================================================================================ 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, 2001 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 common shares of beneficial interest outstanding at October 31, 2001 - 11,623,191 ================================================================================ Page 1 of 16
UNIVERSAL HEALTH REALTY INCOME TRUST I N D E X PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Consolidated Statements of Income Three and Nine Months Ended - September 30, 2001 and 2000...................3 Consolidated Balance Sheets -- September 30, 2001 and December 31, 2000.......................................................4 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000...............................5 Notes to Consolidated Financial Statements................6, 7, 8, 9, 10 and 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................12, 13 and 14 PART II. OTHER INFORMATION AND SIGNATURE ............................15 and 16 Page 2 of 16
Part I. Financial Information ----------------------------- Universal Health Realty Income Trust ------------------------------------ Condensed Consolidated Statements of Income ------------------------------------------- (amounts in thousands, except per share amounts) (unaudited) <TABLE> <CAPTION> Three Months Nine Months Ended September 30, Ended September 30, --------------------- --------------------- 2001 2000 2001 2000 --------- -------- --------- -------- <S> <C> <C> <C> <C> Revenues (Note 2): - ------------------ Base rental - UHS facilities $ 3,253 $ 3,520 $ 9,759 $ 10,561 Base rental - Non-related parties 2,744 2,656 8,303 7,481 Bonus rental - UHS facilities 893 725 2,572 2,272 --------- -------- --------- -------- 6,890 6,901 20,634 20,314 --------- -------- --------- -------- Expenses: - --------- Depreciation & amortization 1,101 1,125 3,291 3,316 Interest expense 616 1,600 3,234 4,519 Advisory fees to UHS 334 341 1,001 1,005 Other operating expenses 759 688 2,327 2,082 --------- -------- --------- -------- 2,810 3,754 9,853 10,922 --------- -------- --------- -------- Income before equity in limited liability companies 4,080 3,147 10,781 9,392 Equity in income of limited liability companies 868 719 2,567 2,190 Loss on derivatives (71) -- (28) -- --------- -------- --------- -------- Net Income $ 4,877 $ 3,866 $ 13,320 $ 11,582 ========= ======== ========= ======== Net Income per share - basic $ 0.42 $ 0.43 $ 1.32 $ 1.29 ========= ======== ========= ======== Net Income per share - diluted $ 0.42 $ 0.43 $ 1.31 $ 1.29 ========= ======== ========= ======== Weighted average number of shares outstanding - basic 11,622 8,979 10,097 8,981 Weighted average number of share equivalents 57 29 49 20 --------- -------- --------- -------- Weighted average number of shares and equivalents outstanding - diluted 11,679 9,008 10,146 9,001 ========= ======== ========= ======== </TABLE> The accompanying notes are an integral part of these financial statements. Page 3 of 16
Universal Health Realty Income Trust ------------------------------------ Consolidated Balance Sheets --------------------------- (amounts in thousands, except share data) (unaudited) <TABLE> <CAPTION> September 30, December 31, Assets: 2001 2000 - ------- ------------- ------------ <S> <C> <C> Real Estate Investments: Buildings & improvements $ 159,680 $ 159,243 Accumulated depreciation (42,336) (39,080) ------------- ------------ 117,344 120,163 Land 22,929 22,929 Construction in progress 40 16 ------------- ------------ Net Real Estate Investments 140,313 143,108 ------------- ------------ Investments in limited liability companies ("LLCs") 44,206 39,164 Other Assets: Cash 529 294 Bonus rent receivable from UHS 898 796 Rent receivable from non-related parties 56 208 Deferred charges and other assets, net 91 88 ------------- ------------ $ 186,093 $ 183,658 ============= ============ Liabilities and Shareholders' Equity: - ------------------------------------- Liabilities: Bank borrowings $ 30,507 $ 80,672 Note payable to UHS 1,427 1,359 Accrued interest 309 392 Accrued expenses & other liabilities 4,026 1,459 Tenant reserves, escrows, deposits and prepaid rents 468 459 Minority interest 47 60 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: 2001 - 11,622,356 2000 - 8,980,064 116 90 Capital in excess of par value 183,293 129,110 Accumulated other comprehensive income: Cash flow hedges (2,439) -- Cumulative net income 170,006 156,686 Cumulative dividends (201,667) (186,629) ------------- ------------ Total Shareholders' Equity 149,309 99,257 ------------- ------------ $ 186,093 $ 183,658 ============= ============ </TABLE> The accompanying notes are an integral part of these financial statements. Page 4 of 16
Universal Health Realty Income Trust ------------------------------------ Consolidated Statements of Cash Flows ------------------------------------- (amounts in thousands, unaudited) <TABLE> <CAPTION> Nine months ended September 30, ------------------------------------ 2001 2000 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income $ 13,320 $ 11,582 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 3,291 3,316 Loss on derivatives 28 -- Changes in assets and liabilities: Rent receivable 50 (135) Accrued expenses & other liabilities 181 218 Tenant escrows, deposits & deferred rents 9 (35) Accrued interest (83) 328 Deferred charges & other (29) (341) -------- -------- Net cash provided by operating activities 16,767 14,933 -------- -------- Cash flows from investing activities: Investments in limited liability companies ("LLCs") (5,949) (4,174) Advances made to a LLC, net of repayments (175) -- Acquisitions and additions to land, buildings and CIP (462) (9,320) Cash distributions in excess of income from LLCs 1,081 913 -------- -------- Net cash used in investing activities (5,505) (12,581) -------- -------- Cash flows from financing activities: Additional borrowings -- 9,665 Repayments of long-term debt (50,165) (49) Dividends paid (15,038) (12,353) Repurchase of shares of beneficial interest -- (181) Issuance of shares of beneficial interest 54,176 23 -------- -------- Net cash used in financing activities (11,027) (2,895) -------- -------- Increase (decrease) in cash 235 (543) Cash, beginning of period 294 852 -------- -------- Cash, end of period $ 529 $ 309 ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 3,249 $ 4,133 ======== ======== </TABLE> See accompanying notes to these condensed financial statements. Page 5 of 16
UNIVERSAL HEALTH REALTY INCOME TRUST NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (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, 2000. In this Quarterly Report on Form 10-Q, the term "revenues" does not include the revenues of the unconsolidated limited liability companies in which the Trust has various non-controlling equity interests ranging from 33% to 99%. The Trust accounts for its share of the income/loss from these investments by the equity method. (2) Relationship with Universal Health Services, Inc. Approximately 60% and 62% for the three month periods ended September 30, 2001 and 2000, respectively, and 60% and 63% for the nine month periods ended September 30, 2001 and 2000, respectively, of the Trust's consolidated 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, 2001 and 2000: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- (in thousands) <S> <C> <C> <C> <C> 2001 2000 2001 2000 ------ ------ ------- ------- Base rental - UHS facilities $3,253 $3,520 $ 9,759 $10,561 Base rental - Non-related parties 2,744 2,656 8,303 7,481 ------ ------ ------- ------- Total base rental 5,997 6,176 18,062 18,042 ------ ------ ------- ------- Bonus rental - UHS facilities 893 725 2,572 2,272 ------ ------ ------- ------- Total bonus rental 893 725 2,572 2,272 ------ ------ ------- ------- Total revenues $6,890 $6,901 $20,634 $20,314 ====== ====== ======= ======= </TABLE> The decrease in base rentals from UHS facilities for the three and nine month periods ended September 30, 2001 as compared to the comparable prior year periods resulted from the purchase of previously leased property from the Trust by Meridell Achievement Center, Inc., (a subsidiary of UHS) in December, 2000. Page 6 of 16
Pursuant to the terms of its leases with subsidiaries of UHS, the Trust earns fixed monthly base rents plus additional rents based on a percentage of the facility's net patient revenue in excess of a base amount. The additional rents, which are paid quarterly, are calculated using each facility's actual monthly net patient revenues. UHS owned approximately 6.6% percent of the Trust's outstanding shares of beneficial interest as of September 30, 2001. 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. UHS of Delaware, Inc. (the "Advisor"), serves as Advisor to the Trust under an Advisory Agreement dated December 24, 1986 between the Advisor and the Trust (the "Advisory Agreement"). The Advisory Agreement expires on December 31 of each year, however, it is renewable by the Trust, subject to a determination by the Trustees who are unaffiliated with UHS, that the Advisor's performance has been satisfactory. The Advisory Agreement may be terminated for any reason upon sixty days written notice by the Trust or the Advisor. The Advisory Agreement has been renewed for 2001. The Advisory Agreement provides that the Advisor is entitled to receive an annual advisory fee equal to .60% of the average invested real estate assets of the Trust, as derived from its consolidated balance sheet from time to time. The Advisory fee is payable quarterly, subject to adjustment at year end based upon audited financial statements of the Trust. The Trust has no salaried employees and the Trust's officers are all employees of UHS of Delaware, Inc., a wholly-owned subsidiary of UHS. In 2001, the Trustees awarded a $50,000 bonus to the President, Chief Financial Officer, Secretary and Trustee of the Trust and UHS of Delaware, Inc. agreed to a $50,000 reduction in the annual advisory fee paid by the Trust. Advisory fees paid to UHS amounted to $334,000 and $341,000 for the three months ended September 30, 2001 and 2000, respectively, and $1,001,000 and $1,005,000 for the nine month periods ended September 30, 2001 and 2000, respectively. (3) Dividends A dividend of $.47 per share or $5.5 million in the aggregate was declared by the Board of Trustees on September 4, 2001 and was paid on September 28, 2001 to shareholders of record as of September 14, 2001. (4) Accounting for Derivative Instruments and Hedging Activities Effective January 1, 2001, the Trust adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", and its corresponding amendments under SFAS No. 138. SFAS No. 133 requires the Trust to measure every derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and record them in the balance sheet as either an asset or liability. Changes in the fair value of derivatives are recorded currently in earnings unless special hedge accounting criteria are met. For derivatives designated as fair value hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income ("OCI"). The ineffective portions of hedges are recognized in earnings in the current period. Page 7 of 16
The adoption of this new standard as of January 1, 2001 resulted in a loss recorded as a cumulative effect of an accounting change of approximately $532,000 in other comprehensive income to recognize at fair value all derivatives that are designated as cash flow hedging instruments. As of the date of adoption and through the period ended September 30, 2001, the Trust was not party to any derivative contracts designated as fair value hedges. The Trust recorded an additional loss of $1,151,000 and $1,907,000, respectively, in other comprehensive income to recognize the change in value during the three and nine month periods ended September 30, 2001. The gains and losses are reclassified into earnings as the underlying hedged item affects earnings, such as when the forecast interest payment occurs. It is expected that $756,000 of net losses in accumulated other comprehensive income will be reclassified into earnings within the next twelve months. The Trust also recorded an unfavorable $71,000 in current earnings for the three months ended September 30, 2001 and a favorable $13,000 in current earnings for the nine months ended September 30, 2001 to recognize the ineffective portion of the cash flow hedging instruments. As of September 30, 2001, the maximum length of time over which the Trust is hedging its exposure to the variability in future cash flows for forecasted transactions is through November, 2006. In June 2001, the Trust reclassified a loss of $41,000 from accumulated other comprehensive income into earnings as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. The Trust formally assesses, both at inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Trust will discontinue hedge accounting prospectively. The Trust manages its ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this mix in a cost-effective manner, the Trust, from time to time, enters into interest rate swap agreements, in which it agrees to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. Page 8 of 16
(5) Comprehensive Income (Loss) Comprehensive income (loss) represents net income (loss) plus the results of certain non-shareowners' equity changes not reflected in the Consolidated Statements of Income. The components of comprehensive income (loss) are as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income $ 4,877 $3,866 $13,320 $11,582 Other comprehensive income (loss): Cumulative effect of change in accounting principle (SFAS 133) on other comprehensive income ---- --- (532) --- Unrealized derivative gains/(losses) on cash flow hedges (1,151) --- (1,907) --- -------- ------- -------- -------- Comprehensive income $ 3,726 $3,866 $10,881 $11,582 ======== ======= ======== ======== </TABLE> (6) Acquisitions During the third quarter, the Trust invested $2.8 million in exchange for a 79% non-controlling interest in a limited liability company that owns and operates the Papago Medical Park, a 79,637 square foot medical office building located in Phoenix, Arizona. Also during the third quarter, the Trust invested $45,000, and committed to invest a total of $3.4 million, in exchange for an 80% non-controlling interest in a limited liability company that will construct and own the Deer Valley Medical Office II located in Phoenix, Arizona. Page 9 of 16
(7) Summarized Financial Information of Equity Affiliates The following table represents summarized financial information of the limited liability companies ("LLCs") accounted for by the equity method. Amounts presented include investments in the following LLCs as of September 30, 2001: Name of LLC Property Owned by LLC ----------------------- ---------------------- DSMB Properties Desert Samaritan Hospital MOBs DVMC Properties Desert Valley Medical Center MOBs Parkvale Properties Maryvale Samaritan Hospital MOBs Suburban Properties Suburban Medical Center MOBs Litchvan Investments Samaritan West Valley Medical Center Paseo Medical Properties II Thunderbird Paseo Medical Plaza and Thunderbird Paseo Medical Plaza II (a.) Willetta Medical Properties Edwards Medical Plaza DesMed Desert Springs Medical Plaza PacPal Investments Pacifica Palms Medical Plaza RioMed Investments Rio Rancho Medical Center West Highland Holdings St. Jude Heritage Health Complex Santa Fe Scottsdale Santa Fe Professional Plaza Bayway Properties East Mesa Medical Center 653 Town Center Drive Summerlin Hospital Medical Office Building 575 Hardy Investors Centinela Medical Building Complex 653 Town Center Phase II Summerlin Hospital Medical Office Building II 23560 Madison Skypark Professional Medical Building Brunswick Associates (b.) Mid Coast Hospital Medical Office Building Papago Medical Properties Papago Medical Office Building Deerval Properties (c.) Deer Valley Medical Office II (a.) As of September 30, 2001, the Trust has invested $568,000 in the Thunderbird Paseo Medical Plaza II project which was completed and opened during the third quarter. The Trust has committed to invest a total of $1.9 million in exchange for a 75% non-controlling interest in a LLC that owns a medical office building in Glendale, Arizona. (b.) As of September 30, 2001, the Trust has not yet invested any funds in this project, however, the Trust has committed to invest $1.9 million in exchange for a 74% non-controlling interest in a LLC that will construct and own a medical office building in Brunswick, Maine, scheduled to be completed and opened during the fourth quarter. (c.) As of September 30, 2001, the Trust has invested $45,000 in the Deer Valley Medical Office II project. The Trust has committed to invest a total of $3.4 million in exchange for an 80% non-controlling interest in a LLC that will construct and own a medical office building in Phoenix, Arizona, scheduled to be completed and opened during the second quarter of 2002. <TABLE> <CAPTION> Three Months Nine Months Ended September 30, Ended September 30, ---------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------- (amounts in thousands) <S> <C> <C> <C> <C> Revenues $8,404 $5,582 $19,384 $15,995 Expenses 7,499 4,787 16,492 13,493 Net Income 905 795 2,892 2,502 UHT's share of net income 868 719 2,567 2,190 </TABLE> Page 10 of 16
As of September 30, 2001, these LLCs had approximately $97.1 million of debt, which is non-recourse to the Trust, payable to third-party lending institutions. (8) Other Matters As previously reported, in July 2001 the Trust received comments from the staff of the SEC related to the Trust's method of recording additional rents. Subsequent to the third quarter of 2001, this matter was resolved and there will be no change to the Trust's previously reported financial statements. Page 11 of 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements - -------------------------- The matters discussed in this report, as well as the news releases issued from time to time by the Trust, include certain statements containing the words "believes", "anticipates", "intends", "expects", and words of similar import, which constitute "forward-looking statements" within the meaning of Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Trust's or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: a substantial portion of the Trust's revenues are dependent on one operator, Universal Health Services, Inc., ("UHS"); a substantial portion of the Trust's leases are involved in the healthcare industry which is undergoing substantial changes and is subject to possible changes in the levels and terms of reimbursement from third-party payors and government reimbursement programs, including Medicare and Medicaid; the Trust's ability to finance its growth on favorable terms; liability and other claims asserted against the Trust or operators of the Trust's facilities, and other factors referenced herein. Additionally, the operators of the Trust's facilities, including UHS, are confronted with other issues such as: industry capacity; demographic changes; existing laws and government regulations and changes in or failure to comply with laws and governmental regulations; the ability to enter into managed care provider agreements on acceptable terms; competition; the loss of significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for healthcare; and the ability to attract and retain qualified personnel, including physicians. Management of the Trust is unable to predict the effect, if any, these factors will have on the operating results of its lessees, including the facilities leased to subsidiaries of UHS. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Trust disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. Results of Operations - --------------------- The Trust has investments in forty-two facilities located in fifteen states. The Trust invests in healthcare and human service related facilities including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute care facilities, surgery centers, child-care centers and medical office buildings. The third quarter dividend of $.47 per share or $5.5 million in the aggregate was paid on September 28, 2001. For the quarters ended September 30, 2001 and 2000, net income totaled $4,877,000 and $3,866,000 or $.42 and $.43 per share (basic and diluted), on net revenues of $6,890,000 and $6,901,000, respectively. For the nine months ended September 30, 2001 and 2000, net income totaled $13,320,000 and $11,582,000 or $1.31 and $1.29 per diluted share on net revenues of $20,634,000 and $20,314,000, respectively. Page 12 of 16
The $11,000 decrease in net revenues during the three month period ended September 30, 2001 as compared to the comparable prior year quarter was due primarily to a $267,000 decrease in base rental from UHS facilities, partially offset by an $88,000 increase in base rental from non-related parties and a $168,000 increase in bonus rental from UHS facilities. The $320,000 increase in net revenues during the nine month period ended September 30, 2001 as compared to the comparable prior year period was due primarily to a $822,000 increase in base rental from non-related parties and a $300,000 increase in bonus rental from UHS facilities partially offset by a $802,000 decrease in base rental from UHS facilities. The increases in base rentals from non-related parties resulted primarily from the revenues generated from the Southern Crescent II medical office building which was opened during the third quarter of 2000. The decreases in base rentals from UHS facilities resulted from the purchase of previously leased property from the Trust by Meridell Achievement Center, Inc., (a subsidiary of UHS) in December, 2000. Other operating expenses increased $71,000 or 10% during the third quarter of 2001 and increased $245,000 or 12% during the 2001 nine month period as compared to the comparable prior year periods. Included in the Trust's other operating expenses were the expenses related to the medical office buildings in which the Trust has a controlling ownership interest which totaled $585,000 and $511,000 for the three month periods ended September 30, 2001 and 2000, respectively, and $1,767,000 and $1,549,000 for the nine month periods ended September 30, 2001 and 2000, respectively. A portion of the expenses associated with the medical office buildings are passed on directly to the tenants and are included as revenues in the Trust's statements of income. Included in the Trust's financial results was $868,000 and $719,000 for the three months ended September 30, 2001 and 2000, respectively, and $2,567,000 and $2,190,000 for the nine months ended September 30, 2001 and 2000, respectively, of income generated from the Trust's ownership in limited liability companies which own medical office buildings in Arizona, California, Kentucky, New Mexico and Nevada. The Trust adopted SFAS No. 133 effective January 1, 2001. The adoption of this new standard for the three and nine months ended September 30, 2001 resulted in losses on derivatives of $71,000 and $28,000, respectively. Funds from operations ("FFO"), which is the sum of net income plus depreciation expense for consolidated investments and unconsolidated investments plus or minus gains/losses on derivatives, increased 19% to $6.9 million for the three months ended September 30, 2001, and increased 13% to $19.1 million for the nine months ended September 30, 2001. Contributing to the increases in FFO during the three and nine month periods ended September 30, 2001, as compared to the comparable prior year periods, was a reduction in interest expense of $984,000 and $1,285,000 for the three and nine month periods ended September 30, 2001, respectively, as compared to the comparable prior year periods. The reduction in interest expense resulted primarily from the $53.9 million repayment of outstanding borrowings under the revolving credit agreement using the net proceeds generated for the issuance of an additional 2.6 million shares of beneficial interest in June, 2001. FFO may not be calculated in the same manner for all companies, and accordingly, FFO as presented above may not be comparable to similarly titled measures by other companies. FFO 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 13 of 16
Liquidity and Capital Resources - ------------------------------- Net cash provided by operating activities was $16.8 million for the nine months ended September 30, 2001 and $14.9 million for the nine months ended September 30, 2000. The $1.9 million net favorable change during the first nine months of 2001 as compared to the comparable prior year period was primarily attributable to a $1.7 million favorable change in net income plus the addback of the non-cash charges (depreciation and amortization and loss on derivatives). During the first nine months of 2001, the $17.9 million of cash generated from operating activities, (includes $1.1 million of cash distributions in excess of income received from the various LLCs in which the Trust owns a non-controlling interest) and the $53.9 million of net proceeds generated from the issuance of 2.6 million shares of beneficial interest were used primarily to: (i) repay debt ($50.2 million); (ii) invest in LLCs in which the Trust owns various non- controlling interests ($6.1 million), and; (iii) pay dividends ($15.0 million). During the first nine months of 2000, the $15.8 million of cash generated from operating activities, (includes $900,000 of cash distributions in excess of income received from the various LLCs in which the Trust owns a non-controlling interest) and the $9.6 million of additional borrowings were used primarily to: (i) purchase a medical office building located in Danbury, Connecticut ($6.4 million); (ii) purchase a 95% equity interest in a limited liability company that owns and operates Skypark Professional Medical Building located in Torrance, California ($1.8 million); (iii) purchase a 98% equity interest in a limited liability company that owns and operates the Centinella Medical Building Complex located in Inglewood, California ($2.0 million); (iv) finance construction of the Southern Crescent II Medical Office Building, which was completed and opened during the third quarter of 2000, and capital expenditures ($2.8 million), and; (iv) pay dividends ($12.4 million). In June of 2001, the Trust issued 2.6 million shares of beneficial interest at a price of $21.57 per share. The shares were offered under the Trust's previously filed $100 million shelf registration statement. The equity issuance generated net proceeds of $53.9 million which were used to repay outstanding borrowings under the Trust's $100 million revolving credit facility. Pursuant to the terms of the Trust's original revolving credit agreement, the $100 million commitment was to be reduced by 50% of the net proceeds generated from the issuance of equity. During the second quarter of 2001, the revolving credit agreement was amended to waive the commitment reduction provision, thereby keeping the commitment at $100 million. As of September 30, 2001, the Trust had approximately $64.9 million of unused borrowing capacity under the terms of its $100 million revolving credit agreement. The agreement expires on June 24, 2003, at which time all amounts then outstanding are required to be repaid. Additional funds may be obtained either through refinancing the existing revolving credit agreement and/or the issuance of long-term securities. Page 14 of 16
PART II. OTHER INFORMATION UNIVERSAL HEALTH REALTY INCOME TRUST Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ There have been no material changes in the quantitative and qualitative disclosures in 2001. Reference is made to Item 7 in the Annual Report on Form 10-K for the year ended December 31, 2000. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits: None (b) Reports on form 8-K: None All other items of this report are inapplicable. Page 15 of 16
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 12, 2001 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 16 of 16