<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, 1999
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 April 30, 1999 -
8,955,465
Page One of Fifteen 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, 1999 and 1998...................................................Three
Condensed Balance Sheets -- March 31, 1999
and December 31, 1998............................................................................Four
Condensed Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998.......................................................Five
Notes to Condensed Financial Statements.................................................Six, Seven & Eight
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................Nine, Ten, Eleven, Twelve & Thirteen
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...............................Thirteen
PART II. OTHER INFORMATION AND SIGNATURE ............................................. Fourteen & Fifteen
</TABLE>
Page Two of Fifteen Pages
<PAGE> 3
PART I. FINANCIAL INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenues (Note 2):
Base rental - UHS facilities $3,443 $3,433
Base rental - Non-related parties 1,600 1,576
Bonus rental 779 846
Interest 234 2
------ ------
6,056 5,857
------ ------
EXPENSES:
Depreciation & amortization 947 967
Interest expense 1,021 743
Advisory fees to UHS 300 273
Other operating expenses 528 453
------ ------
2,796 2,436
------ ------
Income before equity in limited liability companies 3,260 3,421
Equity in income of limited liability companies 668 148
------ ------
NET INCOME $3,928 $3,569
====== ======
NET INCOME PER SHARE - BASIC $ 0.44 $ 0.40
====== ======
NET INCOME PER SHARE - DILUTED $ 0.44 $ 0.40
====== ======
Weighted average number of shares outstanding - basic 8,953 8,952
Weighted average number of share equivalents 25 24
------ ------
Weighted average number of shares and equivalents outstanding - diluted 8,978 8,976
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page Three of Fifteen Pages
<PAGE> 4
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS: 1999 1998
---- ----
(unaudited)
<S> <C> <C>
REAL ESTATE INVESTMENTS:
Buildings & improvements $ 142,840 $ 142,871
Accumulated depreciation (34,947) (34,006)
--------- ---------
107,893 108,865
Land 21,061 21,061
Construction in progress 28 28
Reserve for investment losses (204) (116)
--------- ---------
Net Real Estate Investments 128,778 129,838
--------- ---------
Investments in and advances to limited liability companies 32,358 38,165
OTHER ASSETS:
Cash 375 572
Bonus rent receivable from UHS 710 681
Rent receivable from non-related parties 88 24
Deferred charges and other assets, net 458 126
--------- ---------
$ 162,767 $ 169,406
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $ 58,400 $ 64,800
Note payable to UHS 1,234 1,216
Accrued interest 258 281
Accrued expenses & other liabilities 1,082 1,300
Tenant reserves, escrows, deposits and prepaid rents 459 374
Minority interest 85 87
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: 1999 - 8,955,465
1998 - 8,955,465 90 90
Capital in excess of par value 128,688 128,685
Cumulative net income 130,386 126,458
Cumulative dividends (157,915) (153,885)
--------- ---------
Total Shareholders' Equity 101,249 101,348
--------- ---------
$ 162,767 $ 169,406
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page Four of Fifteen Pages
<PAGE> 5
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Cash Flows
(amounts in thousands, unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,928 $ 3,569
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 947 967
Amortization of interest rate cap 31 31
Changes in assets and liabilities:
Rent receivable (93) (147)
Accrued expenses & other liabilities (135) 3
Tenant escrows, deposits & prepaid rents 85 174
Accrued interest 23 (22)
Deferred charges & other 64 37
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,850 4,612
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in limited liability companies (1,243) (12,842)
Repayment of advances received from limited liability companies 6,890 --
Capital expenditures, net of dispositions (258) (142)
Cash distributions in excess of income from LLCs 160 222
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,549 (12,762)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings -- 11,300
Repayments of long-term debt (6,400) --
Dividends paid (4,030) (3,894)
Payment of financing costs (166) --
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,596) 7,406
-------- --------
Decrease in cash (197) (744)
Cash, beginning of period 572 1,238
-------- --------
CASH, END OF PERIOD $ 375 $ 494
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 995 $ 717
======== ========
</TABLE>
See accompanying notes to these condensed financial statements.
Page Five of Fourteen Pages
<PAGE> 6
UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1998. Certain prior year amounts have been reclassified to
conform with current year financial statement presentation.
In this Quarterly Report on Form 10-Q the term "revenues" does not include the
revenues of the unconsolidated limited liability companies in which the Trust
has various non-controlling equity interests ranging from 33% to 99%. The Trust
accounts for its share of the income/loss from these investments by the equity
method.
(2) RELATIONSHIP WITH UNIVERSAL HEALTH SERVICES, INC.
During the first three months of 1999 and 1998, approximately 69% and 71%,
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, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Base rental - UHS facilities $3,443,000 $3,433,000
Base rental - Non-related parties 1,600,000 1,576,000
---------- ----------
Total base rental 5,043,000 5,009,000
---------- ----------
Bonus rental - UHS facilities 722,000 734,000
Bonus rental - Non-related parties 57,000 112,000
---------- ----------
Total bonus rental 779,000 846,000
---------- ----------
Interest - Non-related parties 234,000 2,000
---------- ----------
Total revenues $6,056,000 $5,857,000
========== ==========
</TABLE>
UHS owned approximately 8% percent of the Trust's outstanding shares of
beneficial interest as of March 31, 1999. 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's officers are all employees of
UHS.
Page Six of Fifteen Pages
<PAGE> 7
UHS of Delaware, Inc. (the "Advisor"), a wholly-owned subsidiary of UHS, serves
as Advisor to the Trust under an Advisory Agreement dated December 24, 1986
between the Advisor and the Trust (the "Advisory Agreement"). The Advisory
Agreement expires on December 31 of each year, however, it is renewable by the
Trust, subject to a determination by the Trustees who are unaffiliated with UHS,
that the Advisor's performance has been satisfactory. The Advisory Agreement may
be terminated for any reason upon sixty days written notice by the Trust or the
Advisor. The Advisory Agreement has been renewed for 1999. The Advisory
Agreement provides that the Advisor is entitled to receive an annual advisory
fee equal to .60% of the average invested real estate assets of the Trust, as
derived from its consolidated balance sheet from time to time. The Advisory fee
is payable quarterly, subject to adjustment at year end based upon audited
financial statements of the Trust. Advisory fees paid to UHS amounted to
$300,000 and $273,000 for the three month periods ended March 31, 1999 and 1998,
respectively.
(3) DIVIDENDS
A dividend of $.45 per share or $4.0 million in the aggregate was declared by
the Board of Trustees on March 8, 1999 and was paid on March 31, 1999 to
shareholders of record as of March 15, 1999.
(4) ACQUISITIONS
During the first quarter of 1999, the Trust paid $1.2 million to acquire a 95%
interest in a limited liability company that owns the Santa Fe Professional
Plaza. The Santa Fe Professional Plaza is a multi-tenant medical office building
located near the campus of the Scottsdale Healthcare Shea Hospital in
Scottsdale, Arizona.
(5) NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective as of the beginning of fiscal years beginning after
June 15, 1999. A company may also implement the Statement as of the beginning of
any fiscal quarter after the issuance. Statement 133 cannot be applied
retroactively. Statement 133 must be applied to: (a) derivative instruments,
and; (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantially modified after December 31, 1997 (and at the
company's election, before January 1, 1998).
The Trust expects to adopt Statement 133 in January 2000 and has not yet
quantified the impact on its financial statements. However, the Statement could
increase the volatility in earnings and other comprehensive income.
Page Seven of Fifteen Pages
<PAGE> 8
(6) SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The following table represents summarized unaudited financial information of the
limited liability companies ("LLCs") accounted for by the equity method. Amounts
presented include investments in the following LLCs as of March 31, 1999:
<TABLE>
<CAPTION>
Name of LLC Property Owned by LLC
----------- ---------------------
<S> <C>
DSMB Properties Desert Samaritan Hospital MOBs
DVMC Properties Desert Valley Medical Center MOBs
Parkvale Properties Maryvale Samaritan Hospital MOBs
Suburban Properties Suburban Medical Center MOBs
Litchvan Investments Samaritan West Valley Medical Center
Paseo Medical Properties II Thunderbird Paseo Medical Plaza
Willetta Medical Properties Edwards Medical Plaza
DesMed Desert Springs Medical Plaza
PacPal Investments Pacifica Palms Medical Plaza
RioMed Investments Rio Rancho Medical Center
West Highland Holdings St. Jude Heritage Health Complex
Santa Fe Scottsdale Santa Fe Professional Plaza
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
---- ----
(amounts in thousands)
<S> <C> <C>
Revenues $3,806 $1,715
Expenses 2,997 1,539
Net income 809 176
UHT's share of net income 668 148
</TABLE>
As of March 31, 1999, these LLCs had approximately $63 million of non-recourse
debt payable to third-party lending institutions and $3 million of loans payable
to the Trust (net of $7 million of repayments received in 1999). The loans
payable to the Trust earned interest at a combined average annual rate of 9.5%
during first quarter of 1999 and are expected to be fully repaid to the Trust
during 1999 once the LLCs secure long-term, third-party financing.
Page Eight of Fifteen Pages
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
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 or achievements of the Trust's 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 following: a substantial portion of the
Trust's revenues are dependent on one operator, Universal Health Services, Inc.,
("UHS"); a substantial portion of the Trust's leases are involved in the
healthcare industry which is undergoing substantial changes and is subject to
possible changes in the levels and terms of reimbursement from third-party
payors and government reimbursement programs, including Medicare and Medicaid;
the Trust's ability to finance growth on favorable terms; the impact of Year
2000 issues; liability and other claims asserted against the Trust or operators
of the Trust's facilities, and; other factors referenced in the Trust's 1998
10-K or herein. Additionally, the operators of the Trust's facilities, including
UHS, are confronted with other issues such as: industry capacity; demographic
changes; existing laws and government regulations and changes in or failure to
comply with laws and governmental regulations; the ability to enter into managed
care provider agreements on acceptable terms; competition; the loss of
significant customers; technological and pharmaceutical improvements that
increase the cost of providing, or reduce the demand for healthcare; and the
ability to attract and retain qualified personnel, including physicians.
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. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. 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.
RESULTS OF OPERATIONS
The Trust has investments in thirty-two facilities located in fourteen 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 $.45 per share or $4.0 million in the aggregate
was paid on March 31, 1999.
For the quarters ended March 31, 1999 and 1998, net income totaled $3,928,000
and $3,569,000 or $.44 and $.40 per share (basic and diluted), on net revenues
of $6,056,000 and $5,857,000, respectively. The $199,000 increase in net
revenues during the 1999 first quarter as compared to the 1998 quarter was due
primarily to an increase in interest income resulting from $10.0 million of
short-term loans advanced to three separate LLCs in which the Trust has
ownership interests.
Page Nine of Fifteen Pages
<PAGE> 10
The Trust's share of the corresponding interest expense charged to the LLCs is
recorded on the equity in income of limited liability companies line on the
Condensed Statements of Income for the three months ended March 31, 1999. In
March 1999, two LLCs made loan repayments to the Trust amounting to $6.9
million.
Interest expense increased $278,000 or 37% for the three months ended March 31,
1999 as compared to the comparable 1998 period due primarily to increased
borrowings used to finance additional investments in 1998 and the first quarter
of 1999. Depreciation and amortization expense decreased slightly for the three
months ended March 31, 1999 compared to the comparable prior year period.
Other operating expenses increased $75,000 or 17% during the first quarter of
1999 as compared to the comparable prior year period due primarily to an
increase in various operating expenses, including the expenses related to the
maintenance of Lake Shore Hospital. 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 $241,000 for the three
month ended March 31, 1999 and $231,000 for the three months ended March 31,
1998. 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.
Included in the Trust's financial results for the three months ended March 31,
1999 and 1998 was $668,000 and $148,000, respectively, of income generated from
the Trust's ownership in limited liability companies which own medical office
buildings in Arizona, California, Kentucky, New Mexico and Nevada.
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, increased 12% to $5.4 million for the
three months ended March 31, 1999, as compared to $4.8 million in the comparable
prior year quarter. FFO may not be calculated in the same manner for all
companies, and accordingly, FFO as presented above may not be comparable to
similarly titled measures by other companies. 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 $4.9 million for the three months
ended March 31, 1999 and $4.6 million for the three months ended March 31, 1998.
The $238,000 net favorable change during the first quarter of 1999 as compared
to the comparable prior year quarter was primarily attributable to: (i) a
$339,000 favorable change in net income plus the addback of the non-cash charges
(depreciation, amortization and amortization of interest rate cap expense); (ii)
a $138,000 unfavorable change in accrued expenses and other liabilities, and;
(iii) $37,000 of other net favorable changes.
During the first three months of 1999, the $4.9 million of cash generated from
operating activities, the $6.9 million of cash received for the repayments of
two short-term loans advanced to separate LLCs during 1998 and the $200,000
reduction in cash were used primarily to: (i) purchase a 95% equity interest in
a limited liability company that owns the Santa Fe Professional Plaza located in
Scottsdale, Arizona ($1.2 million); (ii) repay debt ($6.4 million); (iii) pay
dividends ($4.0 million), and; (iv) finance capital expenditures and pay
financing costs ($400,000).
Page Ten of Fifteen Pages
<PAGE> 11
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).
Subsequent to the first quarter of 1999, the Trust amended its revolving credit
agreement, (the "Agreement") which matures in June, 2003, to increase its
borrowing capacity to $100 million from $80 million. The Agreement provides for
interest at the Trust's option, at the certificate of deposit rate plus 5/8% to
1 1/8%, Eurodollar rate plus 1/2% to 1 1/8% or the prime rate. A fee of .175% to
.375% is required on the unused portion of this commitment. The margins over the
certificate of deposit rate, Eurodollar rate and the commitment fee are based
upon the Trust's debt to total capital ratio as defined by the Agreement. As of
March 31, 1999, the Trust had utilized approximately $62 million of borrowing
capacity under the terms of its revolving credit agreement, as amended.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs,
certain building infrastructure components (including elevators, alarm systems
and certain HVAC systems) and certain computer aided medical equipment that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruption of operations or medical equipment malfunctions that could
affect patient diagnosis and treatment.
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. Approximately 72% of the Trust's total revenues for the
three year period ended December 31, 1998 (69% for the three month period ended
March 31, 1999), were earned under the terms of the leases with wholly-owned
subsidiaries of UHS.
UHS has undertaken steps to inventory and assess applications and equipment at
risk to be affected by Year 2000 issues and to convert, remediate or replace
such applications and equipment. UHS has completed its assessment of its major
financial and clinical software and believes that such software is substantially
Year 2000 compliant. As to certain peripheral software, UHS has scheduled
upgrades to be completed by June, 1999. For its biomedical equipment, UHS
expects to complete the assessment phase of its Year 2000 analysis by early in
the second quarter of 1999. UHS believes that Year 2000 related remediation
costs incurred through March 31, 1999 have not had a material impact on its
results of operations. However, UHS is not able to reasonably estimate the total
capital costs to be incurred for equipment replacement since the equipment
analysis phase has not yet been completed. Some replacement or upgrade of
systems and equipment would take place in the normal course of business. Several
systems, key to UHS's operations, have been scheduled to be replaced through
vendor supplied systems before Year 2000. The costs of repairing existing
systems is expensed as incurred.
Page Eleven of Fifteen Pages
<PAGE> 12
UHS has allocated a portion of its 1999 capital budget as Year 2000 contingency
funds and expects that all of the capital costs can be accommodated within that
budget. UHS presently believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose material
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material impact on the operations of UHS and UHS's ability to meet
its obligations under the terms of its leases with the Trust.
The majority of the software used by UHS is purchased from third parties. UHS is
relying on software (including UHS's major outsourcing vendor which provides the
financial and clinical applications for the majority of UHS's acute care
facilities), hardware and other equipment vendors to verify Year 2000 compliance
of their products. UHS also depends on: fiscal intermediaries which process
claims and make payments for the Medicare program; health maintenance
organizations, insurance companies and other private payors; vendors of medical
supplies and pharmaceuticals used in patient care; and, providers of utilities
such as electricity, water, natural gas and telephone services. As part of its
Year 2000 strategy, UHS intends to seek assurances from these parties that their
services and products will not be interrupted or malfunction due to the Year
2000 problem. Failure of third parties to resolve their Year 2000 issues could
have a material adverse effect on UHS's results of operations and its ability to
provide health care services.
Each of UHS's hospitals has a disaster plan which will be reviewed as part of
UHS's Year 2000 contingency planning process. However, no assurance can be given
that UHS will be able to develop contingency plans which will enable each of its
facilities to continue to operate in all circumstances.
This Year 2000 assessment is based on information currently available to UHS and
the Trust, and UHS and the Trust will revise its assessment as it implements its
Year 2000 strategy. UHS can provide no assurance that applications and equipment
UHS believes to be Year 2000 compliant will not experience difficulties or that
UHS will not experience difficulties obtaining resources needed to make
modifications to or replace its affected systems and equipment. Failure by UHS
or third parties on which it relies to resolve Year 2000 issues could have a
material adverse effect on its results of operations, its ability to provide
health care services and on UHS's ability to meet its obligations under the
terms of its leases with the Trust. Consequently, the Trust can give no
assurances that issues related to Year 2000 will not have a material adverse
effect on it's financial condition or results of operations.
With respect to the Trust's non-UHS properties, an assessment was conducted by
the Trust which covered the compliance efforts of the tenants and based upon the
responses received, these tenants do not expect Year 2000 related issues to have
a material impact on their operations. Management of the Trust will continue to
monitor the Year 2000 compliance efforts of its non-related tenants as well as
the effects of potential non-compliance.
The Trust will develop contingency plans if, and to the extent, deemed
necessary. However, based upon current information and barring developments, the
Trust does not anticipate developing any substantive contingency plans with
respect to Year 2000 issues. In addition, the Trust has no plans to seek
independent verification or review of its assessments. The Trust believes that
its expenditures for assessing and correcting Year 2000 issues have not been
material. In addition, the Trust is not aware of any issues that will require
material expenditures by the Trust or tenants of the Trust's facilities in the
future.
Page Twelve of Fifteen Pages
<PAGE> 13
Based upon current information, the Trust believes that the risk posed by the
foreseeable Year 2000 related problems with its internal systems, (including
both information and non-information systems) is minimal. Year 2000 related
problems at certain third-party payors, service providers and non-related
tenants is greater, however, based upon current information, the Trust does not
believe such problems will have a material effect on its operations. While the
Trust believes that it will be Year 2000 compliant by December 31, 1999, there
can be no assurance that the Trust or tenants of the Trust's properties will be
successful in identifying and assessing all compliance issues, or that the
efforts of the Trust or tenants of the Trust' properties to remedy all Year 2000
compliance issues will be effective such that they will not have a material
adverse effect on the Trust's business or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative disclosures
in 1999. Reference is made to Item 7 in the Annual Report on Form 10-K for the
year ended December 31, 1998.
Page Thirteen of Fifteen Pages
<PAGE> 14
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 REVOLVING CREDIT AGREEMENT as of April 30, 1999 among (i) UNIVERSAL
HEALTH REALTY INCOME TRUST, a real estate investment trust organized under the
laws of the State of Maryland and having its principal place of business at 367
South Gulph Road, King of Prussia, Pennsylvania 19406, (ii) VARIOUS FINANCIAL
INSTITUTIONS and (iii) FIRST UNION NATIONAL BANK, as administrative agent for
the Banks.
27. Financial Data Schedule
All other items of this report are inapplicable.
Page Fourteen of Fifteen Pages
<PAGE> 15
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, 1999 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 Fifteen of Fifteen Pages
<PAGE> 1
Exhibit 10.1
AMENDMENT
TO REVOLVING
CREDIT AGREEMENT
----------------
THIS AMENDMENT, dated as of April 30, 1999 (the "Amendment"), is entered
into by and among Universal Health Realty Income Trust (the "Company"), First
Union National Bank, Bank of America (as successor by merger to NationsBank),
Fleet National Bank and PNC Bank, National Association (each individually, a
"Bank" and collectively, the "Banks") and First Union National Bank, as
administrative agent for the Banks (the "Agent").
PRELIMINARY STATEMENT
---------------------
WHEREAS, the Company, the Banks and the Agent are parties to a Revolving
Credit Agreement dated as of June 24, 1998 (the "Credit Agreement"), pursuant
to which the Banks have provided the Company with the Loans upon the terms and
conditions set forth in the Credit Agreement; and
WHEREAS, the Company has requested, and the Banks and the Agent have
agreed, to modify the Credit Agreement in certain respects; and
WHEREAS, the Banks and the Agent have agreed to amend the Credit Agreement
hereby, but only to the extent and on the terms and conditions specifically set
forth herein. All capitalized terms used herein and not otherwise defined shall
have the respective meanings ascribed to them in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, intending to be legally bound hereby, and subject
to the satisfaction of the conditions hereinafter set forth, the parties hereto
agree as follows:
1. AMENDMENT TO THE CREDIT AGREEMENT. The Credit Agreement is hereby amended
as follows:
Schedule 1 to the Credit Agreement is deleted in its entirety and replaced
with Schedule 1 attached hereto.
2. CONDITIONS PRECEDENT.
The provisions of Section 1 shall be effective upon the satisfaction or
waiver of the conditions precedent set forth in Section 2.2 of the
Agreement.
3. REPRESENTATIONS AND WARRANTIES.
(a) The Company confirms the accuracy of the representations and
warranties contained in the Credit Agreement as of the date originally given
and restates to the Banks such representations and warranties, as amended, on
and as of the date hereof as if originally given on such date.
<PAGE> 2
(b) The making and performance of this Amendment and the performance of
the Credit Agreement, as amended hereby, are within the power and authority of
the Company and have been duly authorized by all necessary corporate action.
(c) When executed and delivered, this Amendment, and the Credit Agreement
as amended hereby, will be the legal, valid and binding obligations of the
Company, enforceable against it in accordance with its terms.
4. COVENANTS.
The Company warrants to the Banks that the Company is in compliance and
has complied with all covenants, agreements and conditions in the Credit
Agreement on and as of the date hereof, that no Default or Event of Default has
occurred and is continuing on the date hereof and that upon the effectiveness
of this Amendment, no Default or Event of Default shall have occurred and be
continuing.
5. EFFECT OF AMENDMENT.
This Amendment amends the Credit Agreement only to the extent and in the
manner herein set forth, and in all other respects the Credit Agreement is
ratified and confirmed.
6. COUNTERPARTS: EFFECTIVENESS.
This Amendment may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures hereto were
upon the same instrument. This Amendment shall become effective when the Banks
shall have received the signed counterparts by all the parties hereto.
7. GOVERNING LAW.
This Amendment shall be deemed to be a contract under the law of the
Commonwealth of Pennsylvania and shall for all purposes be construed in
accordance with and governed by the laws of the Commonwealth of Pennsylvania,
without reference to principles of conflicts or choice of law.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the Company and the Banks have caused this Amendment
to be executed by their proper corporate officers thereunto duly authorized as
of the day and year first above written.
UNIVERSAL HEALTH REALTY INCOME TRUST
By: /s/ CHERYL K. RAMAGANO
----------------------------------------------
Title:
FIRST UNION NATIONAL BANK, individually and as
Agent
By:
-----------------------------------------------
Title:
BANK OF AMERICA (as successor by merger to
NATIONSBANK)
By:
-----------------------------------------------
Title:
FLEET NATIONAL BANK
By:
-----------------------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------------
Title:
-3-
<PAGE> 4
SCHEDULE 1
COMMITMENTS
<TABLE>
<CAPTION>
Commitment
Bank Commitment Percentage
- ---- ---------- ----------
<S> <C> <C>
First Union Nation Bank $55,000,000 55.00%
Healthcare Finance Group
301 South College Street
Charlotte, NC 28288 0735
Attention: Valerie Cline
Fax: 710 383 9144
Bank of America (as successor by $20,000,000 20.00%
Merger to NationsBank)
One NationsBank Plaza
Nashville, TN 37239 1697
Attention: Kevin Wagley
Fax: 615 749 4640
Fleet National Bank $15,000,000 15.00%
Healthcare & Institutions Division
One Federal Street
MA of DO7B
Boston, MA 02110 2010
Attention: Ginger Stolzerthaler
Fax: 617 346 4699
PNC Bank, National Association $10,000,000 10.00%
1600 Market Street
MS #F2 F070 22 6
Philadelphia, PA 19103
Attention: Jack Swire
Fax: 215 585 6987
-------------- --------
$100,000,000 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 375
<SECURITIES> 0
<RECEIVABLES> 5,798
<ALLOWANCES> 5,204
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 163,929
<DEPRECIATION> 34,947
<TOTAL-ASSETS> 162,767
<CURRENT-LIABILITIES> 0
<BONDS> 59,634
0
0
<COMMON> 90
<OTHER-SE> 101,159
<TOTAL-LIABILITY-AND-EQUITY> 162,767
<SALES> 0
<TOTAL-REVENUES> 6,724
<CGS> 0
<TOTAL-COSTS> 828
<OTHER-EXPENSES> 947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,021
<INCOME-PRETAX> 3,928
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,928
<EPS-PRIMARY> $0.44
<EPS-DILUTED> $0.44
</TABLE>
