Business Context and Reporting Period
Company: Universal Health Realty Income Trust (Maryland)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2001
The Trust invests in healthcare and human service-related facilities, including hospitals, medical office buildings, and surgery centers across 15 states. Approximately 60% of consolidated revenues are derived from leases with subsidiaries of Universal Health Services, Inc. (UHS), which also serves as the Trust's Advisor and owns approximately 8.5% of the Trust's outstanding shares.
Key Financial Metrics
| Metric | Q1 2001 | Q1 2000 |
|---|---|---|
| Total Revenues | $6,885,000 | $6,685,000 |
| Net Income | $4,140,000 | $3,916,000 |
| Net Income Per Share (Basic/Diluted) | $0.46 | $0.44 |
| Funds from Operations (FFO) | $6,000,000 | $5,700,000 |
| Net Cash from Operating Activities | $5,077,000 | $4,802,000 |
| Bank Borrowings (Outstanding) | $79,749,000 | $80,672,000 |
| Cash and Cash Equivalents | $385,000 | $294,000 |
| Dividends Paid | $4,177,000 | $4,092,000 |
Liquidity: As of March 31, 2001, the Trust had approximately $18.2 million of unused borrowing capacity under a $100 million revolving credit agreement expiring June 24, 2003.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $200,000 (3.0%) compared to Q1 2000. This was driven by a $381,000 increase in base rentals from non-related parties (primarily the Southern Crescent II medical office building) and an $86,000 increase in bonus rentals from UHS.
- UHS Revenue Decline: Base rentals from UHS facilities decreased by $267,000 due to the sale of a previously leased property to Meridell Achievement Center, Inc. (a UHS subsidiary) in December 2000.
- Net Income Increase: Net income rose by $224,000 (5.7%), aided by a $79,000 gain on derivatives resulting from hedge ineffectiveness under new accounting standards.
- FFO Growth: Funds from Operations increased 6% to $6.0 million.
- Debt Reduction: Bank borrowings decreased by approximately $923,000 during the quarter.
Guidance, Outlook, and Risks
Accounting Changes: Effective January 1, 2001, the Trust adopted SFAS No. 133 regarding derivative instruments. This resulted in a cumulative effect of a $532,000 charge to other comprehensive income and a $79,000 gain recognized in current earnings.
Capital Resources: The Trust filed a $100 million shelf registration statement with the SEC subsequent to the quarter-end to facilitate future equity issuances, though there is no immediate intention to issue securities.
Risks and Contingencies:
- Concentration Risk: A substantial portion of revenues depends on a single operator (UHS).
- Industry Risk: The healthcare industry faces changes in reimbursement levels from Medicare/Medicaid and third-party payors.
- Forward-Looking Statements: Management cautions that actual results may differ due to factors including industry capacity, demographic changes, and regulatory compliance.
Investor Verification Checklist
- Verify the impact of the December 2000 property sale to UHS on future recurring revenue streams.
- Confirm the status of the $100 million revolving credit facility and the terms of the June 2003 maturity.
- Review the specific details of the $79,000 gain on derivatives and the ongoing effectiveness of cash flow hedges under SFAS 133.
- Assess the progress of committed investments in new LLC projects (Brunswick, Maine and Glendale, Arizona) totaling $3.8 million.
- Monitor the ratio of fixed to floating rate debt given the Trust's use of interest rate swaps.