Universal Health Realty me Trust(UHT) - 2021 Q4 - Annual Report

Real Estate Investments - As of February 24, 2022, the company has investments in 75 facilities across 21 states, including 6 hospital facilities, 58 medical/office buildings, 4 free-standing emergency departments, 4 childcare centers, and 3 specialty facilities[23]. - The company has a total of 75 real estate investments or commitments, indicating a strategy of market expansion in the healthcare sector[23]. - The company’s facilities include a mix of owned and leased properties, with a focus on healthcare-related services[23]. - The company has six acute and behavioral health care hospitals in its portfolio as of December 31, 2021, up from four in 2020[26]. - The company acquired three hospitals as part of an asset purchase agreement with Universal Health Services on December 31, 2021[26]. - The company paid approximately $2.8 million in cash to Universal Health Services for the acquisition of Aiken Regional Medical Center and Canyon Creek Behavioral Health[28]. - The company is developing Sierra Medical Plaza I, an MOB in Reno, Nevada, with an estimated cost of approximately $34 million[42]. - The company purchased a 5% minority ownership interest in Grayson Properties, LP for approximately $3.1 million, consolidating the LP effective with the purchase date[43]. - The company acquired the Fire Mesa office building in Las Vegas for approximately $12.9 million, fully leased to a subsidiary of UHS[44]. Revenue and Financial Performance - The leases for the six acute and behavioral health care hospitals accounted for approximately 25% of consolidated revenues in 2021, compared to 22% in 2020[26]. - The revenue from the specialty facility lease that expired in 2021 represented about 2% of consolidated revenue for the year ended December 31, 2021[27]. - The combined revenues from leases on three acute care and one behavioral health care hospital facilities leased to subsidiaries of UHS accounted for approximately 23% of the company's consolidated revenue for the five years ended December 31, 2021[32]. - The aggregate revenues generated from UHS-related tenants comprised approximately 32% of the company's consolidated revenue for the five years ended December 31, 2021[32]. - The company entered into an asset purchase and sale agreement with UHS, resulting in a gain of approximately $68.4 million included in the consolidated statement of income for the year ended December 31, 2021[33]. - The annual rental for Aiken Regional Medical Center and Canyon Creek Behavioral Health is approximately $5.6 million, with a 2.25% annual increase starting January 1, 2023[35]. - The lease on Wellington Regional Medical Center was renewed for a 5-year term with an annual fair market value lease rate of $6.3 million, increasing by 2.50% annually starting January 1, 2023[40]. - The company anticipates continued investment in healthcare-related facilities to improve its competitive position in the market[58]. - The company recorded a decrease of $546,000 in net income due to increased interest expense[210]. - For the year ended December 31, 2021, net income was $109.2 million, a significant increase of $89.7 million compared to $19.4 million in 2020[210]. - Total revenues increased by $6.2 million, or 7.9%, during 2021 compared to 2020, primarily driven by rentals from the Clive Behavioral Health facility and increased bonus rentals from hospitals leased to UHS[211]. Lease and Occupancy Information - The average remaining lease term for the six acute and behavioral health care hospitals is 10.6 years, with renewal options ranging from one to ten years[26]. - The combined weighted average Coverage Ratio for the four occupied hospitals owned at the end of 2021 was approximately 7.9, compared to 10.3 at the end of 2020[29]. - The average occupancy rate for the Inland Valley Campus of Southwest Healthcare System was 76% in 2021, up from 63% in 2020[160]. - McAllen Medical Center reported an occupancy rate of 51% in 2021, with a guaranteed payment of $5,485,000 until 2026[160]. - Wellington Regional Medical Center achieved a 75% occupancy rate in 2021, with a guaranteed payment of $6,319,000 and a lease term until 2026[160]. - Clive Behavioral Health reported a low occupancy rate of 16% in 2021, with a guaranteed payment of $2,628,000 until 2040[160]. - The Rosenberg Children's Medical Plaza maintained a 100% occupancy rate in 2021, with a guaranteed payment of $2,265,000 until 2028[161]. - The Texoma Medical Plaza achieved a 96% occupancy rate in 2021, with a guaranteed payment of $1,948,000 until 2030[161]. Regulatory and Compliance Issues - The company qualifies as a REIT and must distribute at least 90% of its annual REIT taxable income to shareholders to maintain this status[52]. - The company must comply with strict income distribution requirements to maintain its REIT status, which could adversely affect its financial condition if not met[131]. - Dividends paid by the company as a REIT may be subject to higher federal income tax rates compared to dividends from regular corporations, potentially affecting share value[130]. - Compliance with REIT requirements may limit the ability to pursue attractive investment opportunities[133]. - The company is subject to federal excise tax, which is 4% of the amount exceeding cash distributions during the calendar year[208]. Market and Economic Risks - The operators of the company's facilities derive a significant portion of their revenue from federal and state healthcare programs, including Medicare and Medicaid, which are subject to changes that could materially affect reimbursement levels[60]. - The company faces risks related to tenants' ability to make timely rent payments, which could adversely affect occupancy levels and revenue[79]. - The Budget Control Act mandated a 2% reduction in Medicare payments, which has been extended through 2030, potentially impacting future revenues[86]. - The uncertainties surrounding healthcare reform could materially affect the company's revenues and net income[88]. - The company has seen significant budget deficits in states where its facilities operate, leading to potential reductions in Medicaid funding[84]. - Changes in government reimbursement programs and private payor negotiations could adversely impact the financial position of the company's hospital operators[85]. - The COVID-19 pandemic has not had a material adverse impact on the company's financial results during 2021, but future developments related to the pandemic are likely to have a material adverse impact on financial results[190]. - The company faces potential risks from increased competition and decreases in occupancy and rental rates in certain markets, which may adversely affect operating results[192]. Advisory and Management Fees - Advisory fees incurred and paid to UHS amounted to $4.4 million in 2021, $4.1 million in 2020, and $4.0 million in 2019, based on average invested real estate assets of $629 million, $592 million, and $568 million respectively[49]. - The advisory agreement with UHS was renewed for 2022 under the same terms as in 2021 and 2020, indicating continuity in the advisory relationship[48]. Future Outlook - The company anticipates that the future operations and financial results will depend on various factors related to the COVID-19 pandemic, including the volume of canceled or rescheduled elective procedures[75]. - The company may experience a decrease in prospective tenants due to COVID-19 restrictions, which could negatively impact new lease volumes and renewal rates[190]. - Legislative initiatives, including the CARES Act and ARPA, have provided funding to healthcare providers, but the impact on tenants' operations remains uncertain[190]. - The company faces increased competition in the healthcare industry, which has resulted in lower revenues and higher costs for operators, including UHS[113].