<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, 1997
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)
MARYLAND 23-6858580
(State or other jurisdiction of (I. R. S. Employer
Incorporation or Organization) Identification No.)
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, 1997 - 8,952,340
Page One of Ten Pages
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UNIVERSAL HEALTH REALTY INCOME TRUST
I N D E X
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Condensed Statements of Income
Three Months Ended --March 31, 1997 and 1996.......................... Three
Condensed Balance Sheets -- March 31, 1997
and December 31, 1996................................................. Four
Condensed Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996............................ Five
Notes to Condensed Financial Statements.................................... Six & Seven
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... Eight & Nine
PART II. OTHER INFORMATION AND SIGNATURE ................................. Ten
</TABLE>
Page Two of Ten Pages
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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,
--------------------
1997 1996
-------- --------
<S> <C> <C>
REVENUES (Note 2):
Base rental - UHS facilities $ 3,433 $ 3,433
Base rental - Non-related parties 1,290 966
Bonus rental 774 759
Interest 203 185
-------- --------
5,700 5,343
-------- --------
EXPENSES:
Depreciation & amortization 925 880
Interest expense 726 548
Advisory fees to UHS 269 251
Other operating expenses 334 194
-------- --------
2,254 1,873
-------- --------
Income before equity in limited liability corporations 3,446 3,470
Equity in income of limited liability corporations 212 113
======== ========
NET INCOME $ 3,658 $ 3,583
======== ========
NET INCOME PER SHARE $ 0.41 $ 0.40
======== ========
Weighted average number of shares and equivalents 8,963 8,957
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page Three of Ten Pages
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UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS: 1997 1996
--------- ---------
(unaudited)
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Buildings & improvements $ 138,407 $ 138,400
Accumulated depreciation (27,449) (26,540)
--------- ---------
110,958 111,860
Land 19,683 19,683
Mortgage loans receivable, net 6,320 6,405
Construction loan and interest receivable 742 398
Construction in progress 1,840 1,246
Reserve for investment losses (142) (151)
--------- ---------
Net Real Estate Investments 139,401 139,441
OTHER ASSETS:
Cash 84 137
Bonus rent receivable from UHS 669 634
Rent receivable from non-related parties 130 32
Mortgage loan interest receivable 61 --
Investments in limited liability corporations 7,932 7,932
Deferred charges and other assets, net 343 390
--------- ---------
$ 148,620 $ 148,566
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $ 41,900 $ 42,000
Note payable to UHS 1,098 1,082
Accrued interest 420 234
Accrued expenses & other liabilities 742 686
Tenant reserves, escrows, deposits and deferred rental 526 515
Minority interest 100 67
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: 1997 - 8,952,340
1996 - 8,952,340 90 90
Capital in excess of par value 128,643 128,643
Cumulative net income 101,812 98,154
Cumulative dividends (126,711) (122,905)
--------- ---------
Total Shareholders' Equity 103,834 103,982
--------- ---------
$ 148,620 $ 148,566
========= =========
</TABLE>
See accompanying notes to these condensed financial statements.
Page Four of Ten Pages
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UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Cash Flows
(amounts in thousands, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,658 $ 3,583
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 925 880
Amortization of interest rate cap 31 31
Provision for investment losses 40 --
Changes in assets and liabilities:
Rent receivable (133) (239)
Accrued expenses & other liabilities 56 57
Tenant escrows, deposits & deferred rents 11 (37)
Mortgage loan interest receivable (61) --
Accrued interest 186 31
Payments made for investment losses (49) (25)
Deferred charges & other 15 5
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,679 4,286
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in limited liability corporation -- (4,668)
Acquisition of real property (7) --
Payments made for construction in progress (561) --
Advances under construction note receivable (344) --
Repayments under mortgage note receivable 86 --
------- -------
NET CASH USED IN INVESTING ACTIVITIES (826) (4,668)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings -- 4,085
Repayments of long-term debt (100) --
Dividends paid (3,806) (3,760)
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,906) 325
------- -------
Decrease in cash (53) (57)
Cash, beginning of period 137 139
------- -------
CASH, END OF PERIOD $ 84 $ 82
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 493 $ 471
</TABLE>
See accompanying notes to these condensed financial statements.
Page Five of Ten Pages
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UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(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, 1996.
Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.
The Financial Accounting Standards Board recently issued Statement 128, Earnings
per Share, which is effective for financial statements for periods ending
December 15, 1997. Adoption of Statement 128 would have had no material effect
on the Trust's earnings per share for the quarters ended March 31, 1997 and
1996.
(2) RELATIONSHIP WITH UNIVERSAL HEALTH SERVICES, INC.
During the first three months of 1997 and 1996, approximately 72% and 76%,
respectively, of the Trust's 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, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Base rental - UHS facilities $3,433,000 $3,433,000
Base rental - Non-related parties 1,290,000 966,000
---------- ----------
Total base rental 4,723,000 4,399,000
---------- ----------
Bonus rental - UHS facilities 662,000 648,000
Bonus rental - Non-related parties 112,000 111,000
---------- ----------
Total bonus rental 774,000 759,000
---------- ----------
Interest - Non-related parties 203,000 185,000
---------- ----------
Total revenues $5,700,000 $5,343,000
========== ==========
</TABLE>
Page Six of Ten Pages
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Certain of the Trust's facilities leased to subsidiaries of UHS have had
earnings before interest, taxes, depreciation, amortization and lease and rental
expense (EBITDAR) of less than 1.5 times the rent payable to the Trust. For the
year ended December 31, 1996, two of the UHS facilities did not generate
sufficient EBITDAR to cover the 1996 rent expense payable to the Trust. The
leases on these facilities, which mature in 2000 and 2001, generated 18% of the
Trust's 1996 rental income. One additional UHS facility had 1996 EBITDAR which
was less than 1.5 times the 1996 rent payable to the Trust. The lease on this
facility, which matures in 2001, generated 10% of the Trust's 1996 rental
income. Management of the Trust can not predict whether the leases with
subsidiaries of UHS, which have renewal options at existing lease rates, or any
of the Trust's other leases, will be renewed at the end of their initial lease
terms. If the leases are not renewed at their current rates, the Trust would be
required to find other operators for those facilities and/or enter into leases
on terms potentially less favorable to the Trust than the current leases.
UHS owned approximately 8% percent of the Trust's outstanding shares of
beneficial interest as of March 31, 1997. 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 $.425 per share or $3,806,000 in the aggregate was declared by the
Board of Trustees on March 7, 1997 and was paid on March 31, 1997 to
shareholders of record as of March 17, 1997.
(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. Subsequent to the end of the first quarter of
1997, the Trust received notice that the entire outstanding mortgage loan
balance ($6.4 million as of March 31, 1997), which can be prepaid without
penalty at anytime, will be repaid to the Trust in June, 1997. Interest on the
loan, which accrues monthly at a margin over the one month LIBOR or at a margin
over the five-year Treasury rate, accrued at an average rate of 11.0% and 11.2%,
including amortization of prepaid commitment fees, for the three months ended
March 31, 1997 and 1996, respectively.
(5) SUBSEQUENT EVENTS
Subsequent to March 31, 1997, the Trust invested $1.9 million for a 75% equity
interest in a limited liability company that purchased the Thunderbird Paseo
Medical Plaza for a total purchase price of $8.2 million, including $5.9 million
of long-term, non-recourse debt. Thunderbird Paseo Medical Plaza is a 58,000 net
square foot medical office building located on the campus of the Thunderbird
Samaritan Medical Center in Glendale, Arizona.
Page Seven of Ten Pages
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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., and that a substantial portion of the Trust's leases and
mortgagors are involved in the healthcare industry which is undergoing
substantial changes and is subject to pressure from government reimbursement
programs and other third party payors. In recent years, an increasing number of
legislative initiatives have been introduced or proposed in Congress and in
state legislatures that would effect major changes in the healthcare systems,
either nationally or at the state level. In addition, the healthcare industry
has been characterized in recent years by increased competition and
consolidation. Management of the Trust is unable to predict the effect, if any,
these industry factors will have on the operating results of its lessees,
including the facilities leased to subsidiaries of UHS, or on their ability to
meet their obligations under the terms of their leases with the Trust. In
addition, certain of the Trust's facilities leased to subsidiaries of UHS have
had EBITDAR of less than 1.5 times the rent payable to the Trust. (see Note 2).
Management of the Trust can not predict whether the leases with subsidiaries of
UHS, which have renewal options at existing lease rates, or any of the Trust's
other leases, will be renewed at the end of their initial lease terms. If the
leases are not renewed at their current rates, the Trust would be required to
find other operators for those facilities and/or enter into leases on terms
potentially less favorable to the Trust than the current leases.
RESULTS OF OPERATIONS
The Trust has investments in twenty-seven facilities located in thirteen states.
The Trust invests in healthcare and human service related facilities including
acute care hospitals, behavioral healthcare facilities, rehabilitation
hospitals, sub-acute care facilities, surgery centers, child-care centers and
medical office buildings.
The first quarter dividend of $.425 per share or $3,806,000 in the aggregate was
paid on March 31, 1997.
For the quarters ended March 31, 1997 and 1996 net income totaled $3,658,000 and
$3,583,000 or $.41 and $.40 per share on net revenues of $5,700,000 and
$5,343,000, respectively. The $357,000 increase in net revenue during the 1997
first quarter as compared to the comparable prior year quarter was primarily
attributable to a $324,000 increase in base rental from non-related parties.
This increase resulted primarily from the 1996 acquisitions of four preschool
and child-care centers and a multi-tenant medical office building.
Page Eight of Ten Pages
<PAGE> 9
Interest expense increased $178,000 or 32% during the first quarter of 1997 as
compared to the first quarter of 1996 due to the $19.5 million of additional
borrowings used to finance eleven new investments during 1996. Partially
offsetting this additional interest was a .4% decrease in the Trust's effective
borrowing rate during the 1997 first quarter as compared to the 1996 comparable
period.
Depreciation and amortization expense increased $45,000 or 5% for the three
months ended March 31, 1997 as compared to the comparable prior year period due
primarily to the depreciation expense related to the medical office building and
the four preschool and child-care centers acquired by the Trust during the
second quarter of 1996.
Other operating expenses increased $140,000 or 72% during the first quarter of
1997 as compared to the comparable prior year quarter due primarily to the
expenses related to the medical office building and the preschool and child-care
centers acquired by the Trust during the second quarter of 1996 and a $40,000
increase in the reserve established for future expenses related to the
settlement of Lake Shore Hospital. The expenses related to the medical office
buildings, which totaled $188,000 and $89,000 for the quarters ended March 31,
1997 and 1996, respectively, are passed on directly to the tenants of these
buildings and 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,
1997 and 1996 was $212,000 and $113,000, respectively, of income generated from
the Trust's ownership in limited liability corporations which own various
medical office buildings 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 $4.6 million
during the three months ended March 31, 1997 and $4.5 million during the
comparable 1996 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 1997, net cash provided by operating activities
was $4.7 million as compared to $4.3 million in the 1996 quarter. The $393,000
increase in net cash provided by operating activities was due primarily to a
$160,000 increase in net income plus the addback of the non-cash charges
(depreciation, amortization, provision for investment losses and amortization of
interest rate cap expense) and $233,000 of other favorable net working capital
changes.
During the first three months of 1997, the $4.7 million of net cash provided by
operating activities was used primarily to pay dividends ($3.8 million) and
finance construction on two new medical office buildings which will be owned by
limited liability corporations and limited partnerships in which the Trust will
own an equity interest ($900,000).
As of March 31, 1997 the Trust had approximately $25 million of unused borrowing
capacity under the terms of its $70 million revolving credit agreement. This
agreement matures on September 30, 2001 at which time all amounts then
outstanding are required to be repaid.
Page Nine of Ten Pages
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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 12, 1997 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 Ten of Ten Pages
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000798783
<NAME> UNIVERSAL HEALTH REALTY INCOME TRUST
<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> 84
<SECURITIES> 0
<RECEIVABLES> 12,922
<ALLOWANCES> 5,142
<INVENTORY> 0
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<PP&E> 159,930
<DEPRECIATION> 27,449
<TOTAL-ASSETS> 148,620
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<BONDS> 42,998
0
0
<COMMON> 90
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