predict whether this program
will continue beyond the scheduled termination date.
Interest expense increased $133,000 or 32% during the first quarter of 1996 as
compared to the 1995 first quarter due to the increased borrowings used to
finance the January 1996 purchase of the 50% partnership interest in three
medical office buildings located on the campus of Desert Samaritan Hospital in
Phoenix, Arizona and the purchase of the medical office buildings in Kingwood,
Texas and Shreveport, Louisiana which were acquired by the Trust during the
third and fourth quarters of 1995. Partially offsetting the additional
interest expense generated by the increased borrowings used to finance these
acquisitions was a .5% decrease in the Trust's effective borrowing rate during
the 1996 first quarter as compared to the 1995 comparable period.
Depreciation and amortization expense increased $55,000 or 7% for the three
months ended March 31, 1996 as compared to the comparable prior year period due
primarily to the depreciation expense on the medical office buildings acquired
by the Trust during the third and fourth quarters of 1995 and the additional
real estate assets related to McAllen Medical Center purchased during the third
quarter of 1995, as mentioned above.
Page Nine of Eleven Pages
<PAGE> 10
Other operating expenses increased $51,000 or 36% during the first quarter of
1996 as compared to the prior year quarter due primarily to the expenses
related to the medical office buildings acquired by the Trust during the third
and fourth quarters of 1995. These expenses, which are passed on directly to
the tenants of the medical office buildings, are included as revenue in the
Trust's statements of income.
Included in the Trust's financial results for the three months ended March 31,
1996 was $113,000 of income generated from the Trust's 50% ownership in a
partnership which owns three medical office buildings located on the campus of
Desert Samaritan Hospital in Phoenix, Arizona.
Funds from operations ("FFO"), which is the sum of net income plus depreciation
expense and amortization of interest rate cap expense totaled $4.5 million
during the three months ended March 31, 1996 and $4.1 million during the
comparable 1995 period. FFO does not represent cash flows from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of the Trust's
operating performance or to cash flows as a measure of liquidity.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996, net cash provided by operating
activities was $4.3 million as compared to $4.1 million in the 1995 quarter.
The $168,000 increase in net cash provided by operating activities was due
primarily to a $335,000 increase in net income plus the addback of the non-cash
depreciation and amortization expense, partially offset by a $239,000 increase
in the rent and bonus rent receivable balances as of March 31, 1996 as compared
to the December 31, 1995 balances.
During the first three months of 1996, the $4.3 million of net cash provided by
operating activities and the $4.1 million of additional borrowings were used
primarily to acquire a 50% partnership interest in three medical office
buildings located on the campus of Desert Samaritan Hospital in Phoenix,
Arizona ($4.7 million) and to pay dividends ($3.8 million).
As of March 31, 1996 the Trust had approximately $15.5 million of unused
borrowing capacity under the terms of its $45 million non-amortizing revolving
credit agreement. This agreement matures on February 28, 1997 at which time
all amounts then outstanding are required to be repaid. The Trust is currently
negotiating with the participating banks in its revolving credit facility to
extend the term of the revolving credit agreement under terms similar to its
current agreement. No assurance can be given as to the ultimate outcome of
these negotiations.
Page Ten of Eleven Pages
<PAGE> 11
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K
All other items of this report are inapplicable.
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 thereunto duly authorized.
Date: May 13, 1996 UNIVERSAL HEALTH REALTY INCOME TRUST
(Registrant)
/s/ KIRK E. GORMAN
-------------------------
Kirk E. Gorman, President,
Chief Financial Officer, Secretary
and Trustee
(Principal Financial Officer and
Duly Authorized Officer.)
Page Eleven of Eleven Pages
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 12,303
<ALLOWANCES> 5,133
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 147,888
<DEPRECIATION> 23,848
<TOTAL-ASSETS> 136,745
<CURRENT-LIABILITIES> 0
<BONDS> 30,496
0
0
<COMMON> 90
<OTHER-SE> 104,731
<TOTAL-LIABILITY-AND-EQUITY> 136,745
<SALES> 0
<TOTAL-REVENUES> 5,456
<CGS> 0
<TOTAL-COSTS> 445
<OTHER-EXPENSES> 880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 548
<INCOME-PRETAX> 3,583
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,583
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
