Business Context and Reporting Period
Company: Universal Health Realty Income Trust (Maryland)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1996
The Trust is a real estate investment trust focused on healthcare facilities. Approximately 75% to 78% of gross revenues are derived from leases with subsidiaries of Universal Health Services, Inc. ("UHS"), which unconditionally guarantees these obligations. The Trust owns 22 facilities across 12 states, including hospitals, medical office buildings, and child-care centers.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended 6/30/96 | 6 Months Ended 6/30/96 |
|---|---|---|
| Total Revenues | $5,379 | $10,722 |
| Net Income | $3,590 | $7,173 |
| Net Income Per Share | $0.40 | $0.80 |
| Funds From Operations (FFO) | $4,500 | $9,000 |
| Net Cash from Operating Activities | N/A | $8,850 |
| Bank Borrowings (Liabilities) | $40,340 | $40,340 |
| Cash and Equivalents | $127 | $127 |
| Unused Borrowing Capacity | $4,700 | $4,700 |
Note: FFO is calculated as Net Income plus Depreciation & Amortization and amortization of interest rate cap expense.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased $250,000 (4.9%) for the quarter and $679,000 (6.8%) for the six months compared to 1995. This was driven by a $236,000 increase in base rental from non-related parties and a $115,000 increase from UHS facilities.
- Acquisitions: The Trust added seven new investments in Q2 1996, including four child-care centers ($3.9M), a multi-tenant medical office building in Georgia ($6.2M), and equity interests in LLCs owning medical office buildings in Kentucky and Arizona.
- Expense Increases: Interest expense rose 34% ($147,000) for the quarter due to borrowings financing new acquisitions. Depreciation increased 8% due to new assets.
- Dividends: A quarterly dividend of $0.425 per share was declared and paid in June 1996.
Outlook, Risks, and Management Commentary
- Concentration Risk: A substantial portion of revenue depends on UHS. The health industry faces pressure from government reimbursement programs and third-party payors.
- Lease Renewals: Risks exist regarding lease renewals at term expiration, which could force the Trust to find new operators on less favorable terms.
- Medicaid Program: Approximately $9,000 to $33,000 of bonus rental income is tied to a special Texas Medicaid reimbursement program scheduled to terminate in August 1996. Continuation beyond this date is uncertain.
- Liquidity: The Trust has a $45 million revolving credit agreement maturing February 28, 1997. Negotiations are underway to extend the term, but no assurance of success is provided.
- Asset Disposition: The Trust is actively marketing the Lake Shore Hospital property for sale or lease.
Investor Verification Checklist
- Verify the status of negotiations to extend the $45 million revolving credit facility maturing in February 1997.
- Confirm the impact of the August 1996 termination of the Texas Medicaid reimbursement program on future bonus rental income.
- Review the lease terms and renewal options for the 22 facilities, particularly those not guaranteed by UHS.
- Assess the performance and cash flow of the new acquisitions (child-care centers and medical office buildings) added in Q2 1996.
- Monitor the utilization of the $4.7 million unused borrowing capacity against future capital needs.