UHT

Business Context and Reporting Period

Company: Universal Health Realty Income Trust
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and nine months ended September 30, 1995
Business Overview: The Trust owns real estate assets leased primarily to healthcare operators. As of September 30, 1995, approximately 78% of gross revenues were derived from leases with subsidiaries of Universal Health Services, Inc. (UHS), which unconditionally guarantees these obligations. The Trust holds investments in 14 facilities across nine states, including acute care hospitals, rehabilitation centers, and medical office buildings.

Key Financial Metrics

Liquidity: The Trust maintains a $45 million non-amortizing revolving credit agreement maturing February 28, 1997. As of September 30, 1995, approximately $20 million of borrowing capacity remained unused.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased $554,000 (11.9%) for the quarter and $1,124,000 (8.0%) for the nine-month period compared to 1994. Growth was driven by new acquisitions (Fresno-Herndon Medical Plaza, Shreveport medical office building) and a property swap transaction with UHS involving Westlake Medical Center.
• Net Income Decline (9 Months): Net income decreased $857,000 (7.8%) for the nine-month period. This decline is primarily attributed to the absence of a $1,157,000 "recovery of investment losses" recorded in the prior year related to the Lake Shore Hospital settlement and a stock investment write-down recovery.
• Expense Increases: Interest expense rose $518,000 (63.5%) for the nine-month period due to higher average outstanding borrowings and increased effective interest rates. Operating expenses increased $237,000, largely due to costs associated with the newly acquired Fresno-Herndon Medical Plaza.
• Acquisitions and Swaps: In Q3 1995, the Trust exchanged Westlake Medical Center assets for substitution properties valued at approximately $19 million and purchased additional assets for $1.9 million in cash. It also purchased a medical office building in Shreveport for $1.6 million.

Guidance, Outlook, and Risks

• Construction Financing: The Trust is providing up to $4.1 million in construction financing for a Professional Center at Kings Crossing, with disbursements expected to complete in Q4 1995. The Trust intends to purchase the property upon completion.
• Medicaid Program Risk: A portion of bonus rental income ($91,000 for the nine months ended Sep 30, 1995) is derived from a special Texas Medicaid reimbursement program. Recent program changes are expected to reduce this annual bonus rental to approximately $50,000. The program is scheduled to terminate in August 1996, with no guarantee of renewal.
• Asset Disposition: The Trust continues to market the Lake Shore Hospital property for sale or lease after receiving free and clear title in Q2 1995.
• Dividend Policy: A quarterly dividend of $0.42 per share was declared and paid in September 1995.

Investor Verification Checklist

• Concentration Risk: Verify the continued financial stability of UHS, which guarantees approximately 78-84% of the Trust's gross revenues.
• Medicaid Revenue Exposure: Confirm the impact of the scheduled August 1996 termination of the Texas Medicaid disproportionate share hospital fund on future bonus rental income.
• Debt Maturity: Monitor the $45 million revolving credit facility maturing on February 28, 1997, and the Trust's ability to refinance or repay the outstanding balance.
• Construction Project Completion: Track the completion and occupancy of the Kings Crossing Professional Center to ensure the anticipated purchase and revenue generation occur as planned.
• Non-Related Tenant Diversification: Assess the performance and lease terms of non-UHS tenants (e.g., HEALTHSOUTH, Columbia/HCA) to evaluate diversification efforts.