Universal Health Realty Income Trust (NYSE:UHT) announced today that for the three-month period ended September 30, 2019, reported net income was $4.7 million, or $.34 per diluted share, as compared to $4.4 million, or $.32 per diluted share, during the third quarter of 2018.
As calculated on the attached Schedule of Non-GAAP Supplemental Information ("Supplemental Schedule"), our funds from operations ("FFO"), were $11.4 million, or $.83 per diluted share, during the third quarter of 2019, as compared to $10.7 million, or $.78 per diluted share, during the third quarter of 2018.
Consolidated Results of Operations - Nine-Month Periods Ended September 30, 2019 and 2018:
For the nine-month period ended September 30, 2019, our reported net income was $13.1 million, or $.95 per diluted share, as compared to $19.8 million, or $1.44 per diluted share, during the first nine months of 2018.
As also calculated on the Supplemental Schedule, our FFO were $33.3 million, or $2.42 per diluted share, during the first nine months of 2019, as compared to $34.2 million, or $2.49 per diluted share, during the first nine months of 2018.
As reflected on the attached Supplemental Schedule, our financial results for the nine-month period ended September 30, 2019 included a gain of $250,000, or $.01 per diluted share, related to the sale of a parcel of land located at one of our buildings. Our financial results for the nine-month period ended September 30, 2018 included $4.5 million, or $.33 per diluted share, of hurricane insurance recoveries in excess of damaged property write-downs received in connection with damage sustained from Hurricane Harvey which occurred in August, 2017. Excluding the impact of these items from each respective nine-month period, and as calculated on the Supplemental Schedule, our adjusted net income was $12.9 million, or $.94 per diluted share, during the nine-month period ended September 30, 2019, as compared to $15.2 million, or $1.11 per diluted share, during the nine-month period ended September 30, 2018.
Our net income, adjusted net income and FFO for the nine months ended September 30, 2018 included a net increase of approximately $1.3 million, or $.10 per diluted share, related to the favorable impact from a lease termination agreement entered into during the second quarter of 2018 ($1.7 million, or $.12 per diluted share), partially offset by the unfavorable impact of the non-recurring repairs and remediation expenses incurred at one of our medical office buildings ($400,000, or $.02 per diluted share). In addition, our net income, adjusted net income and FFO during the nine months ended September 30, 2018 included the favorable impact of approximately $1.2 million, or $.08 per diluted share, resulting from business interruption insurance recovery proceeds recorded during the nine-month period ended September 30, 2018. Included in this amount, which covered the period of late August, 2017 through June 30, 2018 (after satisfaction of the applicable deductibles), was approximately $500,000, or $.04 per diluted share, related to the period of August, 2017 through December 31, 2017.
Dividend Information:
The third quarter dividend of $.68 per share, or $9.4 million in the aggregate, was declared on September 4, 2019 and paid on September 30, 2019.
Capital Resources Information:
At September 30, 2019, we had $205.7 million of borrowings outstanding pursuant to the terms of our $300 million credit agreement and $94.3 million of available borrowing capacity. The credit agreement has a scheduled maturity date of March, 2022, however, we have the option to extend the maturity date for up to two additional six-month periods.
Lease Expirations/Vacancies of Two Hospital Facilities:
As disclosed in our Form 10-K for the year ended December 31, 2018, and our Forms 10-Q for the quarters ended March 31, 2019 and June 30, 2019, the tenants in two of our hospital facilities had provided notice to us that they did not intend to renew the leases upon the scheduled expiration of the respective facilities. The combined revenues generated from the leases on these two hospital facilities comprised approximately 2% of our consolidated revenues during each of the years ended December 31, 2018 and 2017.
The leases on these two hospital facilities, located in Evansville, Indiana, and Corpus Christi, Texas, expired on May 31, 2019 and June 1, 2019, respectively. The Evansville, Indiana hospital tenant entered into a short-term lease with us (which expired on September 30, 2019), at a substantially increased lease rate as compared to the original lease rate. The lease revenue generated from this facility amounted to $842,000 during the three-month period ended September 30, 2019 (as compared to $178,000 per quarter pursuant to the terms of the original lease). The tenant that occupied the hospital in Evansville, Indiana, vacated the property on September 30, 2019 and the tenant that occupied the hospital in Corpus Christi, Texas, vacated the property on June 1, 2019.
Although we are in the process of marketing each property for lease to new tenants, should these properties remain vacant for an extended period of time, or should we experience decreased lease rates on future leases, as compared to prior/expired lease rates, or incur substantial renovation costs to make the properties suitable for other operators/tenants, our future results of operations could be materially unfavorably impacted.
New Construction Projects:
Behavioral Health Hospital - Clive, Iowa
In late July, 2019, a wholly-owned subsidiary of ours entered into an agreement to build and lease a newly constructed 108-bed behavioral health care hospital located in Clive, Iowa. The lease on this facility, which is triple net and has an initial term of 20 years with five, 10-year renewal options, was executed with Clive Behavioral Health, LLC, a joint venture between Universal Health Services, Inc. ("UHS") and Catholic Health Initiatives-Iowa, Corp. (d/b/a Mercy One Des Moines Medical Center).
Construction of this hospital, for which we have engaged a wholly-owned subsidiary of UHS to act as project manager, is expected to be completed in the fall of 2020. The hospital lease will commence upon issuance of the certificate of occupancy. The approximate cost of the project is estimated at $37.5 million and the initial annual rent is estimated to be approximately $2.7 million.
Medical Office Building - Denison, Texas
In September, 2019, we entered into an agreement whereby we will own a 95% ownership interest in Grayson Properties II LP, which will develop, construct, own and operate the Texoma Medical Plaza II, a 75,000 rentable square feet medical office building ("MOB") located in Denison, Texas. This MOB, which is scheduled to be completed in late 2020, will be located on the campus of Texoma Medical Center, a hospital that is owned and operated by a wholly-owned subsidiary of UHS. A 10-year master flex lease has been executed with the wholly-owned subsidiary of UHS for approximately 50% of the rentable square feet of the MOB, which is subject to reduction contingent upon future occupancy of the building. We have committed to invest up to $17.9 million in equity or member loans in the development and construction of this MOB.
Adoption of ASU 2016-02, "Leases (Topic 842): Amendments to the FASB Accounting Standards Codification":
Effective January 1, 2019, we adopted ASU 2016-02 which requires lessees to, among other things, recognize right-of-use assets and lease liabilities on the balance sheet. As a result of our adoption of ASU 2016-02, in connection with ground leases where we are the lessee, our consolidated balance sheet as of September 30, 2019 includes right-of-use land assets ($9.0 million) and ground lease liabilities ($9.0 million). Prior period financial statement amounts were not adjusted for the effects of this new standard.
General Information, Forward-Looking Statements and Risk Factors and Non-GAAP Financial Measures:
Universal Health Realty Income Trust, a real estate investment trust, invests in healthcare and human service related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and childcare centers. We have investments in seventy-one properties located in twenty states, including two that are currently under construction.