Universal Health Realty Income Trust Reports 2017 First Quarter Financial Results

In connection with the divestiture of St. Mary's, we are entitled to an aggregate of approximately $57.3 million of net cash proceeds.  These proceeds, which are net of closing costs and the purchase price paid for the minority member's ownership interest in the LLC, include repayment to us of a $21.4 million member loan formerly extended to Arlington Medical Properties LLC. As of March 31, 2017, approximately $11.3 million of the net sale proceeds due to us are being held by a qualified 1031 exchange intermediary in connection with potential future acquisitions, as outlined below. Our results of operations for the three-month period ended March 31, 2017 include a net gain of $27.2 million (net of related transaction costs) recorded in connection with this transaction.   

Acquisitions Previously Completed in 2016:

As previously announced during 2016, for an aggregate purchase price of approximately $39.6 million, we paid approximately $32.5 million in cash, and assumed approximately $7.1 million of third-party debt that is non-recourse to us, to acquire:

• 2704 North Tenaya Way located in Las Vegas, Nevada.  This medical office building, which consists of 45,000 rentable square feet, was acquired in November, 2016 for a total purchase price of approximately $15.3 million, including the assumption of approximately $7.1 million of third-party debt that is non-recourse to us.
• Frederick Crestwood Medical Office Building located in Frederick, Maryland. This medical office building, which consists of approximately 62,300 rentable square feet, was acquired in September, 2016 for a purchase price of approximately $24.3 million. 

Both of these 2016 acquisitions were planned and executed in accordance with the provisions of Section 1031 of the Internal Revenue Code and therefore we believe they qualify as tax deferred like-kind exchange transactions in connection with the above-mentioned divestiture of St. Mary's in March, 2017.

Other Potential 2017 Acquisitions:

As part of the planned tax deferred like-kind exchange transactions under Section 1031 of the Internal Revenue Code in connection with the divestiture of St. Mary's, in addition to the above-mentioned 2016 acquisitions, we may purchase one or more additional properties during 2017. However, we can provide no assurance that we will complete one or more additional acquisitions during 2017. Any additional acquisitions completed during 2017 would need to be finalized by mid-September in order to qualify as tax-deferred like-kind exchange transactions under the provisions of Section 1031 of the Internal Revenue Code in connection with the divestiture of St. Mary's.  

New Construction:

We have recently completed construction on Henderson Medical Plaza, a medical office building with 78,800 rentable square feet, located in Henderson, Nevada.  The MOB received its certificate of occupancy during April, 2017.  Henderson Medical Plaza is located on the campus of Henderson Hospital, a 130-bed acute care hospital owned by a subsidiary of Universal Health Services, Inc.  Henderson Hospital was completed and opened during the fourth quarter of 2016.    

Dividend Information:

The first quarter dividend of $.655 per share was paid on March 31, 2017.

Capital Resources Information:

At March 31, 2017, we had $169.9 million of borrowings outstanding pursuant to the terms of our $250 million revolving credit agreement and $77.4 million of available borrowing capacity, net of outstanding borrowings and letters of credit.

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, surgery centers, free-standing emergency departments, childcare centers and medical/office buildings. We have investments in sixty-six properties located in twenty states.

This press release contains forward-looking statements based on current management expectations. Numerous factors, including those disclosed herein, those related to healthcare and healthcare real estate industry trends and those detailed in our filings with the Securities and Exchange Commission (as set forth in Item 1A - Risk Factors and in Item 7-Forward-Looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2016), may cause the results to differ materially from those anticipated in the forward-looking statements. Many of the factors that will determine our future results are beyond our capability to control or predict. These statements are subject to risks and uncertainties and therefore actual results may differ materially. Readers should not place undue reliance on such forward-looking statements which reflect management's view only as of the date hereof. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

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

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

To obtain a complete understanding of our financial performance these measures should be examined in connection with net income, determined in accordance with GAAP, as presented in the condensed consolidated financial statements and notes thereto in this report or in our other filings with the Securities and Exchange Commission including our Report on Form 10-K for the year ended December 31, 2016. Since the items included or excluded from these measures are significant components in understanding and assessing financial performance under GAAP, these measures should not be considered to be alternatives to net income as a measure of our operating performance or profitability. Since these measures, as presented, are not determined in accordance with GAAP and are thus susceptible to varying calculations, they may not be comparable to other similarly titled measures of other companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

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Universal Health Realty Income Trust Consolidated Statements of Income For the Three Months Ended March 31, 2017 and 2016 (amounts in thousands, except per share amounts) (unaudited)
		Three Months Ended
		March 31,
		2017				2016
Revenues:
Base rental - UHS facilities		$	4,080			$	4,081
Base rental - Non-related parties			9,970				8,815
Bonus rental - UHS facilities			1,288				1,246
Tenant reimbursements and other - Non-related parties			2,193				1,873
Tenant reimbursements and other - UHS facilities			219				211
			17,750				16,226
Expenses:
Depreciation and amortization			6,145				5,436
Advisory fees to UHS			866				767
Other operating expenses			4,705				4,400
Transaction costs			70				82
			11,786				10,685
Income before equity in income of unconsolidated limited    liability companies ("LLCs"), interest expense and gain			5,964				5,541
Equity in income of unconsolidated LLCs			1,077				1,059
Gain on fair value recognition resulting from purchase of minority interest in           majority-owned LLC, net			27,196				-
Interest expense, net			(2,675)				(2,172)
Net income		$	31,562			$	4,428
Basic earnings per share		$	2.32			$	0.33
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