UHT

Business Context and Reporting Period

Company: Universal Health Realty Income Trust (Maryland REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2001
Business Overview: The Trust invests in healthcare and human service facilities, including hospitals and medical office buildings. Approximately 60% of consolidated revenues for the six months ended June 30, 2001, were derived from leases with subsidiaries of Universal Health Services, Inc. (UHS), which also serves as the Trust's Advisor.

Key Financial Metrics

Note: FFO is calculated as Net Income plus depreciation/amortization and adjustments for derivatives. The 2000 FFO is derived from the 9% increase mentioned in the text.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 2% ($131,000) for the quarter and 2.5% ($331,000) for the six months compared to the prior year. This was driven by a $734,000 increase in base rentals from non-related parties, partially offset by a $535,000 decrease in base rentals from UHS facilities due to the sale of a property in December 2000.
• Profitability: Net income increased 13% for the quarter and 9% for the six months. Interest expense decreased significantly ($301,000 for the six months) due to debt repayment.
• Debt Reduction: Bank borrowings were reduced from $80.7 million at year-end 2000 to $28.4 million as of June 30, 2001. This was achieved through the repayment of $52.2 million in debt using proceeds from a new equity issuance.
• Equity Issuance: In June 2001, the Trust issued 2.6 million shares at $21.57 per share, generating net proceeds of $54.3 million.

Guidance, Outlook, and Risks

• SEC Review: The Trust received comments from the SEC staff regarding the implementation of SAB 101 related to the recording of additional rents. Management believes any required change would shift revenue recognition between quarters but would not materially impact annual revenues, net income, or cash flows.
• Accounting Changes: The Trust adopted SFAS No. 133 (Derivatives) effective January 1, 2001. This resulted in a $43,000 gain on derivatives for the six-month period and adjustments to other comprehensive income.
• Liquidity: As of June 30, 2001, the Trust had approximately $67 million of unused borrowing capacity under its $100 million revolving credit facility, which expires in June 2003.
• Concentration Risk: A substantial portion of revenues depends on UHS. The Trust faces risks related to healthcare industry changes, reimbursement levels, and the financial health of its primary tenant.
• Dividends: A quarterly dividend of $0.465 per share was declared and paid in June 2001.

Key Facts for Investor Verification

• SEC Accounting Inquiry: Verify the outcome of the SEC's request regarding the Trust's method of recording additional rents (SAB 101) and whether it necessitates a restatement of prior periods.
• Debt Maturity: Confirm the refinancing strategy for the $100 million revolving credit facility expiring on June 24, 2003.
• Tenant Concentration: Monitor the financial stability of Universal Health Services, Inc. (UHS), which accounts for approximately 60% of consolidated revenues.
• Derivative Hedging: Review the effectiveness of interest rate swap agreements and the potential reclassification of losses from accumulated other comprehensive income into earnings.
• FFO Calculation: Note that the Trust's FFO calculation includes specific adjustments for unconsolidated LLCs and derivatives, which may differ from industry standards.