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, 1995
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, 1995 - 8,947,192
Page One of Eleven Pages
2
UNIVERSAL HEALTH REALTY INCOME TRUST
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Statements of Income
Three Months Ended --March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . Three
Condensed Balance Sheets -- March 31, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Four
Condensed Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . Five
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . Six & Seven
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . . . . . . . . Eight, Nine & Ten
PART II. OTHER INFORMATION AND SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . .Eleven
Page Two of Eleven Pages
3
PART I. FINANCIAL INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Income
(amounts in thousands, except per share amounts)
(unaudited)
THREE MONTHS
ENDED MARCH 31,
----------------------
1995 1994
------ ------
REVENUES (Note 2):
Base rental - UHS facilities $3,316 $3,317
Base rental - Non-related parties 727 505
Bonus rental 657 622
Interest 214 209
------ ------
4,914 4,653
------ ------
EXPENSES:
Depreciation & amortization 825 887
Interest expense 415 229
Advisory fees to UHS 228 224
Other operating expenses 143 88
Recovery of investment losses - (407)
------ ------
1,611 1,021
------ ------
------ ------
NET INCOME $3,303 $3,632
====== ======
NET INCOME PER SHARE $0.37 $0.41
====== ======
Average Shares Outstanding 8,947 8,948
====== ======
The accompanying notes are an integral part of these statements.
Page Three of Eleven Pages
4
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Balance Sheets
(amounts in thousands)
MARCH 31, DECEMBER 31,
----------- ------------
ASSETS: 1995 1994
----------- ------------
(unaudited)
REAL ESTATE INVESTMENTS:
Buildings & improvements $119,610 $119,587
Accumulated depreciation (23,454) (22,646)
----------- ------------
96,156 96,941
Land 23,482 23,482
Mortgage loans receivable, net 6,441 6,440
Construction loan note receivable, net 1,653 1,143
Reserve for investment losses (397) (490)
----------- ------------
NET REAL ESTATE INVESTMENTS 127,335 127,516
OTHER ASSETS:
Cash 17 2
Bonus rent receivable - UHS 655 621
Rent receivable - non-related parties 19 68
Construction and mortgage loan interest receivable - 3
Deferred charges 661 697
----------- ------------
$128,687 $128,907
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $20,485 $20,320
Deferred purchase price payable-UHS 977 963
Accrued interest 102 117
Accrued expenses & other liabilities 719 698
Tenant reserves, escrows, deposits and prepaid rental 414 364
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: 1995 - 8,947,192
1994 - 8,947,192......................................... 89 89
Capital in excess of par value............................. 128,643 128,643
Cumulative net income ..................................... 73,715 70,412
Cumulative dividends ....................................... (96,457) (92,699)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 105,990 106,445
----------- ------------
$128,687 $128,907
=========== ============
The accompanying notes are an integral part of these financial statements.
Page Four of Eleven Pages
5
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Cash Flows
(amounts in thousands, unaudited)
THREE MONTHS ENDED MARCH 31,
-----------------------------
1995 1994
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,303 $3,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 825 887
Provision for investment losses - 300
Changes in assets and liabilities:
Rent receivable 15 67
Accrued expenses & other liabilities 21 15
Tenant escrows, deposits & prepaid rents 50 -
Construction & mortgage loan interest receivable 3 5
Accrued interest (15) 13
Reserve for investment losses (93) (9)
Deferred charges & other 9 (186)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,118 4,724
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real property (23) -
Advances under construction note receivable (487) (76)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (510) (76)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings 165 340
Dividends paid (3,758) (3,713)
------- --------
NET CASH USED IN FINANCING ACTIVITIES (3,593) (3,373)
------- --------
Increase in cash 15 1,275
Cash, beginning of period 2 44
------- --------
CASH, END OF PERIOD $17 $1,319
======= ========
Supplemental disclosures of cash flow information:
Interest paid $385 $202
The accompanying notes are an integral part of these statements.
Page Five of Eleven Pages
6
UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995
(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, 1994.
(2) RELATIONSHIP WITH UNIVERSAL HEALTH SERVICES, INC.
During the first three months of 1995 and 1994 approximately 81% and 84%,
respectively, of the Trust's gross revenues were earned under the terms of the
leases with wholly-owned subsidiaries of Universal Health Services, Inc.
("UHS"). UHS has unconditionally guaranteed the obligations of its
subsidiaries under the leases. Below is the detailed listing of the revenues
received from UHS and other non-related parties for the three months ended
March 31, 1995 and 1994:
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1995 1994
------------ ------------
Base rental - UHS facilities $ 3,316,000 $ 3,317,000
Base rental - Non-related parties 727,000 505,000
------------ -----------
Total base rental 4,043,000 3,822,000
------------ -----------
Bonus rental - UHS facilities 657,000 594,000
Bonus rental - Non-related parties 0 28,000
------------ -----------
Total bonus rental 657,000 622,000
------------ -----------
Interest - Non-related parties 214,000 209,000
------------ -----------
Total revenues $ 4,914,000 $ 4,653,000
============ ===========
UHS owned approximately 7.7% percent of the Trust's outstanding common shares
as of March 31, 1995. 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.
(3) DIVIDENDS
A dividend of $.42 per share or $3,758,000 in the aggregate was declared by the
Board of Trustees on March 1, 1995 and was paid on March 31, 1995 to
shareholders of record as of March 15, 1995.
Page Six of Eleven Pages
7
(4) FINANCING
During 1993, the Trust funded $6.5 million for the purchase of the real assets
of the Madison Irving Medical Center, by Crouse Irving Memorial Properties,
located in Syracuse, New York. The loan, which can be prepaid without penalty
at any time, has a fifteen-year repayment term. The Trust has received prepaid
commitment fees related to this mortgage note receivable totaling $65,000. The
unearned portion ($59,000 as of March 31, 1995) is being recognized as income
over the fifteen-year repayment term. The loan accrues interest monthly at a
margin over the one month LIBOR or at a margin over the five-year Treasury
rate. The interest rate is selected at the borrower's option. Interest on the
mortgage loan, including amortization of prepaid commitment fees, accrued at an
average rate of 11.7% and 8.8% for the three months ended March 31, 1995 and
1994, respectively.
In December of 1994, the Trust agreed to provide up to $4.1 million of
construction financing for the Professional Center at Kings Crossing, and
intends to purchase, subject to certain contingencies, the property upon its
completion and occupancy. The construction loan accrues interest monthly at a
margin over the one month LIBOR. The Trust expects to disburse funds related to
the construction financing ($1.1 million advanced in December, 1994 and
$500,000 during the first quarter of 1995) over a seven to nine month period
and anticipates purchasing the property during the third quarter of 1995.
(5) PENDING TRANSACTION
During the fourth quarter of 1994, UHS signed a letter of intent to purchase an
acute and psychiatric care facility in exchange for cash and two acute care
facilities including the real estate assets of Westlake, a 126 bed hospital of
which the Trust owns the majority of real estate assets. In exchange for the
real estate assets of Westlake and the termination of the lease, the Trust has
accepted substitution properties valued at approximately $19 million
(approximating the Trust's original purchase price of Westlake) consisting of
additional real estate assets currently owned by UHS but related to three acute
care facilities (McAllen Medical Center, Inland Valley Regional Medical Center
and Wellington Regional Medical Center), currently owned by the Trust and
operated by UHS. These additional real estate assets represent major additions
and expansions made to these facilities since the purchase of the properties
from UHS in 1986. Total annual base rental payments from UHS to the Trust on
substituted properties will be $2.4 million which equals the total base and
bonus rental earned by the Trust on the Westlake facility during 1994 ($2.1
million base and $300,000 bonus). Bonus rental on the substituted properties
will be equal to 1% of the growth in revenues generated by these additional
assets. The guarantee by UHS under the existing leases will continue. The
exchange of real estate assets between the Trust and UHS is expected to occur
during the second quarter of 1995.
Page Seven of Eleven Pages
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
As of March 31, 1995 the Trust has investments in fourteen facilities located
in nine states. These investments include : (i) ownership of five acute care,
one comprehensive rehabilitation and two psychiatric hospitals leased to
subsidiaries of Universal Health Services, Inc. ("UHS"); (ii) ownership of one
comprehensive rehabilitation hospital leased to an affiliate of Rehab Systems
Company ("Rehab Systems"), a subsidiary of NovaCare, Inc.; (iii) ownership of
one sub-acute care facility leased to THC-Chicago, Inc. ("THC"), an indirect
wholly-owned subsidiary of Community Psychiatric Centers ("CPC"); (iv)
ownership of one medical office building leased to several tenants including an
outpatient surgery center operated by Medical Care America ("MCA"); (v) a loan
made to a company for the construction and potential purchase of one single
tenant and two multi-tenant medical office buildings; (vi) a mortgage loan made
to Crouse Irving Memorial Properties for the purchase of the property of the
Madison Irving Medical Center, an ambulatory treatment center and; (vii) a
shared appreciation mortgage on Lake Shore Hospital (which is fully reserved)
which is currently in default under the terms of its mortgage agreement with
the Trust. In addition, the Trust agreed to provide up to $4.1 million of
construction financing, over a seven to nine month period, for the construction
of a medical office building which it intends to purchase, subject to certain
contingencies, during the third quarter of 1995. The leases to the subsidiaries
of UHS are guaranteed by UHS and are cross-defaulted with one another. The
lease to the affiliate of Rehab Systems is guaranteed by Rehab Systems, the
lease on the sub-acute care facility to THC is guaranteed by CPC and the lease
to the outpatient surgery center is guaranteed by MCA.
The first quarter dividend of $.42 per share or $3,758,000 in the aggregate was
paid on March 31, 1995.
For the quarters ended March 31, 1995 and 1994 net income totaled $3,303,000
and $3,632,000 or $.37 and $.41 per share on net revenues of $4,914,000 and
$4,653,000, respectively. The $261,000 increase in net revenue was primarily
attributable to a $222,000 increase in base rental from non-related parties
resulting primarily from the rental earned on the Fresno-Herndon Medical Plaza,
which the Trust purchased in November, 1994. Bonus rentals, which are computed
as a percentage of each facility's revenue in excess of base year amounts,
increased $35,000 for the three months ended March 31, 1995 as compared to the
comparable prior year period. Interest income increased $5,000 for the three
months ended March 31, 1995 as compared to the comparable prior year period due
to a $53,000 increase in the interest earned on the $6.5 million mortgage loan
advanced to Crouse Irving Memorial Properties and $21,000 of interest earned on
the construction financing which commenced in December of 1994. Partially
offsetting these increases was $69,000 of interest earned in the 1994 period
under the terms of a construction loan which was fully repaid during the third
quarter of 1994.
Page Eight of Eleven Pages
9
Approximately $33,000 and $30,000 of the Trust's bonus rentals for the three
months ended March 31, 1995 and 1994, respectively, were attributable to
special Medicaid reimbursement programs which relate to an acute care hospital
owned by the Trust. The facility, which participates in the Texas Medical
Assistance Program, became eligible and received additional reimbursements from
the state's disproportionate share hospital fund since the facility met certain
conditions of participation and served a disproportionately high share of the
state's low income patients. This program is scheduled to terminate in August,
1995 and the Trust can not predict whether these programs will continue beyond
the scheduled termination date.
Included in the financial results, as recovery of investments losses, for the
three months ended March 31, 1994 was $300,000 related to the Lake Shore
Hospital settlement agreement ($600,000 of cash received less $300,000 reserved
for future expenses related to the settlement of the facility) and $107,000 of
cash received related to a stock investment written down to zero in a prior
year.
The $55,000 increase in operating expenses for the three months ended March 31,
1995 as compared to the comparable 1994 quarter consists of the expenses
related to the Fresno-Herndon Medical Plaza which was acquired by the Trust in
November of 1994.
Interest expense increased $186,000 in the first quarter of 1995 as compared to
the first quarter of the prior year due to (i) higher average outstanding
borrowings and higher effective interest rates on the Trust's revolving credit
facility and (ii) $31,000 of expense recorded in connection with the
amortization of the interest rate cap agreement which commenced on June 30,
1994. This agreement matures in June, 1999 and fixes the maximum rate on $15
million of variable rate revolving credit notes at 7.75%. The unamortized
premium ($529,000 at March 31, 1995) is being amortized over the life of the
cap.
Depreciation and amortization decreased $62,000 in the first quarter of 1995 as
compared to the first quarter of the prior year due primarily to the 1994
period including the write off of $79,000 in financing fees related to the old
revolving credit agreement which was terminated and replaced with a new
agreement in March of 1994, partially offset by a $30,000 increase in
depreciation expense recorded on the Fresno-Herndon Medical Plaza, which the
Trust purchased in November, 1994.
Page Nine of Eleven Pages
10
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1995, net cash provided by operating
activities was $4.1 million as compared to $4.7 million in the 1994 period.
The decrease in net cash provided by operating activities was primarily
attributable to the $707,000 of cash received during the first quarter of 1994
relating to the Lake Shore Hospital settlement agreement and the recovery of a
stock investment previously written down to zero. Cash flows generated from
operations in the 1995 period were used primarily to pay dividends and advance
loans pursuant to the terms of a construction note receivable.
As of March 31, 1995, the Trust had $25 million of unused borrowing capacity
under its $45 million non-amortizing revolving credit agreement. This agreement
matures on February 28, 1997 at which time all amounts then outstanding are
required to be repaid.
Cash available for distribution or reinvestment, which is the sum of net income
plus depreciation and amortization and amortization of interest rate cap,
totaled $4,159,000 and $4,519,000 for the quarters ended March 31, 1995 and
1994, respectively. Cash available for distribution or reinvestment 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 Ten of Eleven Pages
11
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
All other items of this report are inapplicable.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 1995 UNIVERSAL HEALTH REALTY INCOME TRUST
(Registrant)
/s/ Kirk E. Gorman
-----------------------------
Kirk E. Gorman, President,
Chief Financial Officer, Secretary and
Trustee
(Principal Financial Officer and Duly
Authorized Officer.)
Page Eleven of Eleven Pages
12
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
27 FINANCIAL DATA SCHEDULE
5
0000798783
UNIVERSAL HEALTH REALTY INCOME TRUST
1,000
U.S. DOLLARS
3-MOS
DEC-31-1995
JAN-01-1995
MAR-31-1995
1.00
17
0
13,768
5,397
0
0
143,092
23,454
128,687
0
21,462
89
0
0
105,901
128,687
0
4,914
0
371
825
0
415
3,303
0
3,303
0
0
0
3,303
$0.37
$0.37
