Universal Health Realty Income Trust Reports 2020 Third Quarter Financial Results

Rhea-AI Summary

Universal Health Realty Income Trust (NYSE:UHT) reported a net income of $5.2 million ($0.38 per diluted share) for Q3 2020, a rise from $4.7 million ($0.34 per diluted share) in Q3 2019. Funds from operations (FFO) increased to $11.9 million ($0.86 per share) compared to $11.4 million ($0.83 per share) a year prior. Key factors included a $695,000 decrease in interest expense and increased bonus rental from UHS. However, operational losses from vacant properties negatively impacted results, with a combined net operating loss of $153,000 in Q3 2020 versus a profit of $738,000 in Q3 2019.

For the nine-month period, net income rose to $14.4 million ($1.05 per share) from $13.1 million ($0.95 per share) in the prior period, with FFO climbing to $34.5 million ($2.50 per share).

Positive

• Net income increased to $5.2 million in Q3 2020, up from $4.7 million in Q3 2019.
• FFO for Q3 2020 was $11.9 million, compared to $11.4 million a year earlier, indicating growth.
• Interest expenses decreased by $695,000, positively impacting net income and FFO.
• The percentage of tenants who paid rent stood at approximately 99% through Q3 2020.

Negative

• Vacancies in two hospital facilities resulted in a combined net operating loss of $153,000 in Q3 2020.
• Vacant properties generated a total net operating loss of $533,000 over the nine-month period, compared to a profit of $1.6 million in the same period of 2019.

KING OF PRUSSIA, Pa., Oct. 29, 2020 /PRNewswire/ -- Universal Health Realty Income Trust (NYSE:UHT) announced today that for the three-month period ended September 30, 2020, net income was $5.2 million, or $.38 per diluted share, as compared to $4.7 million, or $.34 per diluted share, during the third quarter of 2019. 

As calculated on the attached Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), our funds from operations ("FFO"), were $11.9 million, or $.86 per diluted share, during the third quarter of 2020, as compared to $11.4 million, or $.83 per diluted share, during the third quarter of 2019.

Favorably impacting our net income and FFO during the third quarter of 2020, as compared to the third quarter of 2019, in addition to a combined aggregate net increase in net income and FFO experienced at various properties, was a decrease in our interest expense of $695,000, or $.05 per diluted share, and an increase of $252,000, or $.02 per diluted share, in bonus rental earned on the three hospital facilities leased to subsidiaries of Universal Health Services, Inc. ("UHS"). The decreased interest expense resulted primarily from a decrease in the average cost of borrowings pursuant to our revolving credit agreement, partially offset by an increase in our average outstanding borrowings.  Unfavorably impacting our net income and FFO during the third quarter of 2020, as compared to the third quarter of 2019, were the vacancies that occurred as of June 1, 2019 and September 30, 2019, at two hospital facilities located in Corpus Christi, Texas, and Evansville, Indiana, respectively. These two properties generated a combined net operating loss of $153,000 during the third quarter of 2020, as compared to generating combined net operating income of $738,000 during the third quarter of 2019. See below for additional disclosure regarding these properties.

Consolidated Results of Operations - Nine-Month Periods Ended September 30, 2020 and 2019:

For the nine-month period ended September 30, 2020, our net income was $14.4 million, or $1.05 per diluted share, as compared to $13.1 million, or $.95 per diluted share, during the first nine months of 2019. As calculated on the Supplemental Schedule, our FFO were $34.5 million, or $2.50 per diluted share, during the first nine months of 2020, as compared to $33.3 million, or $2.42 per diluted share, during the first nine months of 2019.

Favorably impacting our net income and FFO during the nine months ended September 30, 2020, as compared to the first nine months of 2019, in addition to a combined aggregate net increase in net income and FFO experienced at various properties as well as an increase in bonus rental earned on the three hospitals leased to subsidiaries of UHS, was a decrease in our interest expense of approximately $1.8 million, or $.13 per diluted share. The decrease in interest expense resulted primarily from a decrease in our average cost of borrowings pursuant to our revolving credit agreement, partially offset by an increase in our average outstanding borrowings.  Unfavorably impacting our net income and FFO during the nine months ended September 30, 2020, as compared to the first nine months of 2019, were the above-mentioned vacancies that occurred during 2019 at two hospital facilities. These two properties generated a combined net operating loss of $533,000 during the nine months ended September 30, 2020, as compared to generating combined net operating income of approximately $1.6 million during the nine months ended September 30, 2019.

COVID-19

The COVID-19 pandemic began to significantly impact the United States in mid-March, 2020.  As a result of various policies implemented by the federal and state governments, and varying by individual state, many non-essential businesses in the nation were closed for varying time periods.  We believe that by June 30, 2020, substantially all of our tenants had resumed operations of their businesses.

Tenants representing approximately 99% of our occupied square footage have paid their rent through September 30, 2020. Although COVID-19 has not had a material adverse impact on our results of operations through September 30, 2020, we believe that the potentially adverse impact that the pandemic may have on our future operations and financial results of our tenants, and in turn ours, will depend upon many factors, most of which are beyond our, or our tenants', ability to control or predict. Since the underlying businesses in each of our properties are operated by the tenants, we can provide no assurance that the businesses will continue to operate in the future, or stay current with their lease obligations. 

Throughout the common areas of many properties in our portfolio, we have implemented COVID-19 risk mitigating actions such as enhanced cleaning protocols including supplemental cleaning and sanitizing of high-touch points, limiting points of entry at certain facilities, and coordinating with health care providers to assess or screen patients prior to entering certain of our medical office buildings.

Dividend Information:

The third quarter dividend of $.69 per share, or $9.5 million in the aggregate, was declared on September 2, 2020 and paid on September 30, 2020.

Capital Resources Information:

At September 30, 2020, we had $227.1 million of borrowings outstanding pursuant to the terms of our $350 million credit agreement and $117.3 million of available borrowing capacity, net of outstanding borrowings and letters of credit. The credit agreement has a scheduled maturity date of March, 2022, however, we have the option to extend the maturity date for up to two additional six-month periods.

At-the-market Equity Issuance Program ("ATM Program"):

During the second quarter of 2020, we commenced an at-the-market equity issuance program pursuant to the terms of which we may sell, from time-to-time, common shares of our beneficial interest up to an aggregate sales price of $100 million to or through our agent banks.  No shares were issued pursuant to this ATM Program during the third quarter of 2020.  During the second quarter of 2020, pursuant to this ATM Program, we issued 2,704 shares at an average price of $101.30 per share which generated approximately $270,000 of net cash proceeds (net of compensation to BofA Securities, Inc.).  Additionally, as of September 30, 2020, we have paid or incurred approximately $507,000 in various fees and expenses related to the commencement of our ATM program. 

Lease Expirations/Vacancies of Two Hospital Facilities:

The leases on two hospital facilities, located in Evansville, Indiana, and Corpus Christi, Texas, expired on May 31, 2019 and June 1, 2019, respectively. The former tenant of the hospital located in Evansville, Indiana, entered into a short-term lease with us, which covered the period of June 1, 2019 through September 30, 2019, at a substantially increased lease rate as compared to the original lease rate.

The combined lease revenue generated at these facilities amounted to approximately $842,000 and $1.7 million during the three and nine-month periods ended September 30, 2019, respectively. The hospital located in Evansville, Indiana, has remained vacant since September 30, 2019 and the hospital located in Corpus Christi, Texas, has remained vacant since June 1, 2019.  

We continue to market each property for lease to new tenants. However, should these properties continue to remain owned and vacant for an extended period of time, or should we experience decreased lease rates on future leases, as compared to prior/expired lease rates, or incur substantial renovation costs to make the properties suitable for other operators/tenants, our future results of operations could be materially unfavorably impacted.            

New Construction Projects:

Behavioral Health Hospital - Clive, Iowa                                              

In late July, 2019, a wholly-owned subsidiary of ours entered into an agreement to build and lease a newly constructed 108-bed behavioral health care hospital located in Clive, Iowa. The lease on this facility, which is triple net and has an initial term of 20 years with five, 10-year renewal options, was executed with Clive Behavioral Health, LLC, a joint venture between Universal Health Services, Inc. ("UHS") and Catholic Health Initiatives-Iowa, Corp. (d/b/a Mercy One Des Moines Medical Center).

Construction of this hospital, for which we have engaged a wholly-owned subsidiary of UHS to act as project manager, is expected to be completed in late 2020 or early 2021. The hospital lease will commence upon issuance of the certificate of occupancy and the initial annual rent is estimated to be approximately $2.7 million. The approximate cost of the project is estimated to be $37.5 million, approximately $25.0 million of which has been incurred as of September 30, 2020. 

Medical Office Building - Denison, Texas

In September, 2019, we entered into an agreement whereby we will own a 95% ownership interest in Grayson Properties II LP, which will develop, construct, own and operate the Texoma Medical Plaza II, a 75,000 rentable square feet medical office building ("MOB") located in Denison, Texas. This MOB, which is scheduled to be completed in late 2020, will be located on the campus of Texoma Medical Center, a hospital that is owned and operated by a wholly-owned subsidiary of UHS. 

A 10-year master flex lease was executed with the wholly-owned subsidiary of UHS for 40,000 rentable square feet, representing over 50% of the rentable square feet of the MOB.  The master flex lease commitment is subject to reduction upon the execution of third-party leases on up to 20,000 rentable square feet of the first and second floors of the three-story MOB, and 20,000 rentable square feet on the third floor.  In April, 2020, a new, 122-month lease was fully executed with a third-party tenant for approximately 26,000 rentable square feet on the first floor of the MOB.  As a result, the master flex lease commitment was reduced to 20,000 of rentable square feet on the third floor of the MOB.  After giving effect to this new lease, 61% of the rentable square feet of the MOB is under lease agreements.

Effective June 1, 2020, a $13.1 million third-party construction loan was obtained by Grayson Properties II LP, which is scheduled to mature on June 1, 2025 and has an outstanding balance of $10.4 million as of September 30, 2020. In addition, we have committed to invest up to $4.8 million in equity or member loans in the development and construction of this MOB, none of which has been invested as of September 30, 2020.

General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:

Universal Health Realty Income Trust, a real estate investment trust, invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers. We have investments in seventy-one properties located in twenty states, including two that are currently under construction.  

This press release contains forward-looking statements based on current management expectations.  Numerous factors, including those disclosed herein, those related to the anticipated impact of COVID-19 on our financial results, as well as the operations and financial results of each of our tenants, those related to healthcare industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A-Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2019 and in Item 2 – Forward-Looking Statements and Certain Risk Factors in our Form 10-Q for the quarterly period ended June 30, 2020), may cause the results to differ materially from those anticipated in the forward-looking statements. Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. 

Many of the factors that could affect our future results are beyond our control or ability to predict, including the impact of the COVID-19 pandemic. Future operations and financial results of our tenants, and in turn ours, could be materially impacted by developments related to COVID-19.  Such developments include, but are not limited to, the length of time and severity of the spread of the pandemic; the volume of cancelled or rescheduled elective procedures and the volume of COVID-19 patients treated by the operators of our hospitals and other healthcare facilities; measures our tenants are taking to respond to the COVID-19 pandemic; the impact of government and administrative regulation and stimulus on the health care industry; declining patient volumes and unfavorable changes in payer mix caused by deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients as the result of business closings and layoffs); potential disruptions to clinical staffing and shortages and disruptions related to supplies required for our tenants' employees and patients; and potential increases to expenses incurred by our tenants related to staffing, supply chain or other expenditures.  There may be significant declines in future bonus rental revenue earned on our hospital properties leased to subsidiaries of UHS to the extent that each hospital continues to experience significant decline in patient volumes. We believe that the underlying businesses operated by certain of our other tenants have been, at various times, either temporarily closed entirely or operating at substantially reduced hours. These factors may result in the inability or unwillingness on the part of some of our tenants to make timely payment of their rent to us at current levels or to seek to amend or terminate their leases which, in turn, would have an adverse effect on our occupancy levels and our revenue and cash flow and the value of our properties, and potentially, our ability to maintain our dividend at current levels. Due to COVID-19 restrictions and its impact on the economy, we may experience a decrease in prospective tenants which could unfavorably impact the volume of new leases, as well as the renewal rate of existing leases. The COVID-19 pandemic may delay our construction projects which could result in increased costs and delay the timing of opening and rental payments from those projects, although no such delays have yet occurred. The COVID-19 pandemic could also impact our indebtedness and the ability to refinance such indebtedness on acceptable terms, as well as risks associated with disruptions in the financial markets and the business of financial institutions as the result of the COVID-19 pandemic which could impact us from a financing perspective; and changes in general economic conditions nationally and regionally in the markets our properties are located resulting from the COVID-19 pandemic. We are not able to quantify the impact that these factors will have on our future operations, but developments related to the COVID-19 pandemic could have a material adverse impact on our future financial results.

We believe that adjusted net income and adjusted net income per diluted share (as reflected on the attached Supplemental Schedules), which are non-GAAP financial measures ("GAAP" is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. In addition, we believe that, when applicable, comparing and discussing our financial results based on these measures, as calculated, is helpful to our investors since it neutralizes the effect in each year of material items that are non-recurring or non-operational in nature including items such as, but not limited to, gains on transactions.

Funds from operations ("FFO") is a widely recognized measure of performance for Real Estate Investment Trusts ("REITs"). We believe that FFO and FFO per diluted share, which are non-GAAP financial measures, are helpful to our investors as measures of our operating performance. We compute FFO, as reflected on the attached Supplemental Schedules, in accordance with standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we interpret the definition. FFO adjusts for the effects of gains, such as gains on transactions during the periods presented.  To the extent a REIT recognizes a gain or loss with respect to the sale of incidental assets, such as the sale of land peripheral to operating properties, the REIT has the option to exclude or include such gains and losses in the calculation of FFO.  We have opted to exclude gains and losses from sales of incidental assets in our calculation of FFO.  FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income determined in accordance with GAAP. In addition, FFO should not be used as: (i) an indication of our financial performance determined in accordance with GAAP; (ii) an alternative to cash flow from operating activities determined in accordance with GAAP; (iii) a measure of our liquidity, or; (iv) an indicator of funds available for our cash needs, including our ability to make cash distributions to shareholders. A reconciliation of our reported net income to FFO is reflected on the Supplemental Schedules included below.

To obtain a complete understanding of our financial performance these measures should be examined in connection with net income, determined in accordance with GAAP, as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2019 and our report on Form 10-Q for the quarterly period ended June 30, 2020. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability. Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

Universal Health Realty Income Trust
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2020 and 2019
(amounts in thousands, except share information)
(unaudited)
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenues:
Lease revenue - UHS facilities (a.)		$	6,381			$	5,821			$	18,243			$	17,265
Lease revenue - Non-related parties			12,841				13,555				38,526				39,464
Other revenue - UHS facilities			232				230				667				652
Other revenue - Non-related parties			238				260				744				923
			19,692				19,866				58,180				58,304
Expenses:
Depreciation and amortization			6,399				6,430				19,160				19,564
Advisory fees to UHS			1,039				1,011				3,082				2,963
Other operating expenses			5,614				5,566				16,573				16,106
			13,052				13,007				38,815				38,633
Income before equity in income of unconsolidated limited liability companies ("LLCs"), interest expense and gain on sale			6,640				6,859				19,365				19,671
Equity in income of unconsolidated LLCs			517				453				1,371				1,337
Gain on sale of land			-				-				-				250
Interest expense, net			(1,964)				(2,659)				(6,289)				(8,132)
Net income		$	5,193			$	4,653			$	14,447			$	13,126
Basic earnings per share		$	0.38			$	0.34			$	1.05			$	0.96
Diluted earnings per share		$	0.38			$	0.34			$	1.05			$	0.95
Weighted average number of shares outstanding - Basic			13,748				13,735				13,741				13,731
Weighted average number of shares outstanding - Diluted			13,770				13,757				13,763				13,751
(a.) Includes bonus rental on UHS hospital facilities of $1,680 and $1,428 for the three-month periods ended September 30, 2020 and 2019, respectively, and $4,477 and $4,174 for the nine-month periods ended September 30, 2020 and 2019, respectively.

 

Universal Health Realty Income Trust
Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule")
For the Three Months Ended September 30, 2020 and 2019
(amounts in thousands, except share information)
(unaudited)
Calculation of Adjusted Net Income
		Three Months Ended								Three Months Ended
		September 30, 2020								September 30, 2019
		Amount				Per Diluted Share				Amount				Per Diluted Share
Net income		$	5,193			$	0.38			$	4,653			$	0.34
Adjustments:			-				-				-				-
Subtotal adjustments to net income			-				-				-				-
Adjusted net income		$	5,193			$	0.38			$	4,653			$	0.34
Calculation of Funds From Operations ("FFO")
		Three Months Ended								Three Months Ended
		September 30, 2020								September 30, 2019
		Amount				Per Diluted Share				Amount				Per Diluted Share
Net income		$	5,193			$	0.38			$	4,653			$	0.34
Plus: Depreciation and amortization expense:
Consolidated investments			6,399				0.46				6,430				0.47
Unconsolidated affiliates			290				0.02				280				0.02
FFO		$	11,882			$	0.86			$	11,363			$	0.83
Dividend paid per share						$	0.690							$	0.680

 

Universal Health Realty Income Trust
Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule")
For the Nine Months Ended September 30, 2020 and 2019
(amounts in thousands, except share information)
(unaudited)
Calculation of Adjusted Net Income
		Nine Months Ended								Nine Months Ended
		September 30, 2020								September 30, 2019
		Amount				Per Diluted Share				Amount				Per Diluted Share
Net income		$	14,447			$	1.05			$	13,126			$	0.95
Adjustments:
Less: Gain on sale of land			-				-				(250)				(0.01)
Subtotal adjustments to net income			-				-				(250)				(0.01)
Adjusted net income		$	14,447			$	1.05			$	12,876			$	0.94
Calculation of Funds From Operations ("FFO")
		Nine Months Ended								Nine Months Ended
		September 30, 2020								September 30, 2019
		Amount				Per Diluted Share				Amount				Per Diluted Share
Net income		$	14,447			$	1.05			$	13,126			$	0.95
Plus: Depreciation and amortization expense:
Consolidated investments			19,160				1.39				19,564				1.42
Unconsolidated affiliates			869				0.06				854				0.06
Less: Gain on sale of land			-				-				(250)				(0.01)
FFO		$	34,476			$	2.50			$	33,294			$	2.42
Dividend paid per share						$	2.065							$	2.035

 

Universal Health Realty Income Trust
Consolidated Balance Sheets
(amounts in thousands, except share information)
(unaudited)
		September 30,				December 31,
		2020				2019
Assets:
Real Estate Investments:
Buildings and improvements and construction in progress		$	595,462			$	572,503
Accumulated depreciation			(211,155)				(194,888)
			384,307				377,615
Land			54,892				54,892
Net Real Estate Investments			439,199				432,507
Investments in limited liability companies ("LLCs")			4,366				6,918
Other Assets:
Cash and cash equivalents			6,320				6,110
Lease and other receivables from UHS			3,270				2,963
Lease receivable - other			7,306				7,640
Intangible assets (net of accumulated amortization of $19.2 million and $26.5 million, respectively)			12,147				14,553
Right-of-use land assets, net			8,922				8,944
Deferred charges and other assets, net			9,091				9,154
Total Assets		$	490,621			$	488,789
Liabilities:
Line of credit borrowings		$	227,100			$	212,950
Mortgage notes payable, non-recourse to us, net			59,387				60,744
Accrued interest			533				374
Accrued expenses and other liabilities			21,316				12,888
Ground lease liabilities, net			8,922				8,944
Tenant reserves, deposits and deferred and prepaid rents			10,969				11,155
Total Liabilities			328,227				307,055
Equity:
Preferred shares of beneficial interest, $.01 par value; 5,000,000 shares authorized; none issued and outstanding			-				-
Common shares, $.01 par value; 95,000,000 shares authorized; issued and outstanding: 2020 - 13,770,510; 2019 - 13,757,498			138				138
Capital in excess of par value			267,071				266,723
Cumulative net income			675,727				661,280
Cumulative dividends			(775,843)				(747,417)
Accumulated other comprehensive (loss)/income			(4,699)				1,010
Total Equity			162,394				181,734
Total Liabilities and Equity		$	490,621			$	488,789

 

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SOURCE Universal Health Realty Income Trust

FAQ

What were Universal Health Realty Income Trust's Q3 2020 earnings results?

Universal Health Realty Income Trust reported a net income of $5.2 million, or $0.38 per diluted share, in Q3 2020.

How did funds from operations (FFO) perform for UHT in Q3 2020?

FFO increased to $11.9 million, or $0.86 per diluted share, in Q3 2020, compared to $11.4 million, or $0.83 per diluted share, in Q3 2019.

What impact did COVID-19 have on UHT's operations?

COVID-19 did not materially adversely affect UHT's results through Q3 2020, with 99% of tenants paying rent.

What is the status of UHT's vacant properties?

The two vacant properties continued to incur losses, contributing to a net operating loss of $153,000 in Q3 2020.

What was the dividend declared by UHT for Q3 2020?

UHT declared a third-quarter dividend of $0.69 per share, amounting to $9.5 million in total.