<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, 1998
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, 1998 - 8,954,840
Page One of Twelve Pages
<PAGE> 2
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, 1998 and 1997............................. Three
Condensed Balance Sheets -- March 31, 1998
and December 31, 1997..................................................... Four
Condensed Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997................................ 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 Twelve Pages
<PAGE> 3
PART I. FINANCIAL INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
STATEMENTS OF INCOME
(amounts in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
Revenues (Note 2):
Base rental - UHS facilities $3,433 $3,433
Base rental - Non-related parties 1,576 1,290
Bonus rental 846 774
Interest 2 203
------ ------
5,857 5,700
------ ------
EXPENSES:
Depreciation & amortization 967 925
Interest expense 743 726
Advisory fees to UHS 273 269
Other operating expenses 453 334
------ ------
2,436 2,254
------ ------
Income before equity in limited liability companies 3,421 3,446
Equity in income of limited liability companies 148 212
------ ------
NET INCOME $3,569 $3,658
====== ======
NET INCOME PER SHARE - BASIC $ 0.40 $ 0.41
====== ======
NET INCOME PER SHARE - DILUTED $ 0.40 $ 0.41
====== ======
Weighted average number of shares outstanding - basic 8,952 8,952
Weighted average number of share equivalents 24 11
------ ------
Weighted average number of shares and equivalents outstanding - diluted 8,976 8,963
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page Three of Eleven Pages
<PAGE> 4
UNIVERSAL HEALTH REALTY INCOME TRUST
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS: 1998 1997
--------------- ----------------
(unaudited)
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Buildings & improvements $ 143,742 $ 143,600
Accumulated depreciation (31,242) (30,280)
--------- ---------
112,500 113,320
Land 20,255 20,255
Reserve for investment losses (106) (89)
--------- ---------
Net Real Estate Investments 132,649 133,486
OTHER ASSETS:
Cash 494 1,238
Bonus rent receivable from UHS 728 653
Rent receivable from non-related parties 152 80
Investments in limited liability companies 23,697 11,075
Deferred charges and other assets, net 185 223
--------- ---------
$ 157,905 $ 146,755
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $ 52,500 $ 41,200
Note payable to UHS 1,164 1,147
Accrued interest 195 217
Accrued expenses & other liabilities 1,133 1,130
Tenant reserves, escrows, deposits and prepaid rental 442 268
Minority interest 101 101
COMMITMENTS AND CONTINGENCIES
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: 1998 - 8,954,840
1997 - 8,954,840 90 90
Capital in excess of par value 128,653 128,650
Cumulative net income 115,690 112,121
Cumulative dividends (142,063) (138,169)
--------- ---------
Total Shareholders' Equity 102,370 102,692
---------- ---------
$ 157,905 $ 146,755
========= =========
</TABLE>
The accompanying notes are an integral part of these 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>
THREE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,569 $ 3,658
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 967 925
Amortization of interest rate cap 31 31
Provision for investment losses 75 40
Changes in assets and liabilities:
Rent receivable (147) (133)
Accrued expenses & other liabilities 3 56
Tenant escrows, deposits & deferred rents 174 11
Mortgage loan interest receivable -- (61)
Accrued interest (22) 186
Deferred charges & other (38) (34)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,612 4,679
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited liability companies (12,842) --
Acquisition of real property (142) (7)
Cash distribution in excess of income from LLCs 222 --
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 (12,762) (826)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings 11,300 --
Repayments of long-term debt -- (100)
Dividends paid (3,894) (3,806)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,406 (3,906)
-------- -------
Decrease in cash (744) (53)
Cash, beginning of period 1,238 137
-------- -------
CASH, END OF PERIOD $ 494 $ 84
======== =======
</TABLE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 717 $ 493
- --------------------------------------------------------------------------------------------
</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
MARCH 31, 1998
(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, 1997.
In February 1997, the Financial Accounts Standards Board issued Statement No.
128, "Earnings per Share" (SFAS 128). SFAS 128 establishes standards for
computing and presenting earnings per share (EPS). Basic earnings per share are
based on the weighted average number of common shares outstanding during the
year. Diluted earnings per share are based on the weighted average number of
common shares outstanding during the year adjusted to give effect to common
stock equivalents. The per share amounts for the three months ended March 31,
1997 have been restated to conform to SFAS 128.
(2) RELATIONSHIP WITH UNIVERSAL HEALTH SERVICES, INC.
During the first three months of 1998 and 1997, approximately 71% and 72%,
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, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Base rental - UHS facilities $3,433,000 $3,433,000
Base rental - Non-related parties 1,576,000 1,290,000
---------- ----------
Total base rental 5,009,000 4,723,000
---------- ----------
Bonus rental - UHS facilities 734,000 662,000
Bonus rental - Non-related parties 112,000 112,000
---------- ----------
Total bonus rental 846,000 774,000
---------- ----------
Interest - Non-related parties 2,000 203,000
---------- ----------
Total revenues $5,857,000 $5,700,000
========== ==========
</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 March 31, 1998, two of the UHS facilities did not generate
sufficient EBITDAR to cover the annual rent expense payable to the Trust. The
leases on these facilities, which mature in 2001, generated 22% of the Trust's
rental income for the twelve months ended March 31, 1998. One additional UHS
facility had EBITDAR for the twelve month period ended March 31, 1998 which was
less than 1.5 times the annual rent payable to the Trust. The lease on this
facility, which matures in 2000, generated 5% of the Trust's rental income for
the twelve month period ended March 31, 1998. Management of the Trust cannot
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. Representatives of UHS and the Trustees
who are unaffiliated with UHS have commenced informal discussions regarding the
terms under which UHS would be willing to extend the leases on those facilities
with terms expiring in 1999 through 2003, some of which have had EBITDAR of less
than 1.0 times the rent payable to the Trust. There is no assurance that an
agreement will be reached or, if an agreement is reached, what terms will be
agreed upon. 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, 1998. 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. The Trust's officers and directors have received options to purchase
shares of beneficial interest and associated dividend equivalent rights pursuant
to the terms of a new plan which has been unanimously approved by the Trust's
Board of Trustees and is contingent upon shareholder approval.
(3) DIVIDENDS
A dividend of $.435 per share or $3.9 million in the aggregate was declared by
the Board of Trustees on March 5, 1998 and was paid on March 31, 1998 to
shareholders of record as of March 16, 1998.
(4) ACQUISITIONS
During the first quarter of 1998 the Trust paid $9 million to acquire a 99%
interest in a limited liability company that owns the Desert Springs Medical
Plaza located in Las Vegas, Nevada. The medical office building which is located
on the campus of Desert Springs Hospital is master leased by the limited
liability company which owns the hospital and is guaranteed by Quorum Health
Group, Inc.
Also during the quarter, the Trust paid $3.8 million for a 95% equity interest
in a limited liability company that owns the Edwards Medical Plaza which is
located in Phoenix, Arizona. This multi-tenant medical office building is
located on the campus of the Good Samaritan Regional Medical Center.
Page Seven of Twelve Pages
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Trust has investments in twenty-eight 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 $.435 per share or $3.9 million in the aggregate
was paid on March 31, 1998. For the quarters ended March 31, 1998 and 1997, net
income totaled $3.6 million and $3.7 million or $.40 and $.41 per share (basic &
diluted), respectively.
Net revenues for the three month periods ended March 31, 1998 and 1997 were $5.9
million and $5.7 million, respectively. The $200,000 increase in net revenues
during the 1998 first quarter as compared to the 1997 quarter was due primarily
to an increase in base rentals from non-related parties due to the completion
and occupancy during the third quarter of 1997 of the Cypresswood Professional
Center, located in Houston, Texas in which the Trust has a 77% controlling
equity interest.
Interest expense increased slightly in the first quarter of 1998 as compared to
1997 and depreciation and amortization expense increased $42,000 or 5% due
primarily to the opening of the newly constructed Cypresswood Professional
Center during the third quarter of 1997.
Other operating expenses increased $119,000 to $453,000 for the three months
ended March 31, 1998 as compared to $334,000 for the three months ended March
31, 1997. Included in the Trust's other operating expenses were the expenses
related to the medical office buildings in which the Trust has a controlling
ownership interest which totaled $231,000 for the three months ended March 31,
1998 and $188,000 for the three months ended March 31, 1997. The $43,000
increase was due primarily to the operating expenses on the Cypresswood
Professional Center which was completed and opened during the third quarter of
1997. The majority of the expenses associated with the medical office buildings
are passed on directly to the tenants and are included as revenues in the
Trust's statements of income. Also included in the Trust's other operating
expenses were the expenses related to the maintenance of Lake Shore Hospital
which amounted to $75,000 and $140,000 for the three month periods ended March
31, 1998 and 1997, respectively.
Included in the Trust's financial results for the three months ended March 31,
1998 and 1997 was $148,000 and $212,000 of income generated from the Trust's
ownership in limited liability companies which own medical office buildings in
Arizona and Kentucky.
Funds from operations ("FFO"), which is the sum of net income plus depreciation
expense for consolidated investments and unconsolidated investments and
amortization of interest rate cap expense, totaled $4.8 million for the three
months ended March 31, 1998 and $4.7 million for the three months ended March
31, 1997. 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.
Page Eight of Twelve Pages
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.6 million for the three months
ended March 31, 1998 and $4.7 million for the three months ended March 31, 1997.
During the first three months of 1998, the $4.6 million of cash generated from
operating activities and the $11.3 million of additional borrowings were used
primarily to: (i) purchase a 99% interest in a limited liability company that
owns the Desert Springs Medical Plaza located in Las Vegas, Nevada ($9.0
million); (ii) purchase a 95% equity interest in a limited liability company
that owns the Edwards Medical Plaza in Phoenix, Arizona ($3.8 million), and;
(iii) pay dividends ($3.9 million).
As of March 31, 1998 the Trust had approximately $14 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.
GENERAL
The matters discussed in this report, as well as the news releases issued from
time to time by the Trust, include certain statements containing the words
"believes", "anticipates", "intends", "expects", and words of similar import,
which constitute "forward-looking statements", within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance achievements of the Trust or industry results to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the fact that a substantial portion of the Trust's revenues
are dependent on one operator, Universal Health Services, Inc., ("UHS") and that
a substantial portion of the Trust's leases 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 system, 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. The Trust disclaims any obligation to update any such factors or to
publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
Page Nine of Twelve Pages
<PAGE> 10
Management of the Trust cannot 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.
Representatives of UHS and the Trustees who are unaffiliated with UHS have
commenced informal discussions regarding the terms under which UHS would be
willing to extend the leases on those facilities with terms expiring in 1999
through 2003, some of which have had EBITDAR of less than 1.0 times the rent
payable to the Trust (see Note 2). There is no assurance that an agreement will
be reached or, if an agreement is reached, what terms will be agreed upon. 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.
Management of the Trust recognizes the need to evaluate the impact on its
operations of the change to calendar year 2000 and does not expect the total
cost of required building related modifications to have a material impact on its
results of operations. For the three month periods ended March 31, 1998 and
1997, approximately 71% and 72%, respectively, of the Trust's
revenues were earned under the terms of the leases with wholly-owned
subsidiaries of UHS. In 1997, UHS began establishing processes for evaluating
and managing the risks and costs associated with this problem. These processes
include arrangements with UHS's major outsourcing vendor to modify its computer
system programming to allow for year 2000 processing capability. Such
modifications are expected to be completed by the end of 1998. UHS also expects
that certain medical and related equipment that cannot be made year 2000
compliant will need to be replaced, but does not expect the cost of such
replacement to be material. Management of the Trust cannot estimate the
magnitude of calendar year 2000 related issues on the operations of its
non-related tenants and no estimates can be given on the potential adverse
impact on the Trust's results of operations resulting from failure of its
non-related tenants to adequately prepare for the year 2000.
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 Bylaws of Universal Health Realty Income Trust as amended.
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
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, 1998 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
---------------
BYLAWS
---------------
Adopted as of August 7, 1986
As Amended on December 1, 1988
As Amended on June 23, 1997
----------------------------------------------------------
<PAGE> 2
INDEX OF BYLAWS
OF
UNIVERSAL HEALTH REALTY INCOME TRUST, INC.
ARTICLE I - TRUSTEES
Section No. Page
- ----------- ----
1.1 Fiduciary Duty........................................................1
1.2 Qualifying Shares Not Required........................................1
1.3 Quorum................................................................1
1.4 Number and Term; Election.............................................1
1.5 Place of Meeting......................................................1
1.6 Organizational Meetings...............................................1
1.7 Regular Meetings......................................................2
1.8 Special Meetings......................................................2
1.9 Adjourned Meetings....................................................2
1.10 Waiver of Notice......................................................2
1.11 Action Without Meeting................................................3
1.12 Telephone Meetings....................................................3
1.13 Committee Rules.......................................................3
ARTICLE II - OFFICERS
2.1 Enumeration...........................................................4
2.2 Powers and Duties of the Chairman.....................................4
2.3 Powers and Duties of the President....................................4
2.4 Powers and Duties of Vice-President...................................4
2.5 Duties of the Secretary...............................................4
2.5(a) Minutes...............................................................4
2.5(b) Books and other Records...............................................5
2.5(c) Share Register........................................................5
2.5(d) General Duties........................................................5
2.6 Duties of the Treasurer...............................................5
-i-
<PAGE> 3
ARTICLE III - SHAREHOLDERS
Section Page
- ------- ----
3.1 Effect of Quorum......................................................5
3.2 Place of Meeting......................................................5
3.3 Annual Meeting........................................................6
3.4 Special Meetings......................................................6
3.5 Notice of Regular or Special Meetings.................................6
3.6 Notice of Adjourned Meetings..........................................7
3.7 Proxies...............................................................7
3.8 Consent of Absentees..................................................7
3.9 Voting Rights.........................................................7
ARTICLE IV - ADVISOR
4.1 Term..................................................................8
4.2 Other Activities of Advisor...........................................8
4.3 Advisor Compensation..................................................9
4.4 Annual Total Operating Expenses.......................................9
ARTICLE V - INVESTMENT POLICY AND POLICIES
WITH RESPECT TO CERTAIN DISTRIBUTIONS
TO SHAREHOLDERS
5.1 Statement of Policy..................................................11
5.2 Prohibited Investments and Activities................................12
5.3 Appraisals...........................................................13
5.4 Change in Investment Policies........................................13
ARTICLE VI - MISCELLANEOUS
6.1 Record Dates and Closing of Transfer Books...........................13
6.2 Inspection of Bylaws.................................................13
-ii-
<PAGE> 4
ARTICLE VII - AMENDMENTS
Section Page
- ------- ----
7.1 By Trustees..........................................................14
ARTICLE VIII - DEFINITIONS
8.1 Definitions..........................................................14
ARTICLE IX - FISCAL YEAR
9.1 Fiscal Year.........................................................14
-iii-
<PAGE> 5
ARTICLE I
TRUSTEES
SECTION 1.1 Fiduciary Duty. The Trustees shall have a
fiduciary duty to the Shareholders of the Trust.
SECTION 1.2 Qualifying Shares Not Required. Trustees need not
be Shareholders of Universal Health Realty Income Trust (the "Trust").
SECTION 1.3 Quorum. A majority of the Trustees shall
constitute a quorum subject to the provisions of Section 2.6 of the Trust's
Declaration of Trust, as it may be amended from time to time (the
"Declaration").
SECTION 1.4 Number and Term; Election. The number and terms of
the Trustees shall be as provided in Section 2.1 of the Declaration. Trustees
shall be elected at Annual Meetings of Shareholders as provided in Section 2.1
of the Declaration. If Trustees are not so elected at an Annual Meeting or if
such meeting is not held, Trustees may be elected at a special meeting of
Shareholders.
SECTION 1.5 Place of Meeting. Meetings of the Trustees shall
be held at the principal office of the Trust or at such place within or without
the State of Maryland as the Chairman or the President shall direct or as is
fixed from time to time by resolution of the Trustees. Whenever a place other
than the principal office is fixed by the Chairman or the President or by
resolution as the place at which future meetings are to be held, written notice
thereof shall be sent to all Trustees a reasonable time in advance of any
meeting to be held at such place.
SECTION 1.6 Organizational Meetings. Immediately following
each Annual Meeting of Shareholders, a regular meeting of the Trustees shall be
held for the purpose of organizing, electing officers and transacting other
business. Notice of such meetings need not be given.
-1-
<PAGE> 6
SECTION 1.7 Regular Meetings. Regular meetings of the Trustees
shall be held at the place determined pursuant to Section 1.4 hereof on the
dates, if any, established at each organizational meeting of the Trustees and
notice of such regular meetings of the Trustees is hereby dispensed with.
SECTION 1.8 Special Meetings. Special meetings of the Trustees
may be called at any time by the Chairman or President, and the Chairman or
President shall call a special meeting at any time upon the written request of
three (3) Trustees. Written notice of the time and place of a special meeting
shall be given to each Trustee, either personally or by sending a copy thereof
by mail or by telegraph, charges prepaid, to his address appearing on the books
of the Trust or theretofore given by him to the Trust for the purpose of notice.
In case of personal service, such notice shall be so delivered at least
twenty-four (24) hours prior to the time fixed for the meeting. If such notice
is mailed, it shall be deposited in the United States mail in the place in which
the principal office of the Trust is located at least seventy-two (72) hours
prior to the time fixed for the holding of the meeting. If telegraphed, it shall
be delivered to the telegraph company at least forty-eight (48) hours prior to
the time fixed for the holding of the meeting. If notice is not so given by the
Secretary, it may be given in the same manner by the Chairman, President or the
Trustees requesting the meeting.
SECTION 1.9 Adjourned Meetings. A quorum of the Trustees may
adjourn any Trustees' meeting to meet again at a stated day and hour. In the
absence of a quorum, a majority of the Trustees present may adjourn from time to
time to meet again at a stated day and hour prior to the time fixed for the next
regular meeting of the Trustees. The motion for adjournment shall be lodged with
the records of the Trust. Notice of the time and place of an adjourned meeting
need not be given to any Trustee present at the adjourned meeting if the time
and place is fixed at the meeting adjourned.
SECTION 1.10 Waiver of Notice. The transactions of any meeting
of the Trustees, however called and noticed or wherever held, shall be as valid
as though had at a meeting duly held after regular call and notice if a quorum
is present and if, either before or after the meeting, each of the Trustees not
present signs a written waiver of notice, a consent to the
-2-
<PAGE> 7
holding of such meeting or an approval of the minutes thereof. All such waivers,
consents or approvals shall be lodged with the Trust records or made a part of
the minutes of the meeting.
SECTION 1.11 Action Without Meeting. Unless specifically
otherwise provided in the Declaration, any action required or permitted to be
taken by the Trustees may be taken without a meeting if a majority of the
Trustees (or a majority of the Independent Trustees as to any action which
requires such a majority) shall individually or collectively consent in writing
to such action. Such written consent or consents shall be lodged with the
records of the Trust and shall have the same force and effect as the affirmative
vote of such Trustees at a duly held meeting of the Trustees at which a quorum
were present.
SECTION 1.12 Telephone Meetings. The Trustees may meet by
means of a telephone conference circuit or similar communications equipment by
means of which all persons participating in the meeting shall be able to hear
one another and participate therein. Such meeting shall be deemed to have been
held at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting.
SECTION 1.13 Committee Rules. Unless the Trustees otherwise
provide, each committee designated by the Trustees pursuant to Section 2.8 of
the Declaration may adopt, amend and repeal rules for the conduct of such
committee's business. In the absence of a provision by the Trustees or a
provision in the rules of such committee to the contrary, a majority of the
entire authorized number of members of such committee shall constitute a quorum
for the transaction of business, the vote of a majority of the members present
at a meeting at the time of such vote if a quorum is then present shall be the
act of such committee, and in other respects each committee shall conduct its
business in the same manner as the Trustees conduct their business pursuant to
Article II of the Declaration and this Article I of these Bylaws.
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<PAGE> 8
ARTICLE II
OFFICERS
SECTION 2.1 Enumeration. The officers of the Trust shall be a
President, a Secretary, a Treasurer, and such other officers as are elected by
the Trustees including, in their discretion, a Chairman and one or more
assistant secretaries and assistant treasurers, with such duties as are assigned
to them by the Trustees. Officers shall be elected by and shall hold office at
the pleasure of the Trustees. When the duties do not conflict, any two or more
officers, except those of Chairman and/or President and Secretary, may be held
by the same person.
SECTION 2.2 Powers and Duties of the Chairman. The Chairman,
if there shall be such an officer, shall, if present, preside at all meetings of
the Shareholders and the Trustees and may be the chief executive officer of the
Trust if the Trustees so elect.
SECTION 2.3 Powers and Duties of the President. Subject to
such supervisory powers, if any, as may be given by the Trustees to the
Chairman, the President shall, subject to the control of the Trustees and the
supervision of the Chairman, have general supervision, direction and control of
the business of the Trust and its employees and shall exercise such general
powers of management as are usually vested in the office of president of a
corporation. In the absence of the Chairman, or if there be none, he shall
preside at all meetings of the Shareholders and/or Trustees and, unless the
Chairman has been designated as chief executive officer, shall be chief
executive officer of the Trust. He shall be, ex officio, a member of all
standing committees.
SECTION 2.4 Powers and Duties of Vice-President. Each
Vice-President, if any, designated by the Trustees shall be an administrative
officer of the Trust and have such duties as are designated by the President or
the Trustees.
SECTION 2.5 Duties of the Secretary. The Secretary shall:
(a) Minutes. Keep full and complete minutes of the
meetings (or actions in lieu thereof) of the Trustees, any
committees of the Trustees and the Shareholders and give
notice, as required, of all such meetings;
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<PAGE> 9
(b) Books and Other Records. Maintain custody of and
keep the books of account and other records of the Trust
except such as are in the custody of the Treasurer;
(c) Share Register. Maintain at the principal office
of the Trust a share register, showing the ownership and
transfers of ownership of all shares of the Trust, unless a
transfer agent is employed to maintain and does maintain such
a share register; and
(d) General Duties. Generally, perform all duties
which pertain to his office and which are required by the
Trustees.
An Assistant Secretary or Secretaries may be appointed to
assist, or to act in the absence of, the Secretary.
SECTION 2.6 Duties of the Treasurer. The Treasurer shall
perform all duties which pertain to his office and which are required by the
Trustees, including without limitation the receipt, deposit and disbursement of
funds belonging to the Trust.
An Assistant Treasurer or Treasurers may be appointed to
assist, or to act in the absence of, the Treasurer.
ARTICLE III
SHAREHOLDERS
SECTION 3.1 Effect of Quorum. Subject to the provisions of the
Declaration, the Shareholders present at a duly called or held meeting at which
a quorum is present (such quorum determined pursuant to Section 3.9 of the
Declaration) may continue to do business until adjournment notwithstanding the
withdrawal of enough Shareholders so that the remaining Shareholders constitute
less than a quorum.
SECTION 3.2 Place of Meeting. Meetings of the Shareholders
shall be held at the principal office of the Trust or at such place within or
without the State of Maryland as is designated by the Trustees or the Chairman
or President or by the written consent of a majority
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<PAGE> 10
of the Shareholders entitled to vote thereat, given either before or after the
meeting and filed with the Secretary of the Trust.
SECTION 3.3 Annual Meeting. A regular Annual Meeting of the
Shareholders shall be called by the Chairman or President after the end of each
fiscal year, commencing with the fiscal year ending December 31, 1986.
SECTION 3.4 Special Meetings. Special meetings of the
Shareholders may be held at any time for any purpose or purposes permitted by
the Declaration and shall be called as provided in Section 3.9 of the
Declaration.
SECTION 3.5 Notice of Regular or Special Meetings. Written
notice specifying the place, day and hour of any regular or special meeting, the
purposes of the meeting, and all other matters required by law shall be given to
each Shareholder of record entitled to vote, either personally or by sending a
copy thereof by mail or telegraph, charges prepaid, to his or her address
appearing on the books of the Trust or theretofore given by him or her to the
Trust for the purpose of notice or, if no address appears or has been given,
addressed to the place where the principal office of the Trust is situated. It
shall be the duty of the Secretary to give notice of each Annual Meeting of the
Shareholders at least fifteen (15) days and not more than sixty (60) days before
the date on which it is to be held. Whenever an officer has been duly requested
to call a special meeting of Shareholders, it shall be his duty to fix the date
and hour thereof, which date shall be not less than twenty (20) days and not
more than sixty (60) days after the receipt of such request if the request has
been delivered in person or after the date of mailing the request, as the case
may be, and to give notice of such special meeting within ten (10) days after
receipt of such request. If the date of such special meeting is not so filed and
notice thereof given within ten (10) days after the date of receipt of the
request, the date and hour of such meeting may be fixed by the person or persons
calling or requesting the meeting and notice thereof shall be given by such
person or persons not less than twenty (20) nor more than sixty (60) days before
the date on which the meeting is to be held.
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<PAGE> 11
SECTION 3.6 Notice of Adjourned Meetings. It shall not be
necessary to give notice of the time and place of any adjourned meeting or of
the business to be transacted thereat other than by announcement at the meeting
at which such adjournment is taken, except that when a meeting is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.
SECTION 3.7 Proxies. The appointment of a proxy or proxies for
any meeting of Shareholders entitled to vote shall be made by an instrument in
writing executed by the Shareholder or his duly authorized agent and filed with
such officer of the Trust as the Trustees shall have designated for such purpose
for verification prior to such meeting. No proxy shall be valid after the
expiration of eleven (11) months from the date of its execution. At a meeting of
Shareholders all questions concerning the qualification of voters, the validity
of proxies, and the acceptance or rejection of votes, shall be decided by the
Secretary of the meeting unless inspectors of election are appointed pursuant to
Section 3.10 hereof in which event such inspectors shall pass upon all questions
and shall have all other duties specified in said section.
SECTION 3.8 Consent of Absentees. The transactions of any
meeting of Shareholders, either annual, special or adjourned, however called and
noticed, shall be as valid as though had at a meeting duly held after the
regular call and notice if a quorum is present and if, either before or after
the meeting, each Shareholder entitled to vote, not present in person or by
proxy, signs a written waiver of notice, a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be lodged with the Trust records or made a part of the minutes
of the meeting.
SECTION 3.9 Voting Rights. If no date is fixed for the
determination of the Shareholders entitled to vote at any meeting of
Shareholders, only persons in whose names Shares entitled to vote are registered
on the share records of the Trust at the opening of business on the day of any
meeting of Shareholders shall be entitled to vote at such meeting.
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<PAGE> 12
ARTICLE IV
ADVISOR
SECTION 4.1 Term. The Trustees shall not enter into any
advisory contract with the Advisor unless such contract has an initial term of
not more than one year, provides for annual renewal or extension thereafter,
provides for termination thereof by the Trustees without cause at any time upon
sixty (60) days' written notice by the Trustees, by affirmative vote or written
consent of a majority of the Independent Trustees, and provides for termination
thereof by the Advisor without cause at any time after the expiration of a
period specified in such contract (which period shall not be shorter than the
original term) without penalty upon sixty (60) days' written notice by the
Advisor. In the event of the termination of an advisory contract, the terminated
Advisor shall be required to cooperate with the Trust and take all reasonable
steps requested to assist the Trustees in making an orderly transition of the
advisory function. It shall be the duty of the Trustees annually to evaluate the
performance of the Advisor, and the Trustees have a fiduciary duty to the
Shareholders to supervise the relationship of the Trust with the Advisor.
SECTION 4.2 Other Activities of Advisor. The Advisor shall not
be required to administer the Trust as its sole and exclusive function and may
have other business interests and may engage in other activities similar or in
addition to those relating to the Trust, including the rendering of advice or
services of any kind to other investors or any other Persons (including other
REITs) and the management of other investments. The Trustees may request the
Advisor to engage in certain other activities which complement the Trust's
investments, and the Advisor may receive compensation or commissions therefor
from the Trust or other Persons.
Neither the Advisor nor (subject to any applicable provisions
of Section 4.8 of the Declaration) any Affiliate of the Advisor shall be
obligated to present any particular investment opportunities to the Trust, even
if such opportunities are of a character such that, if presented to the Trust,
they could be taken by the Trust, and, subject to the foregoing, each of them
shall be protected in taking for its own account or recommending to others any
such particular investment opportunity.
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<PAGE> 13
SECTION 4.3 Advisor Compensation. The Trustees, including a
majority of the Independent Trustees, shall at least annually review generally
the performance of the Advisor in order to determine whether the compensation
which the Trust has contracted to pay to the Advisor is reasonable in relation
to the nature and quality of services performed and whether the provisions of
the advisory contract with the Advisor are being carried out. Each such
determination shall be based on such of the following and other factors as the
Trustees (including the Independent Trustees) deem appropriate and shall be
reflected in the minutes of the meetings of the Trustees:
(a) the size of the advisory fee in relation to the
size, composition and profitability of the portfolio of the
Trust;
(b) the success of the Advisor in generating
opportunities that meet the investment objectives of the
Trust;
(c) the rates charged to other REITs and to investors
other than REITs by advisors performing similar services;
(d) additional revenues realized by the Advisor and
its Affiliates through their relationship with the Trust,
including loan administration, underwriting or brokerage
commissions and servicing, engineering, inspection and other
fees, whether paid by the Trust or by others with whom the
Trust does business;
(e) the quality and extent of service and advice
furnished by the Advisor;
(f) the performance of the investment portfolio of
the Trust, including income, conservation or appreciation of
capital, frequency of problem investments and competence in
dealing with distress situations; and
(g) the quality of the portfolio of the Trust in
relationship to any investments generated by the Advisor for
its own account.
SECTION 4.4 Annual Total Operating Expenses. Each advisory
contract with an Advisor shall provide that the Total Operating Expenses of the
Trust shall not exceed in any fiscal year the lower of:
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<PAGE> 14
(a) the greater of (i) two percent (2%) of the
Average Invested Real Estate Assets for such fiscal year or
(ii) twenty-five percent (25%) of the Net Income for such
fiscal year (calculated before the deduction therefrom of such
Total Operating Expenses); or
(b) the lowest of any applicable operating expense
limitations that may be imposed by law or regulation in a
state in which any securities of the Trust are or will be
qualified for sale or by a national securities exchange on
which any securities of the Trust are or may be listed, as
such limitations may be altered from time to time.
The Independent Trustees shall at least annually determine
whether the total fees and expenses of the Trust are reasonable in light of the
investment experience of the Trust, its Net Assets, its Net Income and the fees
and expenses of comparable REITs. Each such determination shall be reflected in
the minutes of meetings of the Trustees.
Within sixty (60) days after the end of any fiscal quarter of
the Trust ending on or after December 31, 1986, for which Total Operating
Expenses (for the twelve months then ended) exceed either of the expense
limitations provided in subparagraphs (a) or (b) of this Section 4.5, the Trust
shall send to the Shareholders a written disclosure of such fact, together with
an explanation of the factors, if any, which the Trustees (including a majority
of the Independent Trustees) have concluded were sufficiently unanticipated,
unusual or nonrecurring to justify such higher Total Operating Expenses.
Each advisory contract with the Advisor shall provide that in
the event that the Total Operating Expenses exceed any of the limitations
provided in this Section 4.5, then the Advisor shall refund to the Trust (which
refund may be accomplished, at the option of the Trust, by a reduction of the
Advisor's compensation) the amount by which the aggregate annual Total Operating
Expenses paid or incurred by the Trust exceed the limitations herein; provided,
however, that with respect to the limitations provided in subparagraphs (a) or
(b) of this Section 4.5, only so much of such excess need be refunded as the
Trustees, including a majority of the Independent Trustees, shall have found to
be unjustified as provided above.
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<PAGE> 15
ARTICLE V
INVESTMENT POLICY AND POLICIES
WITH RESPECT TO CERTAIN
DISTRIBUTIONS TO SHAREHOLDERS
SECTION 5.1 Statement of Policy. It shall be the general
objectives of the Trust (i) to provide current income for distribution to
Shareholders through investments in income-producing, health care-related
facilities, (ii) to provide Shareholders with the opportunity for additional
returns through participation in any increases in the operating revenues of
income-producing, health care-related facilities and (iii) to preserve and
protect Shareholders' capital. These general objectives shall be pursued in a
manner consistent with the investment policies specified in the remainder of
this Section 5.1.
While the Trustees are authorized pursuant to the Declaration
to invest the Trust Estate in a wide variety of investments, it shall be the
policy of the Trustees to invest the major portion of the Trust Estate in
income-producing health care-related facilities including, acute care,
rehabilitative care, long-term care and psychiatric and substance abuse recovery
facilities, retirement housing facilities, custodial care facilities, medical
care office buildings, and ancillary support facilities associated with any of
the foregoing.
The Trust may make secured or unsecured borrowings to make
permitted additional Real Estate Investments and secured or unsecured borrowings
for normal working capital needs, including the repair and maintenance of
properties in which it has invested, tenant improvements and leasing
commissions. The Trust may make such borrowings from third parties or, subject
to approval by a majority of the Independent Trustees, from Affiliates of the
Advisor. Interest and other financing charges or fees to be paid on loans from
such Affiliates will not exceed the interest and other financing charges or fees
which would be charged by third party financing institutions on comparable loans
for the same purpose in the same geographic area.
To the extent that the Trust Estate has assets not otherwise
invested in accordance with this Section 5.1, subject to Section 8-302 of the
Corporations and Associations Article of the Annotated Code of Maryland, the
Trust may invest in such assets as the Advisor and/or the Trustees shall
determine.
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<PAGE> 16
It shall be the policy of the Trustees to make investments in
such manner as to comply with the requirements of the Internal Revenue Code with
respect to the composition of the investments and the derivation of the income
of a real estate investment trust as defined in the REIT Provisions of the
Internal Revenue Code; provided, however, that no Trustee, officer, employee or
agent of the Trust shall be liable for any act or omission resulting in the loss
of tax benefits under the Internal Revenue Code, except for that arising from
his own willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
SECTION 5.2 Prohibited Investments and Activities. The
Trustees shall not engage in any of the following investment practices or
activities:
(a) investing in any junior mortgage loan unless (i)
the capital invested in such mortgage loan is adequately
secured on the basis of the equity of the borrower in the
property underlying such investment and the ability of the
borrower to repay the mortgage loan, or (ii) such loan is a
financing device entered into by the Trust to establish the
priority of its capital investment over the capital invested
by others investing with the Trust in a real estate project;
(b) investing in commodities or commodity futures
contracts, other than interest rate futures, when used solely
for hedging purposes;
(c) investing in contracts for the purchase of real
estate, unless such contracts are recordable in the chain of
title;
(d) issuing Securities that are redeemable at the
option of the holders thereof;
(e) underwriting or distributing as agent securities
issued by others;
(f) investing more than ten percent (10%) of the
Trust's assets in unimproved real property;
(g) engaging in trading, as compared with investment
activities;
(h) making secured and unsecured borrowings which in
the aggregate exceed 300% of the Net Assets of the Trust,
unless approved by a majority of the Independent Trustees and
disclosed in the next quarterly report of the Trust, along
with an explanation for such excess;
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<PAGE> 17
(i) any activity that would disqualify the Trust as a
real estate investment trust under the provisions of the Code;
or
(j) using or applying for farming, agriculture,
horticulture or similar purposes in violation of Section
8-302(b) of the Corporations and Associations Article of the
Annotated Code of Maryland.
SECTION 5.3 Appraisals. If the Trustees shall at any time
purchase Real Property, or interests therein, the consideration paid therefor
shall generally be based upon the fair market value thereof as determined by an
appraisal by a person who is not an Affiliate of the Trust or the Advisor and
who is, in the sole judgment of the Trustees, properly qualified to make such a
determination.
SECTION 5.4 Change in Investment Policies. Notwithstanding
anything to the contrary contained herein, the investment policies set out in
this Article V may be changed by a vote of a majority of the Trustees, including
a majority of the Independent Trustees without any shareholder vote.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Record Dates and Closing of Transfer Books.
Pursuant to the Declaration, the Trustees may fix record dates for specified
purposes. If a record date is so fixed, only Shareholders of record on the date
so fixed shall be entitled to the rights to which the record date pertains.
SECTION 6.2 Inspection of Bylaws. The Trustees shall keep at
the principal office for the transaction of business of the Trust the original
or a copy of the Bylaws as amended or otherwise altered to date, certified by
the Secretary, which shall be open to inspection by the Shareholders at all
reasonable times during office hours.
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<PAGE> 18
ARTICLE VII
AMENDMENTS
SECTION 7.1 By Trustees. Except for any change for which the
Declaration requires approval by more than a majority vote, these Bylaws may be
amended or repealed or new or additional Bylaws may be adopted by the vote or
written consent of a majority of the Trustees.
ARTICLE VIII
DEFINITIONS
SECTION 8.1 Definitions. All terms defined in the Declaration
shall have the same meaning when used in these Bylaws.
ARTICLE IX
FISCAL YEAR
SECTION 9.1 Fiscal Year. The fiscal year of the Trust shall be
the calendar year.
-14-
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