<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 September 30, 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 common shares of beneficial interest outstanding at
October 31, 1997 - 8,954,840
Page One of Twelve Pages
<PAGE> 2
UNIVERSAL HEALTH REALTY INCOME TRUST
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Condensed Statements of Income
Three Months Ended -- September 30, 1997 and 1996 ..........................Three
Nine Months Ended -- September 30, 1997 and 1996
Condensed Balance Sheets -- September 30, 1997
and December 31, 1996.........................................................Four
Condensed Statements of Cash Flows
Nine Months Ended September 30, 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 & Ten
PART II. OTHER INFORMATION AND SIGNATURE .............................Eleven & Twelve
</TABLE>
Page Two of Twelve 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES (Note 2):
Base rental - UHS facilities $ 3,432 $ 3,433 $10,298 $10,298
Base rental - Non-related parties 1,437 1,401 4,064 3,385
Bonus rental 617 590 2,179 2,094
Interest 74 187 488 556
------- ------- ------- -------
5,560 5,611 17,029 16,333
------- ------- ------- -------
EXPENSES:
Depreciation & amortization 961 930 2,806 2,704
Interest expense 702 705 2,146 1,828
Advisory fees to UHS 276 271 819 772
Other operating expenses 357 390 1,020 813
------- ------- ------- -------
2,296 2,296 6,791 6,117
------- ------- ------- -------
Income before equity in limited liability corporations 3,264 3,315 10,238 10,216
Equity in income of limited liability corporations 78 151 312 423
------- ------- ------- -------
Net Income $ 3,342 $ 3,466 $10,550 $10,639
======= ======= ======= =======
Net Income Per Share $ 0.37 $ 0.39 $ 1.18 $ 1.19
======= ======= ======= =======
Weighted average number of shares and equivalents 8,975 8,959 8,966 8,958
======= ======= ======= =======
</TABLE>
See accompanying notes to these condensed financial statements.
Page Three of Twelve Pages
<PAGE> 4
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS: 1997 1996
----------- ----------
(unaudited)
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Buildings & improvements $ 142,362 $ 138,400
Accumulated depreciation (29,317) (26,540)
--------- ---------
113,045 111,860
Land 19,873 19,683
Mortgage loans receivable, net -- 6,405
Construction loan and interest receivable 3,933 398
Construction in progress 940 1,246
Reserve for investment losses (97) (151)
--------- ---------
Net Real Estate Investments 137,694 139,441
OTHER ASSETS:
Cash 143 137
Bonus rent receivable from UHS 633 634
Rent receivable from non-related parties 105 32
Investments in limited liability corporations 9,453 7,932
Deferred charges and other assets, net 278 390
--------- ---------
$ 148,306 $ 148,566
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $ 42,300 $ 42,000
Note payable to UHS 1,131 1,082
Accrued interest 244 234
Accrued expenses & other liabilities 878 686
Tenant reserves, escrows, deposits and prepaid rental 524 515
Minority interest 108 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 - 8,954,840
1996 - 8,952,340 90 90
Capital in excess of par value 128,646 128,643
Cumulative net income 108,704 98,154
Cumulative dividends (134,319) (122,905)
--------- ---------
Total Shareholders' Equity 103,121 103,982
--------- ---------
$ 148,306 $ 148,566
========= =========
</TABLE>
See accompanying notes to these condensed financial statements.
Page Four of Twelve Pages
<PAGE> 5
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Cash Flows
(amounts in thousands, unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,550 $ 10,639
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 2,806 2,704
Amortization of interest rate cap 93 93
Provision for investment losses 120 --
Changes in assets and liabilities:
Rent receivable (72) 10
Accrued expenses & other liabilities 192 88
Tenant escrows, deposits & prepaid rents 9 20
Mortgage loan interest receivable -- --
Accrued interest 10 72
Payments made for investment losses (174) (78)
Deferred charges & other 9 (40)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,543 13,508
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited liability corporations (1,926) (6,069)
Acquisition of real property (1,358) (10,195)
Payments made for construction in progress (2,466) --
Advances under construction note receivable (3,535) --
Repayments under mortgage note receivable 6,457 --
Cash distributions in excess of income from LLCs 405 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,423) (16,264)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings 300 14,155
Dividends paid (11,414) (11,369)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (11,114) 2,786
-------- --------
Increase in cash 6 30
Cash, beginning of period 137 139
-------- --------
CASH, END OF PERIOD $ 143 $ 169
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 1,994 $ 1,618
</TABLE>
See accompanying notes to these condensed financial statements.
Page Five of Twelve Pages
<PAGE> 6
UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 three and nine month periods ended
September 30, 1997 and 1996.
(2) RELATIONSHIP WITH UNIVERSAL HEALTH SERVICES, INC.
Approximately 73% and 72% for the three month periods ended September 30, 1997
and 1996 and 72% and 74% for the nine month periods ended September 30, 1997 and
1996, 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 and nine months ended September
30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Base rental - UHS facilities $ 3,432,000 $ 3,433,000 $10,298,000 $10,298,000
Base rental - Non-related parties 1,437,000 1,401,000 4,064,000 3,385,000
----------- ----------- ----------- -----------
Total base rental 4,869,000 4,834,000 14,362,000 13,683,000
----------- ----------- ----------- -----------
Bonus rental - UHS facilities 617,000 590,000 1,950,000 1,865,000
Bonus rental-Non-related parties -- -- 229,000 229,000
----------- ----------- ----------- -----------
Total bonus rental 617,000 590,000 2,179,000 2,094,000
----------- ----------- ----------- -----------
Interest- Non-related parties 74,000 187,000 488,000 556,000
----------- ----------- ----------- -----------
Total revenues $ 5,560,000 $ 5,611,000 $17,029,000 $16,333,000
=========== =========== =========== ===========
</TABLE>
Page Six of Twelve Pages
<PAGE> 7
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
twelve months ended September 30, 1997, three of the UHS facilities did not
generate sufficient EBITDAR to cover the annual rent expense payable to the
Trust. The leases on these facilities, one which matures in 2000 and two which
mature in 2001, generated 27% of the Trust's rental income for the twelve month
period ending September 30, 1997. UHS has not advised the Trust whether the
leases with subsidiaries of UHS, which have renewal options at existing lease
rates, will be renewed at the end of their initial lease terms. The Trust is
also unable to predict whether any of its 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 September 30, 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) ACQUISITIONS
During the third quarter of 1997, construction was completed on a substantial
portion of the Cypresswood Professional Center located in Houston, Texas.
Commencing in 1996, the Trust began providing construction financing to a
limited partnership in which the Trust has a 77% controlling equity interest
during the construction period which will increase to 98% upon final completion
and occupancy of the building. As of September 30, 1997, in accordance with
provisions of the agreement, the Trust funded a total of $3.7 million ($2.5
million in 1997 and $1.2 million in 1996) for construction of the facility and
reclassified a total of $2.8 million into property ($2.6 million into building
and improvements and $176,000 into land) during the third quarter of 1997.
Construction on the remainder of the facility is expected to be completed during
the fourth quarter of 1997.
(4) DIVIDENDS
A dividend of $.425 per share or $3,805,000 in the aggregate was declared by the
Board of Trustees on September 2, 1997 and was paid on September 30, 1997 to
shareholders of record as of September 15, 1997.
Page Seven of Twelve 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., 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 August, 1997, a five year budget plan
was approved which calls for $115 billion reduction in the rate of increase in
Medicare spending over the next five years. Included in the proposal are
reductions in the future rate of increases to payments made to hospitals. 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). UHS has not advised the Trust whether the leases with
subsidiaries of UHS, which have renewal options at existing lease rates, will be
renewed at the end of their initial lease terms. The Trust is also unable to
predict whether any of its 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-six facilities located in twelve 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 third quarter dividend of $.425 per share or $3,805,000 in the aggregate was
paid on September 30, 1997.
For the quarters ended September 30, 1997 and 1996 net income totaled $3,342,000
and $3,466,000 or $.37 and $.39 per share on net revenues of $5,560,000 and
$5,611,000, respectively. For the nine months ended September 30, 1997 and 1996
net income totaled $10,550,000 and $10,639,000 or $1.18 and $1.19 per share on
net revenues of $17,029,000 and $16,333,000, respectively. The $51,000 decrease
in net revenue during the 1997 third quarter as compared to the comparable prior
year quarter was primarily attributable to a $113,000 decrease in interest
income, partially offset by a $36,000 increase in base rental from non-related
parties and a $27,000 increase in bonus rental from UHS facilities. The decrease
in the interest income was due to the repayment of a $6.5 million mortgage loan
receivable which was repaid in full to the Trust in June, 1997. The $696,000
increase in net revenue for the nine months ended September 30, 1997 over the
comparable prior year period was due primarily to a $679,000 increase in base
rentals from non-related parties due to the acquisitions of four preschool and
child-care centers and a multi-tenant medical office building acquired during
the second quarter of 1996.
Page Eight of Twelve Pages
<PAGE> 9
Interest expense increased $318,000 or 17% for the nine months ended September
30, 1997 as compared to the comparable prior year period due to the increased
borrowings used to finance the new investments during 1996 and 1997.
Depreciation and amortization expense increased $31,000 or 3% for the three
months ended September 30, 1997 and $102,000 or 4% for the nine months ended
September 30, 1997 over the comparable prior year periods due primarily to the
depreciation expense related to the additional property acquired by the Trust
during 1996 and 1997.
Other operating expenses decreased $33,000 or 8% during the third quarter of
1997 and increased $207,000 or 25% during the 1997 nine month period as compared
to the comparable prior year periods due primarily to the expenses related to
the medical office buildings acquired by the Trust during the second quarter of
1996. The expenses relating to the medical office buildings, which totaled
$196,000 and $245,000 for the three month periods ended September 30, 1997 and
1996 and $569,000 and $418,000 for the nine month periods ended September 30,
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. Also
included in other operating expenses was an increase in the reserve established
for future expenses related to Lake Shore Hospital amounting to $40,000 for each
of the three month periods ended September 30, 1997 and 1996 and $120,000 and
$80,000 for the nine month periods ended September 30, 1997 and 1996,
respectively.
Included in the Trust's financial results was $78,000 and $151,000 for the three
months ended September 30, 1997 and 1996 and $312,000 and $423,000 for the nine
months ended September 30, 1997 and 1996, respectively, of income generated from
the Trust's ownership in limited liability corporations which own medical office
buildings in Arizona and Kentucky.
Funds from operations ("FFO"), which is the sum of net income plus depreciation
expenses related to consolidated investments and unconsolidated affiliates, and
amortization of interest rate cap expense totaled $4.6 million and $4.5 million
for the three months ended September 30, 1997 and 1996 and $14.1 million and
$13.6 million for the nine months ended September 30, 1997 and 1996,
respectively. 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
Net cash provided by operating activities was $13.5 million in each of the nine
month periods ended September 30, 1997 and 1996.
During the first nine months of 1997, the $13.5 million of cash generated from
operating activities and the $6.5 million of cash received for the repayment
under a mortgage note receivable was primarily used to: (i) pay dividends ($11.4
million); (ii) 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 ($6.0 million); (iii) purchase a 75%
equity interest in a limited liability corporation ($1.9 million), and; (iv)
acquire additional properties ($1.4 million).
Page Nine of Twelve Pages
<PAGE> 10
As of September 30, 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 Ten of Twelve Pages
<PAGE> 11
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Universal Health Realty Income Trust 1997 Incentive Plan
27. Financial Data Schedule
(b) Reports on Form 8-K
All other items of this report are inapplicable.
Page Eleven of Twelve Pages
<PAGE> 12
UNIVERSAL HEALTH REALTY INCOME TRUST
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: November 11, 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 Twelve of Twelve Pages
<PAGE> 1
EXHIBIT 10.1
UNIVERSAL HEALTH REALTY INCOME TRUST
1997 INCENTIVE PLAN
1. Purposes. The Universal Health Realty Income Trust 1997 Incentive
Plan (the "Plan") is intended to provide a method whereby employees of Universal
Health Realty Income Trust (the "Trust"), including officers, directors,
consultants and other people who are responsible for the management and growth
of the business and who are presently making and are expected to continue making
substantial contributions to the successful management and growth of the Trust,
may be offered incentives in addition to those presently available and may be
stimulated to personal involvement in the fortunes of the Trust to continue in
the service of the Trust, thereby advancing the interests of the Trust and its
shareholders. Accordingly, the Trust may, from time to time, grant to such
employees, as may be selected in the manner hereinafter provided, on the terms
and conditions hereinafter established, (i) options (each, an "Option") to
purchase shares of the beneficial interest, par value $.01 per share, of the
Trust (the "Shares"), including incentive stock options (each, an "ISO") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute (the "Code"), (ii) dividend equivalent
rights with respect to Shares (each, a "DER") or (iii) any combination thereof.
Each such grant shall hereinafter be referred to as an "Award."
2. Administration of the Plan. The Plan shall be administered by the
Board of Trustees of the Trust (the "Board"). Subject to the provisions of the
Plan, the Board is authorized to make all determinations and to take all
actions necessary or advisable for the administration of the Plan, including
determining the persons to whom Awards are to be granted and the types and
combinations of Awards to be granted.
The interpretation and construction by the Board of any provisions of
the Plan or of any agreement or of other matters related to the Plan shall be
final. The Board may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board shall be
liable for any action or determination made in good faith with respect to the
Plan.
3. Stock Subject to the Plan. The Shares to be issued under the Plan
shall be made available either from authorized but unissued Shares or from
Shares reacquired by the Trust, including Shares purchased in the open market.
Awards and Shares issued under the Plan shall be subject to the
terms, conditions and restrictions specified in the Plan and to such other
terms, conditions and restrictions as the Board may provide.
Subject to the provisions of the succeeding paragraphs of this
Section 3, the aggregate number of Shares which may be issued with respect to
Awards under the
<PAGE> 2
Plan shall not exceed 400,000 Shares of the Trust. For purposes of this Section
3 and Section 5, each outstanding DER shall be deemed to have been issued with
respect to one Share, and such Share shall be counted against the maximum number
of Shares available under the Plan.
If, prior to the termination of the Plan, Awards issued under the Plan
shall be terminated or canceled by the Trust pursuant to the provisions hereof,
such Shares shall again become available for issuance under the Plan.
In the event that the number of outstanding Shares shall be changed by
reason of split-ups, combinations of shares, recapitalizations or stock
dividends, the number of Shares which may thereafter be available under the
Plan, the number of Shares covered by outstanding Options, the exercise prices
of Options and the number of Shares with respect to which DERs were granted will
be appropriately adjusted as determined by the Board so as to reflect any such
change, which determination shall be conclusive. In the case of a merger, sale
of assets or similar transaction which results in a replacement of the Shares
with stock of another corporation, the Trust will make a reasonable effort, but
shall not be required, to replace any outstanding Awards granted under the Plan
with comparable Awards or will provide for immediate maturity of all outstanding
Awards, with all Awards not being exercised within the time period specified by
the Board being terminated.
4. Issuance of Shares. Shares issued under the Plan may be issued for
such lawful consideration as shall be determined by the Board.
5. Eligibility for Grants. Awards may be granted under the Plan to
employees of the Trust. The term "employees" shall include officers, directors
and consultants who need not be full-time employees of the Trust, as well as
other persons who are determined by the Board to be making and/or are expected
to continue to make substantial contributions to the Trust by providing
services to the Trust, provided that only employees as determined pursuant to
the Code may be granted ISOs.
Subject to the provisions of the Plan, the Board shall have exclusive
authority, among other things, to select the employees who are to participate in
the Plan, to determine the Awards, if any, to be granted to each employee, to
determine the Shares to be covered by each Award granted, to determine the time
or times when Awards shall be exercisable and the restrictions, if any, which
may apply to Awards or Shares acquired thereunder, and to prescribe the form of
Awards granted under the Plan; provided, however, that Awards covering no more
than 100,000 Shares may be granted to any one employee per annum.
6. Termination of Employment. In the event that the holder of an Award
granted pursuant to the Plan shall cease to be employed by, or provide services
to, the Trust for any reason, any Awards granted to such person pursuant to the
Plan shall (unless the Board determines otherwise) terminate simultaneously
with the termination of employment or the cessation of services.
-2-
<PAGE> 3
No Awards granted under the Plan shall confer upon any employee to
whom an Award is granted the right to continue in the employment of, or as a
consultant to, the Trust or affect the right of the Trust to terminate any
employee's employment at any time.
7. Non-Transferability of Awards. No Award under the Plan shall be sold,
assigned, pledged, encumbered or otherwise transferred by the employee who is
granted such Award unless the Board determines otherwise.
8. Options. The Board may grant to any eligible employee Options either
in combination with DERs or as a separate Award under the Plan. Each Option
shall entitle the employee to an option to purchase Shares on terms and
conditions to be determined by the Board. The Board shall specify whether such
Option is an ISO or a nonqualified stock option (each, a "NQO"). To the extent
that any Option does not qualify as an ISO (whether because of its provisions or
the time or manner of its exercise or otherwise), such Option or the portion
thereof which does not so qualify shall constitute a separate NQO.
The exercise price of the Shares covered by each Option shall be
determined by the Board; provided, however, that the exercise price of an ISO
shall not be less than one hundred percent (100%) of the fair market value of
the Shares on the date of grant; and provided, further, that the exercise price
of an ISO granted to an employee owning more than ten percent (10%) of the total
combined voting power of the Trust (a "10% Holder") shall not be less than one
hundred ten percent (110%) of the fair market value of the Shares on the date
of grant.
The term of each Option shall be determined by the Board; provided,
however, that each ISO shall expire no later than ten (10) years after the date
of grant; and provided, further, that each ISO granted to a 10% Holder shall
expire no later than five (5) years after the date of grant.
An employee electing to exercise an Option under the Plan shall give
written notice to the Trust in person or by first class mail, postage prepaid,
of such election and of the number of Shares the employee has elected to
acquire. The exercise price of an Option under the Plan may be paid in cash, by
check, in Shares which have been held for at least six months, or any
combination thereof, or, in the Board's discretion, in the form of a promissory
note. If Shares are tendered as payment of the Option exercise price, the value
of such Shares shall be their fair market value as of the date of exercise
which shall be determined at the close of business on the date preceding such
exercise. If such tender would result in the issuance of fractional Shares, the
Trust shall instead round to the nearest whole Share. Notices of exercise shall
be accompanied by payment of the full purchase price of such Shares in cash or
by check or Shares (which Shares may be constructively tendered under such
procedures as may be set out by the Board). Each notice to the Trust shall be
addressed to it at its principal office at 367 South Gulph Road, King of
Prussia, Pennsylvania 19406, Attention: Secretary, or such other address as the
Trust shall
- 3 -
<PAGE> 4
furnish to the employee. Until the employee's written notice and payment have
been received by the Trust, the employee shall possess no shareholder rights
with respect to the Shares issued upon the exercise.
9. Dividend Equivalent Rights. The Board may grant to any eligible
employee DERs either in combination with an Option or as a separate Award under
the Plan on terms and conditions determined by the Board. On a dividend
payment date for the Shares, each employee with an outstanding DER shall be
credited with an amount equal to the cash or stock dividends or other
distributions that would have been received had the Shares covered by the Award
been issued and outstanding on the dividend record date related to such
dividend.
The Board shall determine at the time of grant whether payment
pursuant to a DER shall be immediate or deferred and if immediate, the Trust
shall make payments pursuant to each DER concurrently with the payment of the
quarterly dividend to holders of Shares. If deferred, the payment shall not be
made until a date or the occurrence of an event specified by the Board and then
shall be made within 30 days after the occurrence of the specified date or
event, unless the right is forfeited under the terms of the Plan or applicable
award grant.
With respect to DERs granted in combination with an Option, at the
time of the exercise of such Option, the employee will be required to settle
such DERs. At the employee's election, any payment to be made to the employee
upon settlement of a DER concurrently with the exercise of an Option may, at the
discretion of the Board, be offset against the exercise price of the Option. In
the event of the expiration of an Option granted in combination with a DER, the
employee shall nevertheless be entitled to settle such DER immediately following
such expiration in accordance with the Plan.
Notwithstanding anything to the contrary contained herein, neither the
Board nor the Trust shall be obligated to declare or pay dividends of any kind.
10. Amendments to the Plan. The Board may at any time alter, amend,
suspend or terminate or from time to time modify the Plan; provided, however,
that no such action shall impair any Awards theretofore granted under the Plan;
and provided, further, that no such modification without the approval of
shareholders of the Trust representing at least the majority of the votes of
the Trust represented and voting at a duly held meeting shall:
(a) increase the maximum number of Shares which may be issued under
the Plan in the aggregate; or
(b) extend the period during which Awards may be granted under the
Plan.
11. Successors and Assigns. The provisions of the Plan shall be binding
upon all successors and assigns of an employee granted Awards or acquiring
Shares under
-4-
<PAGE> 5
the Plan, including, without limitation, the estate of any such employee and the
executors, administrators or trustees of such estate, and any receiver, trustee
in bankruptcy or representative of the creditors of any such employee.
12. Effective Date and Termination Date of the Plan. The Plan shall become
effective as of [June 12], 1997, but subject, nevertheless, to (a) approval, if
required, by the shareholders representing at least a majority of the votes of
the Trust at a duly constituted meeting of shareholders, or by such greater
percentage as may from time to time be required, under the laws of the State of
Maryland and applicable rules or regulations of the New York Stock Exchange, and
(b) approvals, if required, of any other public authorities. The Plan shall
terminate on [June 11], 2007; provided, however, that Awards granted on or
before such date shall remain exercisable, in accordance with their respective
terms, after the termination of the Plan.
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 143
<SECURITIES> 0
<RECEIVABLES> 9,671
<ALLOWANCES> 5,097
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 163,175
<DEPRECIATION> 29,317
<TOTAL-ASSETS> 148,306
<CURRENT-LIABILITIES> 0
<BONDS> 43,431
0
0
<COMMON> 90
<OTHER-SE> 103,031
<TOTAL-LIABILITY-AND-EQUITY> 148,306
<SALES> 0
<TOTAL-REVENUES> 17,341
<CGS> 0
<TOTAL-COSTS> 1,839
<OTHER-EXPENSES> 2,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,146
<INCOME-PRETAX> 10,550
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,550
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
