1
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 1995 - 8,947,192
Page One of Twelve 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 --September 30, 1995 and 1994
Nine Months Ended -- September 30, 1995 and 1994. . . . . . . . . . . . . . . . . .Three
Condensed Balance Sheets -- September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Four
Condensed Statements of Cash Flows
Nine Months Ended September 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..Eleven
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Twelve
Page Two of Twelve 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1995 1994 1995 1994
-------- ------- ------- ------
REVENUES (NOTE 2):
Base rental - UHS facilities $3,426 $3,317 $10,059 $9,950
Base rental - Non-related part 802 505 2,311 1,516
Bonus rental 733 626 2,161 2,015
Interest 254 213 727 653
----- ----- ------ ------
5,215 4,661 15,258 14,134
----- ----- ------ ------
EXPENSES:
Depreciation & amortization 860 795 2,510 2,477
Interest expense 491 323 1,334 816
Advisory fees to UHS 243 222 708 672
Other operating expenses 170 89 500 263
Recovery of investment losses - - - (1,157)
----- ----- ------ ------
1,764 1,429 5,052 3,071
----- ----- ------ ------
----- ----- ------ ------
NET INCOME $3,451 $3,232 $10,206 $11,063
====== ====== ======= =======
NET INCOME PER SHARE $0.38 $0.36 $1.14 $1.24
====== ====== ======= =======
Average Shares Outstanding 8,947 8,948 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)
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1995 1994
------------- ------------
ASSETS: (unaudited)
REAL ESTATE INVESTMENTS:
Buildings & improvements $126,560 $119,587
Accumulated depreciation (22,131) (22,646)
------------- ------------
104,429 96,941
Land 16,995 23,482
Mortgage loans receivable, net 6,443 6,440
Construction loan note receivable, net 3,597 1,143
Reserve for investment losses (313) (490)
------------- ------------
NET REAL ESTATE INVESTMENTS 131,151 127,516
OTHER ASSETS:
Cash 108 2
Bonus rent receivable -UHS 603 621
Rent receivable - non-related parties 129 68
Construction and mortgage loan interest receivable -- 3
Deferred charges 564 697
------------- ------------
$132,555 $128,907
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Bank borrowings $24,950 $20,320
Deferred purchase price payable-UHS 1,006 963
Accrued interest 167 117
Accrued expenses & other liabilities 690 698
Tenant reserves, escrows, deposits and prepaid rental 365 364
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.............................. 80,618 70,412
Cumulative dividends............................... (103,973) (92,699)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 105,377 106,445
------------- ------------
$132,555 $128,907
============= ============
The accompanying notes are an integral part of these financial statements.
Page Four of Twelve Pages
5
UNIVERSAL HEALTH REALTY INCOME TRUST
Condensed Statements of Cash Flows
(amounts in thousands, unaudited)
Nine months ended September 30,
-------------------------------
1995 1994
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,206 $11,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 2,510 2,477
Provision for investment losses - 450
Amortization of interest rate cap 93 31
Gain on investment in marketable securities - (107)
Changes in assets and liabilities:
Rent receivable (43) 188
Accrued expenses & other liabilities (8) 63
Tenant escrows, deposits & prepaid rents 1 -
Construction & mortgage loan interest receivable 3 14
Accrued interest 50 80
Reserve for investment losses (177) (32)
Deferred charges & other (87) (224)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,548 14,003
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real property (3,461) -
Advances under construction note receivable (2,337) (584)
Repayments under construction note receivable - 2,762
Proceeds from investment in marketable securities - 107
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,798) 2,285
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt - (4,565)
Purchase of interest rate cap - (623)
Additional borrowings 4,630 -
Dividends paid (11,274) (11,139)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (6,644) (16,327)
--------- ---------
Increase (decrease) in cash 106 (39)
Cash, beginning of period 2 44
--------- ---------
CASH, END OF PERIOD $108 $5
========= =========
===========================================================================================================
Supplemental disclosures of cash flow information:
Interest paid $1,148 $663
===========================================================================================================
The accompanying notes are an integral part of these statements.
Page Five of Twelve Pages
6
UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 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.
Approximately 78% and 84% for the three months ended September 30, 1995 and
1994 and 79% and 83% for the nine months ended September 30, 1995 and 1994,
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 and nine months
ended September 30, 1995 and 1994:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------
1995 1994 1995 1994
-------------- ------------- -------------- -------------
Base rental - UHS facilities $ 3,426,000 $ 3,317,000 $ 10,059,000 $ 9,950,000
Base rental - Non-related parties 802,000 505,000 2,311,000 1,516,000
------------- ----------- ------------ ------------
Total base rental 4,228,000 3,822,000 12,370,000 11,466,000
------------- ----------- ------------ ------------
Bonus rental - UHS facilities 623,000 593,000 1,940,000 1,800,000
Bonus rental - Non-related parties 110,000 33,000 221,000 215,000
------------- ----------- ------------ ------------
Total bonus rental 733,000 626,000 2,161,000 2,015,000
------------- ----------- ------------ ------------
Interest - Non-related parties 254,000 213,000 727,000 653,000
------------- ----------- ------------ ------------
Total revenues $ 5,215,000 $ 4,661,000 $ 15,258,000 $ 14,134,000
============= =========== ============ ============
UHS owned approximately 7.8% percent of the Trust's outstanding common shares
as of September 30, 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.
Page Six of Twelve Pages
7
(3) DIVIDENDS
A dividend of $.42 per share or $3,758,000 in the aggregate was declared by the
Board of Trustees on September 6, 1995 and was paid on September 29, 1995 to
shareholders of record as of September 15, 1995.
(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 ($57,000 as of September 30, 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 11.8% and 10.2% for the three months ended September 30, 1995
and 1994, and 11.8% and 9.4% for the nine months ended September 30, 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. Disbursement of funds related to the
construction financing ($1.1 million advanced in December, 1994, $500,000
during the first quarter of 1995, $1.2 million during the second quarter of
1995 and $700,000 during the third quarter of 1995) will be completed during
the fourth quarter of 1995 at which time the Trust anticipates purchasing the
property.
(5) ACQUISITIONS AND DIVESTITURES
During the third quarter of 1995, UHS purchased the assets of Westlake Medical
Center, ("Westlake") a 126-bed hospital of which the majority of real estate
assets were owned by the Trust and leased to UHS. In exchange for the real
estate assets of Westlake and the termination of the lease, the Trust received
substitution properties valued at approximately $19 million (the Trust's
original purchase price of Westlake) consisting of additional real estate
assets which were owned by UHS but related to three acute care facilities, of
which the Trust owns the real estate and which are operated by UHS (McAllen
Medical Center, Inland Valley Regional Medical Center and Wellington Regional
Medical Center). These additional real estate assets represent major additions
and expansions made to these facilities by UHS since the purchase of the
facilities by the Trust from UHS in 1986. The Trust also purchased from UHS,
additional real estate assets related to these hospitals for approximately $1.9
million in cash. 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). Total annual base rental payments on the
additional real estate assets purchased will be approximately $200,000. Bonus
rental on the substituted and purchased real estate assets 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.
Also during the third quarter of 1995, the Trust purchased for $1.6 million in
cash, a medical office building on the campus of a hospital owned by
Columbia/HCA Healthcare Corporation located in Shreveport, Louisiana. The
medical office building is currently being leased under the terms of a master
lease agreement with Columbia/HCA Healthcare Corporation.
Page Seven of Twelve Pages
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
As of September 30, 1995, the Trust had investments in fourteen facilities
located in nine states. These investments include: (i) ownership of four 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 a subsidiary of HEALTHSOUTH
Corporation; (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
Columbia/HCA Healthcare, Corporation ("Columbia"); (v) ownership of a medical
office building on the campus of a hospital owned by Columbia; (vi) a loan made
to a company for the construction and potential purchase of one single tenant
and two multi-tenant medical office buildings; (vii) 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; (viii)
ownership of the real estate assets of Lake Shore Hospital, to which the Trust
received free and clear title during the second quarter of 1995. The Trust
will continue to market the property of Lake Shore Hospital in an effort to
sell or lease the facility to a qualified operator. In addition, the Trust
agreed to provide up to $4.1 million of construction financing for the
construction of a medical office building which it intends to purchase, subject
to certain contingencies, during the fourth 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 subsidiary of HEALTHSOUTH Corporation is guaranteed
by HEALTHSOUTH Corporation, the lease on the sub-acute care facility to THC is
guaranteed by CPC and the leases to the outpatient surgery center and the
medical office building on the campus of a Columbia hospital, are guaranteed
by Columbia.
The second quarter dividend of $.42 per share of $3,758,000 in the aggregate
was paid on September 29, 1995.
For the quarters ended September 30, 1995 and 1994, net income totaled
$3,451,000 and $3,232,000 or $.38 and $.36 per share on net revenues of
$5,215,000 and $4,661,000, respectively. For the nine months ended September
30, 1995 and 1994, net income totaled $10,206,000 and $11,063,000 or $1.14 and
$1.24 per share on net revenues of $15,258,000 and $14,134,000, respectively.
The $554,000 increase in net revenue in the third quarter of 1995 as compared
to the comparable 1994 period was primarily attributable to: (i) a $109,000
increase in base rental from UHS facilities resulting from the purchase by the
Trust of additional real estate assets and the additional base rental generated
from the Westlake Medical Center swap transaction (see Note 5); (ii) a
$297,000 increase in the 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 and the medical office building purchased by
the Trust during the third quarter of 1995; (iii) a $107,000 increase in bonus
rentals, which are computed as a percentage of certain facilities' revenue in
excess of base year amounts, and; (iv) a $41,000 increase in interest income.
Page Eight of Twelve Pages
9
The $1,124,000 increase in net revenue for the nine months ended September 30,
1995 as compared to the comparable 1994 period was attributable to: (i) a
$109,000 increase in base rental from UHS facilities, as described above; (ii)
a $795,000 increase in base rental from non-related parties resulting from the
acquisitions of office buildings in November of 1994 and the third quarter of
1995; (iii) a $146,000 increase in bonus rentals, and; (iv) a $74,000 increase
in interest income.
Approximately $26,000 and $31,000 of the Trust's bonus rentals for the three
months ended September 30, 1995 and 1994, and $91,000 and for each of the nine
month periods ended September 30, 1995 and 1994, respectively, were
attributable to special Medicaid reimbursement programs which relate to an
acute care hospital, the real estate of which is owned by the Trust and which
is operated by UHS. 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. As a result of recent changes to the program
which will reduce the revenues received by the hospital under the program, it
is expected that the annual bonus rental payment to the Trust related to such
revenues will be reduced to approximately $50,000 per year. This program is
scheduled to terminate in August, 1996 and the Trust can not predict whether
this program will continue beyond the scheduled termination date.
Included in the financial results, as recovery of investment losses, for the
nine months ended September 30, 1994 was $1,050,000 related to the Lake Shore
Hospital settlement agreement ($1.5 million of cash received less $450,000
reserved for future expenses related to the facility) and $107,000 of cash
received related to a stock investment written down to zero in a prior year.
Operating expenses increased $81,000 for the three months ended September 30,
1995 and $237,000 for the nine months ended September 30, 1995 as compared to
the comparable 1994 periods, primarily due to the expenses related to the
Fresno-Herndon Medical Plaza which was acquired by the Trust in November of
1994. These expenses are passed on directly to the tenants of the Medical
Plaza and are included as revenue in the Trust's statements of income.
Interest expense increased $168,000 for the three months ended September 30,
1995 and $518,000 for the nine months ended September 30, 1995 as compared to
the comparable prior year periods due primarily to higher average outstanding
borrowings and higher effective interest rates on the Trust's revolving credit
facility. Also included in interest expense is $31,000 for each of the three
month periods ended September 30, 1995 and 1994 and $93,000 and $31,000 for the
nine month periods ended September 30, 1995 and 1994, respectively, 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 ($467,000 at September 30, 1995) is being amortized
over the life of the cap.
Depreciation and amortization expense increased $65,000 for the three months
ended September 30, 1995 compared to the comparable prior year quarter due
primarily to the expense recorded on the medical office buildings purchased in
November of 1994 and the third quarter of 1995. The 1994 period included
accelerated amortization of financing fees related to the old revolving credit
agreement which was terminated and replaced with a new agreement in March,
1994.
Page Nine of Twelve Pages
10
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1995, net cash provided by operating activities
was $12.5 million as compared to $14.0 million in the 1994 period. The $1.5
million decrease in net cash provided by operating activities was primarily due
to the $1.5 million of cash received during 1994 related to the settlement
agreement on Lake Shore Hospital.
During the first nine months of 1995, the Company used the net cash provided by
operating activities ($12.5 million) and additional funds borrowed under the
terms of its revolving credit facility ($4.6 million) to advance funds pursuant
to the terms of the $4.1 million construction note receivable ($2.4 million),
to acquire real property ($3.5 million) and to pay dividends ($11.3 million).
As of September 30, 1995, the Trust had approximately $20 million of unused
borrowing capacity under the terms of 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 $4.3 million and $4.1 million for the quarters ended September 30, 1995
and 1994, and $12.8 million and $13.6 million for the nine months ended
September 30, 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 Twelve Pages
11
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
All other items of this report are inapplicable.
Page Eleven of Twelve Pages
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: November 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 Twelve of Twelve Pages
5
1,000
9-MOS
DEC-31-1995
JAN-01-1995
SEP-30-1995
108
0
15,772
5,313
0
0
143,555
22,131
132,555
0
25,956
89
0
0
105,288
132,555
0
15,258
0
1,208
2,510
0
1,334
10,206
0
10,206
0
0
0
10,206
1.14
1.14
