UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I. R. S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated Filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Number of common shares of beneficial interest outstanding at October 31, 2023—
UNIVERSAL HEALTH REALTY INCOME TRUST
INDEX
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PAGE NO. |
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Item 1. |
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Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2023 and 2022 |
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3 |
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4 |
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Condensed Consolidated Balance Sheets—September 30, 2023 and December 31, 2022 |
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5 |
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6 through 7 |
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Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2023 and 2022 |
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8 |
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9 through 21 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 through 32 |
Item 3. |
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32 through 34 |
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Item 4. |
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34 |
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35 |
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Item 1A. |
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35 |
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Item 5. |
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35 |
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Item 6. |
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35 |
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36 |
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This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2023. In this Quarterly Report, “we,” “us,” “our” and the “Trust” refer to Universal Health Realty Income Trust and its subsidiaries.
As disclosed in this Quarterly Report, including in Note 2 to the condensed consolidated financial statements—Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions, a wholly-owned subsidiary of UHS (UHS of Delaware, Inc.) serves as our Advisor pursuant to the terms of an annually renewable Advisory Agreement dated December 24, 1986, and as amended and restated as of January 1, 2019. The Advisory Agreement expires on December 31 of each year, however, it is renewable by us, subject to a determination by our Trustees who are unaffiliated with UHS, that the Advisor’s performance has been satisfactory. The Advisory Agreement was renewed for 2023 with the same terms as the Advisory Agreement in place during 2022 and 2021. Our officers are all employees of UHS through its wholly-owned subsidiary, UHS of Delaware, Inc. In addition, five of our hospital facilities are leased to wholly-owned subsidiaries of UHS, one of our hospital facilities is leased to a joint venture between a wholly-owned subsidiary of UHS and a third party, and subsidiaries of UHS are tenants of twenty-one medical/office buildings or free-standing emergency departments, that are either wholly or jointly-owned by us. Any reference to “UHS” or “UHS facilities” in this report is referring to Universal Health Services, Inc.’s subsidiaries, including UHS of Delaware, Inc.
In this Quarterly Report, the term “revenues” does not include the revenues of the unconsolidated limited liability companies (“LLCs”) in which we have various non-controlling equity interests ranging from 33% to 95%. As of September 30, 2023, we had investments in four jointly-owned LLCs/LPs. We currently account for our share of the income/loss from these investments by the equity method (see Note 5 to the condensed consolidated financial statements included herein).
2
Part I. Financial Information
Item I. Financial Statements
Universal Health Realty Income Trust
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2023 and 2022
(amounts in thousands, except per share information)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues: |
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Lease revenue - UHS facilities (a.) |
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$ |
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$ |
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$ |
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$ |
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Lease revenue - Non-related parties |
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Other revenue - UHS facilities |
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Other revenue - Non-related parties |
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Interest income on financing leases - UHS facilities |
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Expenses: |
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Depreciation and amortization |
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Advisory fees to UHS |
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Other operating expenses |
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Income before equity in income of unconsolidated limited liability companies ("LLCs") and interest expense |
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Equity in income of unconsolidated LLCs |
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Interest expense, net |
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( |
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( |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Basic earnings per share |
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$ |
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$ |
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$ |
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$ |
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Diluted earnings per share |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of shares outstanding - Basic |
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Weighted average number of shares outstanding - Diluted |
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(a.)
See accompanying notes to these condensed consolidated financial statements.
3
Universal Health Realty Income Trust
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2023 and 2022
(amounts in thousands)
(unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss)/gain: |
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Unrealized derivative (loss)/gain on cash flow hedges |
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( |
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( |
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Total other comprehensive (loss)/gain: |
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( |
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( |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to these condensed consolidated financial statements.
4
Universal Health Realty Income Trust
Condensed Consolidated Balance Sheets
(amounts in thousands, except share information)
(unaudited)
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September 30, |
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December 31, |
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2023 |
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2022 |
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Assets: |
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Real Estate Investments: |
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Buildings and improvements and construction in progress |
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$ |
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$ |
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Accumulated depreciation |
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( |
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Land |
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Net Real Estate Investments |
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Financing receivable from UHS |
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Net Real Estate Investments and Financing receivable |
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Investments in and advances to limited liability companies ("LLCs") |
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Other Assets: |
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Cash and cash equivalents |
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Lease and other receivables from UHS |
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Lease receivable - other |
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Intangible assets (net of accumulated amortization of $ |
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Right-of-use land assets, net |
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Deferred charges and other assets, net |
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Total Assets |
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$ |
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$ |
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Liabilities: |
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Line of credit borrowings |
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$ |
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$ |
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Mortgage notes payable, non-recourse to us, net |
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Accrued interest |
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Accrued expenses and other liabilities |
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Ground lease liabilities, net |
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Tenant reserves, deposits and deferred and prepaid rents |
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Total Liabilities |
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Equity: |
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Preferred shares of beneficial interest, |
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Common shares, $ |
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Capital in excess of par value |
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Cumulative net income |
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Cumulative dividends |
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( |
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( |
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Accumulated other comprehensive income |
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Total Equity |
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Total Liabilities and Equity |
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$ |
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$ |
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See accompanying notes to these condensed consolidated financial statements.
5
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2023
(amounts in thousands)
(unaudited)
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Common Shares |
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Capital in |
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Accumulated other |
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Number |
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excess of |
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Cumulative |
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Cumulative |
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comprehensive |
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Total |
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of Shares |
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Amount |
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par value |
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net income |
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dividends |
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income/(loss) |
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Equity |
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January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Shares of Beneficial Interest: |
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Issued, net |
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— |
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— |
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— |
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— |
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Repurchased |
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— |
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— |
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— |
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— |
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— |
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— |
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- |
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Restricted stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Dividends ($ |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Unrealized net gain on cash flow hedges |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Subtotal - comprehensive income |
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( |
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September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended September 30, 2023
(amounts in thousands)
(unaudited)
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Common Shares |
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Capital in |
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Accumulated other |
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Number |
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excess of |
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Cumulative |
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Cumulative |
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comprehensive |
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Total |
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of Shares |
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Amount |
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par value |
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net income |
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dividends |
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income/(loss) |
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Equity |
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July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Shares of Beneficial Interest: |
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Issued |
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— |
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— |
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— |
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— |
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Repurchased |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Restricted stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Dividends ($ |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Unrealized net gain on cash flow hedges |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Subtotal - comprehensive income |
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( |
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September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes to these condensed consolidated financial statements.
6
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2022
(amounts in thousands)
(unaudited)
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Common Shares |
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Capital in |
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Accumulated other |
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Number |
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excess of |
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Cumulative |
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Cumulative |
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comprehensive |
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Total |
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of Shares |
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Amount |
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par value |
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net income |
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dividends |
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income/(loss) |
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Equity |
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January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Shares of Beneficial Interest: |
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Issued, net |
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— |
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— |
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— |
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— |
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Repurchased |
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— |
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— |
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— |
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— |
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— |
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— |
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- |
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Restricted stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Dividends ($ |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Comprehensive income: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized net gain on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Subtotal - comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended September 30, 2022
(amounts in thousands)
(unaudited)
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
Accumulated other |
|
|
|
|
|||||||
|
|
Number |
|
|
|
|
|
excess of |
|
|
Cumulative |
|
|
Cumulative |
|
|
comprehensive |
|
|
Total |
|
|||||||
|
|
of Shares |
|
|
Amount |
|
|
par value |
|
|
net income |
|
|
dividends |
|
|
income/(loss) |
|
|
Equity |
|
|||||||
July 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Shares of Beneficial Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Issued |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized net gain on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Subtotal - comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
7
Universal Health Realty Income Trust
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
|
|
Nine months ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization related to above/below market leases, net |
|
|
( |
) |
|
|
( |
) |
Amortization of debt premium |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Lease receivable |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
|
|
|
|
||
Tenant reserves, deposits and deferred and prepaid rents |
|
|
|
|
|
( |
) |
|
Accrued interest |
|
|
( |
) |
|
|
- |
|
Leasing costs paid |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Investments in LLCs |
|
|
( |
) |
|
|
( |
) |
Cash distributions from LLCs |
|
|
|
|
|
|
||
Advance received from LLC |
|
|
|
|
|
- |
|
|
Additions to real estate investments, net |
|
|
( |
) |
|
|
( |
) |
Cash paid for acquisition of properties |
|
|
( |
) |
|
|
( |
) |
Net cash paid as part of asset exchange transaction |
|
|
- |
|
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Net borrowings on the line of credit |
|
|
|
|
|
|
||
Repayments of mortgage notes payable |
|
|
( |
) |
|
|
( |
) |
Financing costs paid |
|
|
( |
) |
|
|
( |
) |
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Issuance of shares of beneficial interest, net |
|
|
|
|
|
|
||
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Increase/(decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Invoices accrued for construction and improvements |
|
$ |
|
|
$ |
|
See accompanying notes to these condensed consolidated financial statements.
8
UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(unaudited)
(1) General
This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2023. In this Quarterly Report, “we,” “us,” “our” and the “Trust” refer to Universal Health Realty Income Trust and its subsidiaries.
In this Quarterly Report on Form 10-Q, the term “revenues” does not include the revenues of the unconsolidated LLCs in which we have various non-controlling equity interests ranging from
The condensed consolidated financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the SEC and reflect all normal and recurring adjustments which, in our opinion, 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 in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the accompanying disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements, the notes thereto and accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2022.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.
(2) Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions
Leases: We commenced operations in 1986 by purchasing certain properties from subsidiaries of UHS and immediately leasing the properties back to the respective subsidiaries. The base rentals and lease and renewal terms for each of the hospitals leased to subsidiaries of UHS as of September 30, 2023, are provided below. The base rents are paid monthly. The lease on McAllen Medical Center also provides for bonus rent which is paid quarterly based upon a computation that compares the hospital’s current quarter revenue to a corresponding quarter in the base year. The hospital leases with subsidiaries of UHS, with the exception of the lease on Clive Behavioral Health Hospital (which is operated by UHS in a joint venture with an unrelated third party), are unconditionally guaranteed by UHS and are cross-defaulted with one another. The lease for the Clive facility is guaranteed on a several basis by UHS (
The combined revenues generated from the leases on the
On December 31, 2021, we entered into an asset purchase and sale agreement with UHS and certain of its affiliates, which was amended during the first quarter of 2022, pursuant to the terms of which:
9
As a result of UHS’ purchase option within the lease agreements of Aiken and Canyon Creek, the transaction is accounted for as a failed sale leaseback in accordance with U.S. GAAP and the properties acquired by us in connection with the asset purchase and sale agreement with UHS, as amended, were accounted for as financing arrangements and our consolidated balance sheets as of September 30, 2023 and December 31, 2022 include financing receivables related to this transaction of $
Also on December 31, 2021, Aiken and Canyon Creek (as lessees), entered into a master lease and individual property leases as amended, (with us as lessor), for initial lease terms on each property of approximately
Pursuant to the terms of the master leases by and among us and certain subsidiaries of UHS, dated December 24, 1986 and December 31, 2021 (the “Master Leases”), which govern the leases of McAllen Medical Center, Wellington Regional Medical Center (governed by the Master Lease dated December 24, 1986), Aiken Regional Medical Center and Canyon Creek Behavioral Health (governed by the Master Lease dated December 31, 2021, as amended), all of which are hospital properties that are wholly-owned subsidiaries of UHS, UHS has the option, among other things, to renew the leases at the lease terms described below by providing notice to us at least
In addition, a wholly-owned subsidiary of UHS is the managing, majority member in a joint-venture with an unrelated third-party that operates, and leases from us, Clive Behavioral Health. This
10
The table below details the existing lease terms and renewal options for each of the hospital leases that are related to UHS as of September 30, 2023, consisting of
Hospital Name |
|
Annual |
|
|
End of |
|
Renewal |
|
|
||
McAllen Medical Center |
|
$ |
|
|
|
|
|
(a) |
|||
Wellington Regional Medical Center |
|
$ |
|
|
|
|
|
(b) |
|||
Aiken Regional Medical Center/Aurora Pavilion Behavioral Health Services |
|
$ |
|
|
|
|
|
(c) |
|||
Canyon Creek Behavioral Health |
|
$ |
|
|
|
|
|
(c) |
|||
Clive Behavioral Health Hospital |
|
$ |
|
|
|
|
|
(d) |
Upon the December 31, 2021 expiration of the lease on Wellington Regional Medical Center located in West Palm Beach, Florida, a wholly-owned subsidiary of UHS exercised its fair market value renewal option and renewed the lease for a
Management cannot predict whether the leases with wholly-owned subsidiaries of UHS, which have renewal options at existing lease rates or fair market value lease rates, or any of our other leases, will be renewed at the end of their lease term. If the leases are not renewed at their current rates or the fair market value lease rates, we would be required to find other operators for those facilities and/or enter into leases on terms potentially less favorable to us than the current leases. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital or FED facilities upon expiration of the lease terms, our future revenues could decrease if we were unable to earn a favorable rate of return on the sale proceeds received, as compared to the rental revenue currently earned pursuant to these leases.
During the third quarter of 2023, we acquired the McAllen Doctor's Center, an MOB located in McAllen, Texas for a purchase price of approximately $
During the first quarter of 2023, construction was substantially completed on Sierra Medical Plaza I, a multi-tenant MOB located in Reno, Nevada, consisting of approximately
During the fourth quarter of 2021, we purchased the
11
In May, 2021, we acquired the Fire Mesa office building located in Las Vegas, Nevada for a purchase price of approximately $
We are the lessee on
Officers and Employees: Our officers are all employees of a wholly-owned subsidiary of UHS and although as of September 30, 2023 we had no salaried employees, our officers do typically receive annual stock-based compensation awards in the form of restricted stock. In special circumstances, if warranted and deemed appropriate by the Compensation Committee of the Board of Trustees, our officers may also receive one-time special compensation awards in the form of restricted stock and/or cash bonuses.
Advisory Agreement: UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an advisory agreement dated December 24, 1986, and as amended and restated as of January 1, 2019 (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Advisor is obligated to present an investment program to us, to use its best efforts to obtain investments suitable for such program (although it is not obligated to present any particular investment opportunity to us), to provide administrative services to us and to conduct our day-to-day affairs. All transactions between us and UHS must be approved by the Trustees who are unaffiliated with UHS (the “Independent Trustees”). In performing its services under the Advisory Agreement, the Advisor may utilize independent professional services, including accounting, legal, tax and other services, for which the Advisor is reimbursed directly by us. The Advisory Agreement may be terminated for any reason upon sixty days written notice by us or the Advisor. The Advisory Agreement expires on December 31 of each year; however, it is renewable by us, subject to a determination by the Independent Trustees, that the Advisor’s performance has been satisfactory. The Advisory Agreement was renewed for 2023 with the same terms as the Advisory Agreement in place during 2022 and 2021.
Our advisory fee for the three and nine months ended September 30, 2023 and 2022, was computed at
Share Ownership: As of September 30, 2023 and December 31, 2022, UHS owned
SEC reporting requirements of UHS: UHS is subject to the reporting requirements of the SEC and is required to file annual reports containing audited financial information and quarterly reports containing unaudited financial information. Since the aggregate revenues generated from the UHS-related tenants comprised approximately
(3) Dividends
Dividends and dividend equivalents:
During the third quarter of 2023, we declared and paid dividends of approximately $
12
(4) Acquisitions and Divestitures
Nine Months Ended September 30, 2023:
New Construction:
In January 2022, we entered into a ground lease and master flex-lease agreement with a wholly-owned subsidiary of UHS to develop, construct and own the real property of Sierra Medical Plaza I, an MOB located in Reno, Nevada, consisting of approximately
Acquisitions:
During the third quarter of 2023, we acquired the McAllen Doctor's Center, an MOB located in McAllen, Texas, for a purchase price of approximately $
Divestitures:
There were
Nine Months Ended September 30, 2022:
Acquisitions:
During the first quarter of 2022, we completed two transactions, as described below, utilizing qualified third-party intermediaries as part of a series of planned tax-deferred like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code, as amended.
In March, 2022, we acquired the Beaumont Heart and Vascular Center, a medical office building located in Dearborn, Michigan for a purchase price of approximately $
In January, 2022, we acquired the 140 Thomas Johnson Drive medical office building located in Frederick, Maryland for a purchase price of approximately $
Divestitures:
There were
(5) Summarized Financial Information of Equity Affiliates
In accordance with U.S. GAAP and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting. The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent
13
investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.
Distributions received from equity method investees in the consolidated statements of cash flows are classified based upon the nature of the distribution. Returns on investments are presented net of equity in income from unconsolidated investments as cash flows from operating activities. Returns of investments are classified as cash flows from investing activities.
At September 30, 2023, we have non-controlling equity investments or commitments in
During the fourth quarter of 2021, we purchased the
The following property table represents the four LLCs/LPs in which we owned a non-controlling interest and were accounted for under the equity method as of September 30, 2023:
|
|
|
|
|
|
|
Name of LLC/LP |
|
Ownership |
|
|
Property Owned by LLC/LP |
|
Suburban Properties |
|
|
% |
|
||
Brunswick Associates (a.)(b.) |
|
|
% |
|
||
FTX MOB Phase II (c.) |
|
|
% |
|
||
Grayson Properties II (d.)(e.) |
|
|
% |
|
14
Below are the condensed combined statements of income (unaudited) for the four LLCs/LPs accounted for under the equity method at September 30, 2023 and 2022:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(amounts in thousands) |
(amounts in thousands) |
|
||||||||||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Our share of net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Below are the condensed combined balance sheets (unaudited) for the four above-mentioned LLCs/LPs that were accounted for under the equity method as of September 30, 2023 and December 31, 2022:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(amounts in thousands) |
|
|||||
Net property, including construction in progress |
|
$ |
|
|
$ |
|
||
Other assets (a.) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other liabilities (a.) |
|
$ |
|
|
$ |
|
||
Mortgage notes payable, non-recourse to us |
|
|
|
|
|
|
||
Advances payable to us (b.) |
|
|
- |
|
|
|
|
|
Equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Investments in and advances to LLCs before amounts included in |
|
|
|
|
|
|
||
accrued expenses and other liabilities |
|
$ |
|
|
$ |
|
||
Amounts included in accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Our share of equity in LLCs, net |
|
$ |
|
|
$ |
|
As of September 30, 2023, and December 31, 2022, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs/LPs, which are accounted for under the equity method and are non-recourse to us, are as follows (amounts in thousands):
|
|
Mortgage Loan Balance (a.) |
|
|
|
|||||
Name of LLC/LP |
|
9/30/2023 |
|
|
12/31/2022 |
|
|
Maturity Date |
||
Brunswick Associates (2.80% fixed rate mortgage loan) |
|
$ |
|
|
$ |
|
|
|||
Grayson Properties II (3.70% fixed rate construction loan) (b.) |
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
|
Pursuant to the operating and/or partnership agreements of the four LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and the Trust, at any time, potentially subject to certain conditions, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it either agrees to: (i) sell the entire ownership interest of the Offering Member to the Non-Offering Member (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer
15
Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has
(6) Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued an accounting standard classified under FASB ASC Topic 848, “Reference Rate Reform.” The amendments in this update contain practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. Beginning in the first quarter of 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is
16
(7) Lease Accounting
Our results for reporting periods beginning January 1, 2019 are presented under the ASC 842 lease standard. We adopted ASC 842 effective January 1, 2019 under the modified retrospective approach and elected the optional transition method to apply the provisions of ASC 842 as of the adoption date, rather than the earliest period presented. We elected to apply certain adoption related practical expedients for all leases that commenced prior to the election date. This practical expedient allowed us to not separate expenses reimbursed by our customers (“tenant reimbursements”) from the associated rental revenue if certain criteria were met.
As Lessor:
We lease most of our operating properties to customers under agreements that are typically classified as operating leases (as noted below,
On December 31, 2021, as a result of the asset purchase and sale transaction with UHS, as amended during the first quarter of 2022, the real estate assets of
The components of the “Lease revenue – UHS facilities” and “Lease revenue – Non-related parties” captions for the three and nine month periods ended September 30, 2023 and 2022 are disaggregated below (in thousands). Base rents are primarily stated rent amounts provided for under the leases that are recognized on a straight-line basis over the term of the lease. Bonus rents and tenant reimbursements represent amounts where tenants are contractually obligated to pay an amount that is variable in nature.
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
UHS facilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Base rents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Bonus rents (a.) |
|
|
|
|
|
|
|
|
|
|
|
||||
Tenant reimbursements |
|
|
|
|
|
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Lease revenue - UHS facilities |
$ |
|
|
$ |
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|
$ |
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|
$ |
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||||
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Non-related parties: |
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||||
Base rents |
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Tenant reimbursements |
|
|
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|
||||
Lease revenue - Non-related parties |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
(a.)
Disclosures Related to Vacant Facilities:
Vacancies – Specialty Hospitals:
After evaluation of the most suitable future uses for a vacant specialty hospital located in Chicago, Illinois, as well as an effort to reduce its ongoing operating and maintenance expenses, we decided to raze the building. Demolition of the former specialty hospital located
17
in Chicago has been substantially completed. Demolition costs were approximately $
Including the above-mentioned demolition costs incurred during the three and nine-months ended September 30, 2023, the operating expenses incurred by us in connection with the property located in Chicago, Illinois, were $
In addition, the aggregate operating expenses for the
We continue to market the three above-mentioned properties to third parties. Future operating expenses related to these properties, which are estimated to be approximately $
As Lessee:
We are the lessee with various third parties, including subsidiaries of UHS, in connection with ground leases for land at
(8) Debt and Financial Instruments
Debt:
Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of equity issuances. This ongoing analysis considers factors such as the current debt market and interest rate environment, the current/projected occupancy and financial performance of our properties, the current loan-to-value ratio of our properties, the Trust’s current stock price, the capital resources required for anticipated acquisitions and the expected capital to be generated by anticipated divestitures. This analysis, together with consideration of the Trust’s current balance of revolving credit agreement borrowings, non-recourse mortgage borrowings and equity, assists management in deciding which capital resource to utilize when events such as refinancing of specific debt components occur or additional funds are required to finance the Trust’s growth.
On May 15, 2023 we entered into the first amendment to our amended and restated revolving credit agreement ("Credit Agreement") dated as of July 2, 2021 among the Trust as borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The amendment replaced LIBOR rate with term SOFR plus .
On July 2, 2021, we entered into an amended and restated Credit Agreement to amend and restate the previously existing $
18
subsidiaries of the Trust. In addition, borrowings under the new facility are secured by first priority security interests in and liens on all equity interests in most of the Trust’s wholly-owned subsidiaries.
The margins over adjusted term SOFR, Base Rate and the facility fee are based upon our total leverage ratio. At September 30, 2023, the applicable margin over the adjusted term SOFR rate was
At September 30, 2023, we had $
The Credit Agreement contains customary affirmative and negative covenants, including limitations on certain indebtedness, liens, acquisitions and other investments, fundamental changes, asset dispositions and dividends and other distributions. The Credit Agreement also contains restrictive covenants regarding the Trust’s ratio of total debt to total assets, the fixed charge coverage ratio, the ratio of total secured debt to total asset value, the ratio of total unsecured debt to total unencumbered asset value, and minimum tangible net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts then outstanding under the Credit Agreement. We are in compliance with all of the covenants in the Credit Agreement at September 30, 2023, and were in compliance with all of the covenants of the Credit Agreement at December 31, 2022. We also believe that we would remain in compliance if, based on the assumption that the majority of the potential new borrowings will be used to fund investments, the full amount of our commitment was borrowed.
The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):
|
|
Covenant |
|
September 30, |
|
December 31, |
|
||
Tangible net worth |
|
> =$ |
|
$ |
|
$ |
|
||
Total leverage |
|
< |
|
|
% |
|
% |
||
Secured leverage |
|
< |
|
|
% |
|
% |
||
Unencumbered leverage |
|
< |
|
|
% |
|
% |
||
Fixed charge coverage |
|
> |
|
|
|
19
As indicated on the following table, we have various mortgages, all of which are non-recourse to us, included on our condensed consolidated balance sheet as of September 30, 2023 (amounts in thousands):
Facility Name |
|
Outstanding |
|
|
Interest |
|
|
Maturity |
||
2704 North Tenaya Way fixed rate mortgage loan (b.) |
|
$ |
|
|
|
% |
|
|||
Summerlin Hospital Medical Office Building III fixed |
|
|
|
|
|
% |
|
|||
Tuscan Professional Building fixed rate mortgage loan |
|
|
|
|
|
% |
|
|||
Phoenix Children’s East Valley Care Center fixed rate |
|
|
|
|
|
% |
|
|||
Rosenberg Children's Medical Plaza fixed rate mortgage loan |
|
|
|
|
|
% |
|
|||
Total, excluding net debt premium and net financing fees |
|
|
|
|
|
|
|
|
||
Less net financing fees |
|
|
( |
) |
|
|
|
|
|
|
Plus net debt premium |
|
|
|
|
|
|
|
|
||
Total mortgages notes payable, non-recourse to us, net |
|
$ |
|
|
|
|
|
|
On January 3, 2023, the $
At September 30, 2023 and December 31, 2022, we had various mortgages, all of which were non-recourse to us, included in our condensed consolidated balance sheet. The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages outstanding as of September 30, 2023, had a combined carrying value of approximately $
Financial Instruments:
In March 2020, we entered into interest rate swap agreement on a total notional amount of $
In January 2020, we entered into interest rate swap agreement on a total notional amount of $
During the third quarter of 2019, we entered into interest rate swap agreement on a total notional amount of $
We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from third parties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At September 30, 2023, the fair value of our interest rate swaps was a net asset of $
20
through September 30, 2023 we paid or accrued approximately $
(9) Segment Reporting
Our primary business is investing in and leasing healthcare and human service facilities through direct ownership or through joint ventures, which aggregate into a single reportable segment. We actively manage our portfolio of healthcare and human service facilities and may from time to time make decisions to sell lower performing properties not meeting our long-term investment objectives. The proceeds of sales are typically reinvested in new developments or acquisitions, which we believe will meet our planned rate of return. It is our intent that all healthcare and human service facilities will be owned or developed for investment purposes. Our revenue and net income are generated from the operation of our investment portfolio.
Our portfolio is located throughout the United States, however, we do not distinguish or group our operations on a geographical basis for purposes of allocating resources or measuring performance. We review operating and financial data for each property on an individual basis; therefore, we define an operating segment as our individual properties. Individual properties have been aggregated into
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a real estate investment trust (“REIT”) that commenced operations in 1986. We invest in healthcare and human service related facilities currently including acute care hospitals, behavioral health care hospitals, specialty facilities, free-standing emergency departments, childcare centers and medical/office buildings. As of November 1, 2023, we have seventy-seven real estate investments or commitments located in twenty-one states consisting of:
Forward Looking Statements and Certain Risk Factors
You should carefully review all of the information contained in this Quarterly Report, and should particularly consider any risk factors that we set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, this Quarterly Report and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In this Quarterly Report, we state our beliefs of future events and of our future financial performance. This Quarterly Report contains “forward-looking statements” that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, or the negative of those words and expressions, as well as statements in future tense, identify forward-looking statements. You should be aware that those statements are only our predictions. Actual events or results may differ materially. In evaluating those statements, you should specifically consider various factors, including the risks described elsewhere herein and in our Annual Report on Form 10-K for the year ended December 31, 2022 in Item 1A Risk Factors and in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements and in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements and Certain Risk Factors, as included herein. Those factors may cause our actual results to differ materially from any of our forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or our good faith belief with respect to future events and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Such factors include, among other things, the following:
22
23
24
25
Given these uncertainties, risks and assumptions, you are cautioned not to place undue reliance on such forward-looking statements. Our actual results and financial condition, including the operating results of our lessees and the facilities leased to subsidiaries of UHS, could differ materially from those expressed in, or implied by, the forward-looking statements.
Forward-looking statements speak only as of the date the statements are made. We assume no obligation to publicly update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies or estimates from those disclosed in our 2022 Annual Report on Form 10-K.
Results of Operations
During the three-month period ended September 30, 2023, net income was $3.9 million, as compared to $4.8 million during the third quarter of 2022. The $976,000 decrease was attributable to:
During the nine-month period ended September 30, 2023, net income was $11.8 million, as compared to $15.5 million during the nine-month period ended September 30, 2022. The $3.7 million decrease was attributable to:
Revenues increased $2.1 million, or 9.4%, to $24.2 million during the three-month period ended September 30, 2023, as compared to $22.2 million during the three-month period ended September 30, 2022. The increase during the third quarter of 2023, as compared to
26
the third quarter of 2022, was primarily due to an aggregate net increase generated at various properties, including the revenues generated at a newly constructed and recently opened MOB located in Reno, Nevada, and the newly acquired MOB located in McAllen, Texas.
Revenues increased $4.8 million, or 7.2%, to $71.3 million during the nine-month period ended September 30, 2023, as compared to $66.5 million during the nine-month period ended September 30, 2022. The increase during the first nine months of 2023, as compared to the first nine months of 2022, was primarily due to an aggregate net increase generated at various properties, including the revenues generated at a newly constructed and recently opened MOB located in Reno, Nevada, and the newly acquired MOB located in McAllen, Texas.
A large portion of the expenses associated with our consolidated medical office buildings is passed on directly to the tenants either directly as tenant reimbursements of common area maintenance expenses or included in base rental amounts. Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred and are included as lease revenue in our condensed consolidated statements of income.
Included in our other operating expenses (excluding ground lease expenses) are expenses related to the consolidated medical office buildings and three vacant properties (the demolition of one of these vacant properties was substantially completed during the second quarter of 2023) amounting to $7.1 million during the third quarter of 2023 and $6.1 million during the third quarter of 2022. The $1.0 million increase in other operating expenses related to these facilities during the third quarter of 2023, as compared to the third quarter of 2022, was due to net increases experienced at various properties, including the impact of the recently opened MOB located in Reno, Nevada.
Other operating expenses related to the consolidated medical office buildings and three vacant specialty facilities, as applicable, totaled $20.0 million (excluding $1.1 million of demolition expenses incurred during the nine months ended September 30, 2023) and $18.1 million for the nine-month periods ended September 30, 2023 and 2022, respectively. The $1.9 million increase in our other operating expenses during the first nine months of 2023, as compared to the first nine months of 2022, was primarily due to increases experienced at various properties, including the impact of the recently opened MOB located in Reno, Nevada.
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 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 certain items, such as gains on transactions that occurred during the periods presented. To the extent a REIT recognizes a gain or loss with respect to the sale of incidental assets, 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, if and when applicable. 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.
Below is a reconciliation of our reported net income to FFO for the three and nine-month periods ended September 30, 2023 and 2022 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net income |
|
$ |
3,872 |
|
|
$ |
4,848 |
|
|
$ |
11,807 |
|
|
$ |
15,471 |
|
Depreciation and amortization expense on consolidated |
|
|
7,012 |
|
|
|
6,658 |
|
|
|
20,479 |
|
|
|
20,046 |
|
Depreciation and amortization expense on unconsolidated |
|
|
309 |
|
|
|
295 |
|
|
|
900 |
|
|
|
885 |
|
Funds From Operations |
|
$ |
11,193 |
|
|
$ |
11,801 |
|
|
$ |
33,186 |
|
|
$ |
36,402 |
|
Weighted average number of shares outstanding - Diluted |
|
|
13,822 |
|
|
|
13,801 |
|
|
|
13,811 |
|
|
|
13,792 |
|
Funds From Operations per diluted share |
|
$ |
0.81 |
|
|
$ |
0.86 |
|
|
$ |
2.40 |
|
|
$ |
2.64 |
|
Our FFO decreased $608,000 during the third quarter of 2023, as compared to the third quarter of 2022. The net decrease was primarily due to: (i) a decrease in net income of $976,000, as discussed above, offset by; (ii) a $368,000 increase in depreciation and amortization expense incurred by our consolidated and unconsolidated affiliates.
Our FFO decreased $3.2 million during the first nine months of 2023, as compared to the first nine months of 2022. The net decrease was primarily due to: (i) a decrease in net income of $3.7 million, as discussed above, offset by; (ii) a $448,000 increase in depreciation and amortization expense incurred by our consolidated and unconsolidated affiliates.
27
Other Operating Results
Interest Expense:
As reflected in the schedule below, interest expense was $4.5 million and $2.8 million during the three-month periods ended September 30, 2023 and 2022, respectively, and $12.3 million and $7.4 million during the nine-month periods ended September 30, 2023 and 2022, respectively (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months |
|
|
Three Months |
|
|
Nine Months |
|
|
Nine Months |
|
||||
Revolving credit agreement |
|
$ |
5,408 |
|
|
$ |
2,641 |
|
|
$ |
14,892 |
|
|
$ |
5,359 |
|
Mortgage interest |
|
|
429 |
|
|
|
543 |
|
|
|
1,301 |
|
|
|
1,739 |
|
Interest rate swaps income, net (a.) |
|
|
(1,547 |
) |
|
|
(411 |
) |
|
|
(4,190 |
) |
|
|
(37 |
) |
Amortization of financing fees |
|
|
188 |
|
|
|
177 |
|
|
|
536 |
|
|
|
538 |
|
Amortization of fair value of debt |
|
|
(12 |
) |
|
|
(13 |
) |
|
|
(36 |
) |
|
|
(39 |
) |
Capitalized interest on major projects |
|
|
- |
|
|
|
(97 |
) |
|
|
(149 |
) |
|
|
(153 |
) |
Other interest |
|
|
1 |
|
|
|
(21 |
) |
|
|
(14 |
) |
|
|
1 |
|
Interest expense, net |
|
$ |
4,467 |
|
|
$ |
2,819 |
|
|
$ |
12,340 |
|
|
$ |
7,408 |
|
Interest expense increased by $1.6 million during the three-month period ended September 30, 2023, as compared to the comparable period of 2022, due primarily to: (i) a $2.8 million increase in the interest expense on our revolving credit agreement primarily resulting from increases in our average cost of borrowings (6.89% average effective rate during the third quarter of 2023, as compared to 3.71% average effective rate during the comparable quarter of 2022) and in our average outstanding borrowings ($311.4 million during the three months ended September 30, 2023 as compared to $282.4 million in the comparable quarter of 2022); (ii) a $97,000 increase due to a decrease in capitalized interest on a major project that was substantially completed during the first quarter of 2023; (iii) a $34,000 net increase in other combined interest expenses, partially offset by; (iv) a $1.1 million favorable change in interest rate swap income, and; (v) a $114,000 decrease in mortgage interest expense.
Interest expense increased by $4.9 million during the nine-month period ended September 30, 2023, as compared to the comparable period of 2022, due primarily to: (i) a $9.5 million increase in the interest expense on our revolving credit agreement primarily resulting from increases in our average cost of borrowings (6.52% average effective rate during the first nine months of 2023, as compared to 2.61% average effective rate during the comparable nine months of 2022) and in our average outstanding borrowings ($305.4 million during the nine months ended September 30, 2023 as compared to $274.7 million in the comparable nine-month period of 2022), partially offset by; (ii) a $4.2 million favorable change in interest rate swap income; (iii) a $438,000 decrease in mortgage interest expense, and; (iv) a $10,000 decrease in other interest expenses.
Disclosures Related to Certain Facilities
Please refer to Note 7 to the consolidated financial statements - Lease Accounting, for additional information regarding certain of our vacant specialty hospital facilities consisting of Evansville, Indiana; Corpus Christi, Texas, and; Chicago, Illinois.
28
Liquidity and Capital Resources
Net cash provided by operating activities
Net cash provided by operating activities was $32.5 million during the nine-month period ended September 30, 2023 as compared to $34.5 million during the comparable period of 2022. The $2.0 million net decrease was attributable to:
Net cash used in investing activities
Net cash used in investing activities was $19.8 million during the first nine months of 2023 as compared to $31.2 million during the first nine months of 2022.
During the nine-month period ended September 30, 2023 we funded: (i) $12.2 million in additions to real estate investments including construction costs related to the Sierra Medical Plaza I medical office building located in Reno, Nevada, that was substantially completed during the first quarter of 2023, as well as tenant improvements at various MOBs; (ii) $7.6 million, including transaction costs, on the August, 2023 acquisition of the McAllen Doctor's Center medical office building, as discussed in Note 4 to the consolidated financial statements–Acquisitions and Divestitures, and; (iii) $4.1 million in equity investments in unconsolidated LLCs. In addition, during the nine months ended September 30, 2023, we received: (i) $531,000 of cash in excess of income from LLCs, and; (ii) $3.5 million of repayments of an advance we had provided to an unconsolidated LLC during 2021.
During the nine-month period ended September 30, 2022 we funded: (i) $13.6 million, including transaction costs, on the acquisitions of the Beaumont Heart and Vascular Center in March, 2022, and; the 140 Thomas Johnson Drive medical office building in January, 2022, as discussed in Note 4 to the consolidated financial statements–Acquisitions and Divestitures; (ii) $16.7 million in additions to real estate investments including construction costs related to the Sierra Medical Plaza I medical office building located in Reno, Nevada, that was substantially completed during the first quarter of 2023, as well as tenant improvements at various MOBs, and; (iii) $1.3 million as part of the asset purchase and sale agreement with UHS, as discussed in Note 2 to the consolidated financial statements-Relationship with UHS and Related Party Transactions, and; (iv) $94,000 in equity investments in unconsolidated LLCs.. In addition, during the nine-months ended September 30, 2022, we received approximately $516,000 of cash in excess of income from LLCs.
Net cash used in financing activities
Net cash used in financing activities was $11.9 million during the nine months ended September 30, 2023, as compared to $17.7 million during the nine months ended September 30, 2022.
During the nine-month period ended September 30, 2023, we paid: (i) $5.4 million on mortgage notes payable that are non-recourse to us, including a $4.2 million repayment of a fixed rate mortgage loan that matured during the first quarter of 2023; (ii) $222,000 of financing costs related to the amendment to our revolving credit agreement, and; (iii) $29.8 million of dividends, including $58,000 of previously accrued dividends. Additionally, during the nine months ended September 30, 2023, we received: (i) $23.4 million of net borrowings on our revolving credit agreement, and; (ii) $118,000 of net cash from the issuance of shares of beneficial interest.
During the nine-month period ended September 30, 2022, we paid: (i) $6.7 million on mortgage notes payable that are non-recourse to us, including a $5.1 million repayment of a fixed rate mortgage loan that matured during the second quarter of 2022; (ii) $26,000 of financing costs related to the revolving credit agreement, and; (iii) $29.3 million of dividends, including $60,000 of previously accrued dividends. Additionally, during the nine months ended September 30, 2022, we received: (i) $18.2 million of net borrowings on our revolving credit agreement, and; (ii) $136,000 of net cash from the issuance of shares of beneficial interest.
Additional cash flow and dividends paid information for the nine-month periods ended September 30, 2023 and 2022:
As indicated on our condensed consolidated statement of cash flows, we generated net cash provided by operating activities of $32.5 million and $34.5 million during the nine-month periods ended September 30, 2023 and 2022, respectively. As also indicated on our statement of cash flows, non-cash expenses including depreciation and amortization expense, amortization related to above/below market leases, amortization of debt premium, amortization of deferred financing costs and stock-based compensation expense, as well as changes in certain assets and liabilities, are the primary differences between our net income and net cash provided by operating activities during each period.
29
We declared and paid dividends of $29.8 million and $29.3 million during the nine-month periods ended September 30, 2023 and 2022, respectively. During the first nine months of 2023, the $32.5 million of net cash provided by operating activities was approximately $2.7 million greater than the $29.8 million of dividends paid during the first nine months of 2023. During the first nine months of 2022, the $34.5 million of net cash provided by operating activities was approximately $5.2 million greater than the $29.3 million of dividends paid during the first nine months of 2022.
As indicated in the cash flows from investing activities and cash flows from financing activities sections of the statements of cash flows, there were various other sources and uses of cash during the nine months ended September 30, 2023 and 2022. From time to time, various other sources and uses of cash may include items such as investments and advances made to/from LLCs, additions to real estate investments, acquisitions/divestiture of properties, net borrowings/repayments of debt, and proceeds generated from the issuance of equity. Therefore, in any given period, the funding source for our dividend payments is not wholly dependent on the operating cash flow generated by our properties. Rather, our dividends as well as our capital reinvestments into our existing properties, acquisitions of real property and other investments are funded based upon the aggregate net cash inflows or outflows from all sources and uses of cash from the properties we own either in whole or through LLCs, as outlined above.
In determining and monitoring our dividend level on a quarterly basis, our management and Board of Trustees consider many factors in determining the amount of dividends to be paid each period. These considerations primarily include: (i) the minimum required amount of dividends to be paid in order to maintain our REIT status; (ii) the current and projected operating results of our properties, including those owned in LLCs, and; (iii) our future capital commitments and debt repayments, including those of our LLCs. Based upon the information discussed above, as well as consideration of projections and forecasts of our future operating cash flows, management and the Board of Trustees have determined that our operating cash flows have been sufficient to fund our dividend payments. Future dividend levels will be determined based upon the factors outlined above with consideration given to our projected future results of operations.
We expect to finance all capital expenditures and acquisitions and pay dividends utilizing internally generated and additional funds. Additional funds may be obtained through: (i) borrowings under our $375 million revolving credit agreement (which had $50.4 million of available borrowing capacity, net of outstanding borrowings and letters of credit as of September 30, 2023); (ii) borrowings under or refinancing of existing third-party debt pursuant to mortgage loan agreements entered into by our consolidated and unconsolidated LLCs/LPs; (iii) the issuance of equity, and/or; (iv) the issuance of other long-term debt.
We believe that our operating cash flows, cash and cash equivalents, available borrowing capacity under our revolving credit agreement and access to the capital markets provide us with sufficient capital resources to fund our operating, investing and financing requirements for the next twelve months, including providing sufficient capital to allow us to make distributions necessary to enable us to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on terms acceptable to us could have a material unfavorable impact on our results of operations, financial condition and liquidity.
Credit facilities and mortgage debt
Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of equity issuances. This ongoing analysis considers factors such as the current debt market and interest rate environment, the current/projected occupancy and financial performance of our properties, the current loan-to-value ratio of our properties, the Trust’s current stock price, the capital resources required for anticipated acquisitions and the expected capital to be generated by anticipated divestitures. This analysis, together with consideration of the Trust’s current balance of revolving credit agreement borrowings, non-recourse mortgage borrowings and equity, assists management in deciding which capital resource to utilize when events such as refinancing of specific debt components occur or additional funds are required to finance the Trust’s growth.
On May 15, 2023 we entered into the first amendment to our amended and restated revolving credit agreement ("Credit Agreement") dated as of July 2, 2021 among the Trust as borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The amendment replaced LIBOR rate with term SOFR plus .10% ("adjusted term SOFR") as an alternative benchmark rate for purposes under the Credit Agreement for settings of benchmark rates that occur on or after the closing date in accordance with the benchmark replacement provisions set forth in the Credit Agreement.
On July 2, 2021, we entered into an amended and restated Credit Agreement to amend and restate the previously existing $350 million credit agreement, as amended and dated June 5, 2020. Among other things, under the Credit Agreement, our aggregate revolving credit commitment was increased to $375 million from $350 million. The Credit Agreement, which is scheduled to mature on July 2, 2025, provides for a revolving credit facility in an aggregate principal amount of $375 million, including a $40 million sublimit for letters of credit and a $30 million sublimit for swingline/short-term loans. Under the terms of the Credit Agreement, we may request that the revolving line of credit be increased by up to an additional $50 million. Borrowings under the new facility are guaranteed by certain
30
subsidiaries of the Trust. In addition, borrowings under the new facility are secured by first priority security interests in and liens on all equity interests in most of the Trust’s wholly-owned subsidiaries.
Borrowings under the Credit Agreement will bear interest annually at a rate equal to, at our option, at adjusted term SOFR for either one, three, or six months or the Base Rate, plus in either case, a specified margin depending on our total leverage ratio, as determined by the formula set forth in the Credit Agreement. The applicable margin prior to the first amendment ranges from 1.10% to 1.35% for LIBOR loans and 0.10% to 0.35% for Base Rate loans. The initial applicable margin after the first amendment is 1.20% for adjusted term SOFR loans and 0.20% for Base Rate loans. The Credit Agreement, as amended by the first amendment, defines “Base Rate” as the greatest of (a) the Administrative Agent’s prime rate, (b) the federal funds effective rate plus 1/2 of 1% and (c) one month adjusted term SOFR plus 1%. The Trust will also pay a quarterly revolving facility fee ranging from 0.15% to 0.35% (depending on the Trust’s total leverage ratio) on the committed amount of the Credit Agreement. The Credit Agreement also provides for options to extend the maturity date and borrowing availability for two additional six-month periods.
The margins over adjusted term SOFR, Base Rate and the facility fee are based upon our total leverage ratio. At September 30, 2023, the applicable margin over the adjusted term SOFR rate was 1.20%, the margin over the Base Rate was 0.20% and the facility fee was 0.20%.
At September 30, 2023, we had $321.5 million of outstanding borrowings and $3.1 million of letters of credit outstanding under our Credit Agreement. We had $50.4 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of September 30, 2023. There are no compensating balance requirements. At December 31, 2022, we had $298.1 million of outstanding borrowings, $3.1 million of outstanding letters of credit and $73.8 million of available borrowing capacity.
The Credit Agreement contains customary affirmative and negative covenants, including limitations on certain indebtedness, liens, acquisitions and other investments, fundamental changes, asset dispositions and dividends and other distributions. The Credit Agreement also contains restrictive covenants regarding the Trust’s ratio of total debt to total assets, the fixed charge coverage ratio, the ratio of total secured debt to total asset value, the ratio of total unsecured debt to total unencumbered asset value, and minimum tangible net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts then outstanding under the Credit Agreement. We are in compliance with all of the covenants in the Credit Agreement at September 30, 2023, and were in compliance with all of the covenants of the Credit Agreement at December 31, 2022. We also believe that we would remain in compliance if, based on the assumption that the majority of the potential new borrowings will be used to fund investments, the full amount of our commitment was borrowed.
The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):
|
|
Covenant |
|
September 30, |
|
December 31, |
|
||
Tangible net worth |
|
> =$125,000 |
|
$ |
200,658 |
|
$ |
219,654 |
|
Total leverage |
|
< 60% |
|
|
44.5 |
% |
|
42.9 |
% |
Secured leverage |
|
< 30% |
|
|
4.9 |
% |
|
5.6 |
% |
Unencumbered leverage |
|
< 60% |
|
|
44.2 |
% |
|
41.8 |
% |
Fixed charge coverage |
|
> 1.50x |
|
3.3x |
|
4.3x |
|
As indicated on the following table, we have various mortgages, all of which are non-recourse to us, included on our condensed consolidated balance sheet as of September 30, 2023 (amounts in thousands):
Facility Name |
|
Outstanding |
|
|
Interest |
|
|
Maturity |
||
2704 North Tenaya Way fixed rate mortgage loan (b.) |
|
$ |
6,121 |
|
|
|
4.95 |
% |
|
November, 2023 |
Summerlin Hospital Medical Office Building III fixed |
|
|
12,345 |
|
|
|
4.03 |
% |
|
April, 2024 |
Tuscan Professional Building fixed rate mortgage loan |
|
|
1,229 |
|
|
|
5.56 |
% |
|
June, 2025 |
Phoenix Children’s East Valley Care Center fixed rate |
|
|
7,999 |
|
|
|
3.95 |
% |
|
January, 2030 |
Rosenberg Children's Medical Plaza fixed rate mortgage loan |
|
|
11,836 |
|
|
|
4.42 |
% |
|
September, 2033 |
Total, excluding net debt premium and net financing fees |
|
|
39,530 |
|
|
|
|
|
|
|
Less net financing fees |
|
|
(215 |
) |
|
|
|
|
|
|
Plus net debt premium |
|
|
4 |
|
|
|
|
|
|
|
Total mortgages notes payable, non-recourse to us, net |
|
$ |
39,319 |
|
|
|
|
|
|
31
On January 3, 2023, the $4.2 million fixed rate mortgage loan on Desert Valley Medical Center was fully repaid utilizing borrowings under our Credit Agreement.
At September 30, 2023 and December 31, 2022, we had various mortgages, all of which were non-recourse to us, included in our condensed consolidated balance sheet. The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages outstanding as of September 30, 2023, had a combined carrying value of approximately $39.5 million and a combined fair value of approximately $36.7 million. The mortgages outstanding as of December 31, 2022, had a combined carrying value of approximately $45.0 million and a combined fair value of approximately $43.2 million.
Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.
Off Balance Sheet Arrangements
As of September 30, 2023, we are party to certain off balance sheet arrangements consisting of standby letters of credit and equity and debt financing commitments. Our outstanding letters of credit at September 30, 2023 totaled $3.1 million related to Grayson Properties II. As of December 31, 2022, we had off balance sheet arrangements consisting of standby letters of credit and equity and debt financing commitments. Our outstanding letters of credit at December 31, 2022 totaled $3.1 million related to Grayson Properties II.
Acquisition and Divestiture Activity
Please see Note 4 to the consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
LIBOR Transition
In 2017, the U.K. Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to phase out LIBOR and stop compelling banks to submit rates for its calculation. In 2021, the FCA further announced that effective January 1, 2022, the one week and two-month USD LIBOR tenors are no longer being published. Additionally, effective July 1, 2023 and all other USD LIBOR tenors are no longer published.
The Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. We are not able to predict how the markets will respond to SOFR or any other alternative reference rate as the transition away from LIBOR continues. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
On May 15, 2023 we entered into the first amendment to our amended and restated revolving credit agreement ("Credit Agreement") dated as of July 2, 2021 among the Trust as borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The amendment replaces LIBOR Rate with adjusted term SOFR as an alternative benchmark rate for purposes under the Credit Agreement for settings of benchmark rates the occur on or after the closing date in accordance with the benchmark replacement provisions set forth in the Credit Agreement.
Financial Instruments
In March 2020, we entered into an interest rate swap agreement on a total notional amount of $55 million with a fixed interest rate of 0.565% that we designated as a cash flow hedge. The interest rate swap became effective on March 25, 2020 and is scheduled to mature on March 25, 2027. On May 15, 2023, this interest rate swap agreement was modified to replace the benchmark rate from LIBOR to term SOFR. If one-month term SOFR is above 0.505%, the counterparty pays us, and if one-month term SOFR is less than 0.505%, we pay the counterparty, the difference between the fixed rate of 0.505% and one-month term SOFR.
In January 2020, we entered into an interest rate swap agreement on a total notional amount of $35 million with a fixed interest rate of 1.4975% that we designated as a cash flow hedge. The interest rate swap became effective on January 15, 2020 and is scheduled to mature on September 16, 2024. On May 15, 2023, this interest rate swap agreement was modified to replace the benchmark rate from
32
LIBOR to term SOFR. If the one-month term SOFR is above 1.41%, the counterparty pays us, and if the one-month term SOFR is less than 1.41%, we pay the counterparty, the difference between the fixed rate of 1.41% and one-month term SOFR.
During the third quarter of 2019, we entered into an interest rate swap agreement on a total notional amount of $50 million with a fixed interest rate of 1.144% that we designated as a cash flow hedge. The interest rate swap became effective on September 16, 2019 and is scheduled to mature on September 16, 2024. On May 15, 2023, this interest rate swap agreement was modified to replace the benchmark rate from LIBOR to term SOFR. If one-month term SOFR is above 1.064%, the counterparty pays us, and if one-month term SOFR is less than 1.064%, we pay the counterparty, the difference between the fixed rate of 1.064% and one-month term SOFR.
We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from third parties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At September 30, 2023, the fair value of our interest rate swaps was a net asset of $10.5 million which is included in deferred charges and other assets on the accompanying condensed consolidated balance sheet. During the third quarter of 2023, we received approximately $1.6 million from the counterparty, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. During the first nine months of 2023, we received approximately $4.3 million from the counterparty, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. From inception of the swap agreements through September 30, 2023 we paid or accrued approximately $2.5 million to the counterparty, offset by approximately $5.9 million in receipts from the counterparty, adjusted for accruals, pursuant to the terms of the swap. During the third quarter of 2022, we paid or accrued approximately $3,000 to the counterparty, offset by $428,000 in receipts from the counterparty, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. During the first nine months of 2022, we paid or accrued approximately $414,000 to the counterparty, offset by $463,000 in receipts from the counterparty, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or a liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. We do not expect any gains or losses on our interest rate swaps to be reclassified to earnings in the next twelve months.
The sensitivity analysis related to our fixed and variable rate debt assumes current market rates with all other variables held constant. As of September 30, 2023, the fair value and carrying value of our debt is approximately $358.1 million and $361.0 million, respectively. As of that date, the carrying value exceeds the fair value by approximately $2.9 million.
33
The table below presents information about our financial instruments that are sensitive to changes in interest rates. The interest rate swaps include the $50 million swap agreement entered into during the third quarter of 2019, the $35 million swap agreement entered into in January, 2020 and the $55 million swap agreement entered into in March, 2020. For debt obligations, the amounts of which are as of September 30, 2023, the table presents principal cash flows and related weighted average interest rates by contractual maturity dates.
|
|
Maturity Date, Year Ending December 31 |
|
|||||||||||||||||||||||||
(Dollars in thousands) |
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Debt(a) |
|
$ |
6,489 |
|
|
$ |
13,530 |
|
|
$ |
939 |
|
|
$ |
600 |
|
|
$ |
626 |
|
|
$ |
17,346 |
|
|
$ |
39,530 |
|
Average interest rates |
|
|
4.50 |
% |
|
|
4.40 |
% |
|
|
4.30 |
% |
|
|
4.20 |
% |
|
|
4.20 |
% |
|
|
4.30 |
% |
|
|
4.40 |
% |
Variable rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Debt(b) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
321,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
321,500 |
|
Average interest rates |
|
— |
|
|
— |
|
|
|
6.62 |
% |
|
— |
|
|
— |
|
|
— |
|
|
|
6.62 |
% |
|||||
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Notional amount(c) |
|
$ |
— |
|
|
$ |
85,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
55,000 |
|
|
$ |
— |
|
|
$ |
140,000 |
|
Interest rates |
|
— |
|
|
|
1.210 |
% |
|
— |
|
|
— |
|
|
|
0.505 |
% |
|
— |
|
|
|
0.990 |
% |
As calculated based upon our variable rate debt outstanding as of September 30, 2023 that is subject to interest rate fluctuations, and giving effect to the above-mentioned interest rate swap, each 1% change in interest rates would impact our net income by approximately $1.8 million.
Item 4. Controls and Procedures
As of September 30, 2023, under the supervision and with the participation of our management, including the Trust’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”).
Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the 1934 Act and the SEC rules thereunder.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting or in other factors during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 31, 2022 includes a listing of risk factors to be considered by investors in our securities. There have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 5. Other Information
Item 6. Exhibits
|
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because iXBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101) |
35
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 8, 2023 |
|
UNIVERSAL HEALTH REALTY INCOME TRUST (Registrant) |
|
|
|
|
|
/s/ Alan B. Miller |
|
|
Alan B. Miller, |
|
|
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
/s/ Charles F. Boyle |
|
|
Charles F. Boyle, Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
36