UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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RULE 14A-6(E)(2))
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[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Universal Health Realty Income Trust
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(Name of Registrant as Specified In Its Charter)
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Notes:
[UNIVERSAL HEALTH REALTY INCOME TRUST LOGO]
UNIVERSAL CORPORATE CENTER
367 SOUTH GULPH ROAD
KING OF PRUSSIA, PENNSYLVANIA 19406
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 3, 2002
Notice is hereby given that the Annual Meeting of Shareholders of Universal
Health Realty Income Trust (the "Trust") will be held on Monday, June 3, 2002
at 10:00 AM, at the offices of the Trust, Universal Corporate Center, 367
South Gulph Road, King of Prussia, Pennsylvania for the following purposes:
(1) To have the holders of Trust Shares elect three Class I Trustees,
all three Trustees to serve for a term of three years, until the
annual election of Trustees in the year 2005 and election and
qualification of their successors.
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on April 23, 2002 are
entitled to vote at the Annual Meeting.
All shareholders are cordially invited to attend the meeting in person. IN
ANY EVENT, PLEASE MARK YOUR VOTES, THEN DATE AND SIGN THE ENCLOSED FORM OF
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR
NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. YOU MAY REVOKE YOUR PROXY
IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO VOTE YOUR SHARES IN
PERSON.
BY ORDER OF THE BOARD OF TRUSTEES
/s/ Kirk E. Gorman
KIRK E. GORMAN
Secretary
King of Prussia, Pennsylvania
April 29, 2002
SKU0802-PS-02
[UNIVERSAL HEALTH REALTY INCOME TRUST LOGO]
Universal Corporate Center
367 South Gulph Road
King of Prussia, PA 19406
PROXY STATEMENT
GENERAL
This Proxy Statement and enclosed form of Proxy are furnished to the
shareholders of Universal Health Realty Income Trust, a real estate investment
trust organized under the laws of the State of Maryland (the "Trust"), in
connection with the solicitation of Proxies by the Board of Trustees for use
at the Annual Meeting of Shareholders, to be held at Universal Corporate
Center, 367 South Gulph Road, King of Prussia, Pennsylvania on Monday, June 3,
2002 at 10:00 AM, and at any adjournment thereof. This Proxy Statement and
related form of Proxy were first sent to shareholders of the Trust on or about
April 29, 2002. The Annual Meeting is being held to: (1) elect three Class I
Trustees of the Trust, all of whom will serve for a term of three years until
the annual election of Trustees in the year 2005 and the election and
qualification of their successors; and (2) transact such other business as may
properly be brought before the meeting or any adjournment thereof.
A form of Proxy for use at the meeting is enclosed. Any shareholder may
revoke a Proxy at any time before the authority granted by it is exercised by
giving written notice of revocation to the Secretary of the Trust, by
submitting another executed Proxy to the Secretary of the Trust bearing a
later date (but prior to the voting of such Proxy), or by attending the
meeting and asking (prior to the voting of such Proxy) for the return of such
Proxy. Unless otherwise indicated on the Proxy, shares represented by any
Proxy will, if the Proxy is properly executed and received by the Trust prior
to the Annual Meeting, be voted FOR the nominees for Trustees.
Only holders of record of the shares of beneficial interest of the Trust,
par value $.01 per share (the "Shares"), at the close of business on April 23,
2002 will be entitled to vote at the meeting. On that date, there were
11,684,332 Shares outstanding. Each Share is entitled to one vote on each of
the matters to be presented at the meeting. Shareholders entitled to vote for
the election of the Trustees can withhold authority to vote for them. Each
nominee will be elected if he receives a plurality of the votes cast. Broker
non-votes are treated as shares as to which the beneficial owners have
withheld voting authority and therefore are shares not entitled to vote on the
matter. As of April 23, 2002, the Trust's current Trustees and officers as a
group owned of record or beneficially 106,475 Shares, (excluding shares
issuable upon exercise of options), representing .91% of the outstanding
Shares.
A copy of the Trust's Annual Report to Shareholders, including financial
statements for the year ended December 31, 2001, is enclosed.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 2002, the number of Shares
and the percentage of outstanding Shares owned beneficially, within the
meaning of Securities and Exchange Commission Rule 13d-3, (i) by each person
who is known by the Trust to own beneficially more than 5% of its Shares (ii)
by each Trustee and Trustee nominee and each executive officer named in the
Summary Compensation Table and (iii) by all Trustees and executive officers of
the Trust as a group.
1
Name and Address of Amount and Nature of Percent of
Beneficial Owner(1) Beneficial Ownership Outstanding Shares
- ------------------- -------------------- ------------------
Universal Health Services, Inc.
("UHS") 767,264(2) 6.570%
367 South Gulph Road
King of Prussia, PA 19406
Private Capital Management, Inc. 842,738(3) 7.2%
3003 Tamiami Trail North
Naples, FL 33940
Miles L. Berger 3,375(4) (5)
Berger Management Services, LLC
900 N. Michigan Ave., Suite 2010
Chicago, IL 60611
Daniel M. Cain 5,696(4) (5)
Cain Brothers & Company, LLC
452 Fifth Avenue, 25th Floor
New York, NY 10018
James E. Dalton, Jr. 3,000(4) (5)
6505 Edinburgh Drive
Nashville, TN 37221
Elliot J. Sussman, M.D., M.B.A. 500(4) (5)
Lehigh Valley Hospital & Health
Network
Cedar Crest Blvd. & Interstate 78
Allentown, PA 18105
Myles H. Tanenbaum 8,000(4) (5)
Arbor Enterprises
Four Tower Bridge, Suite 400
200 Barr Harbor Drive
W. Conshohocken, PA 19428
Alan B. Miller 98,044(6)(4)(7) (5)
Kirk E. Gorman 40,236(4)(7) (5)
Charles F. Boyle 12,802(4) (5)
Cheryl K. Ramagano 10,553(4) (5)
Timothy J. Fowler 10,576(4)(7) (5)
3525 Piedmont Rd., N.E.
Atlanta, GA 30305
All Trustees & Executive Officers
as a group (10 persons) 192,782(4)(7) 1.7%
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(1) Unless otherwise shown, the address of each beneficial owner is c/o
Universal Health Realty Income Trust, Universal Corporate Center, 367
South Gulph Road, King of Prussia, PA 19406.
(2) UHS has an option to maintain ownership of a minimum of 5% of the
outstanding Shares of the Trust.
(3) Shares are held by Private Capital Management, Inc., a registered
investment adviser. Information is based on Amendment No. 9 to Schedule
13G dated February 19, 2002.
(4) Includes shares issuable pursuant to stock options to purchase shares of
beneficial interest held by officers of the Trust and exercisable within
60 days of February 28, 2002 as follows: Miles L. Berger (2,375); Daniel
M. Cain (3,000); James E. Dalton, Jr. (3,000); Elliot J. Sussman, M.D.,
M.B.A. (500); Myles H. Tanenbaum (3,000); Alan B. Miller (35,000); Kirk
E. Gorman (12,500); Charles F. Boyle (7,500); Cheryl K. Ramagano (7,500);
and Timothy J. Fowler (7,500).
(5) Less than 1%.
(6) Includes 12,000 shares of beneficial interest beneficially owned by the
Alan B. Miller Family Foundation, Alan B. Miller, as Trustee.
(7) Includes shares of beneficial interest owned through the UHS Supplemental
Deferred Compensation Plan as follows: Alan B. Miller (8,644); Kirk E.
Gorman (6,633); Charles F. Boyle (41) and Timothy J. Fowler (226).
2
PROPOSAL NO. 1
ELECTION OF TRUSTEES
The Trust was organized under the laws of the State of Maryland as a real
estate investment trust on August 6, 1986. Trustees of the Trust, Mr. Miller,
and Mr. Cain, assumed their positions with the Trust at the inception of the
Trust. Mr. Tanenbaum was elected in November 1990, Mr. Gorman was elected in
December 1994, Mr. Dalton was elected in December 1997, Mr. Berger was elected
in December 1998 and Dr. Sussman was elected in 1999. Pursuant to the
Declaration of Trust, the Trustees of the Trust have been divided into three
classes, with staggered terms. The terms of the Trustees in Class I expire at
this meeting, the terms of the Trustees in Class II expire at the 2003 Annual
Meeting and the terms of the Trustees in Class III expire at the 2004 Annual
Meeting. At each Annual Meeting, Trustees are elected for a term of three
years to succeed those in the class whose term is expiring at such Annual
Meeting.
The persons listed below currently constitute the Trust's Board of Trustees.
The nominees for the Class I Trustees are Alan B. Miller, Myles H. Tanenbaum
and Elliot J. Sussman, MD, MBA, expire at the 2002 Annual Meeting. They have
been nominated to be elected for three-year terms. The Trustees have no reason
to believe that the nominees will be unavailable for election; however, if the
nominees become unavailable for any reason, the Shares represented by the
Proxy will be voted for the persons, if any, who are designated by the Board
of Trustees to replace the nominees. The nominees have consented to be named
and have indicated their intent to serve if elected.
Pursuant to the Declaration of Trust, a majority of the Trust's Trustees
must be "Independent Trustees" with each class of Trustees containing at least
one Independent Trustee. The Declaration of Trust defines an "Independent
Trustee" as a Trustee who is not an affiliate of Universal Health Services,
Inc. ("UHS"), the parent company of the Trust's Advisor, and does not perform
any services for the Trust, except as Trustee.
The following information is furnished with respect to the nominee for
election as a Trustee and each member of the Board of Trustees whose term of
office will continue after the meeting.
Class of Principal Occupation Trustee
Name Trustee Age During the Last Five Years Since
---- -------- --- -------------------------- -------
NOMINEES WHOSE TERMS
EXPIRE IN 2002
- ----------------------
Alan B. Miller I 64 Chairman of the Board and Chief Execu- 1986
tive Officer of the Trust since 1986.
Chairman of the Board, President and
Chief Executive Officer of Universal
Health Services, Inc. since 1978. Direc-
tor of CDI (NYSE) Corp., Penn Mutual
Life Insurance Company and Broadlane,
Inc.
Elliot J. Sussman, MD, I 50 President and Chief Executive Officer of 1999
MBA* Lehigh Valley Hospital and Health Net-
work since 1993.
Myles H. Tanenbaum* I 71 Chairman of the Board of Arbor Enter- 1990
prises since 1989. Formerly President
and CEO of both Arbor Property Trust
(NYSE) (successor to EQK Green Acres,
L.P.), 1986-1997, and EQK Realty Invest-
ors (NYSE), 1985-89. Director of Pep
Boys (NYSE) and The Benjamin Franklin
Institute, and member of the Board of
Trustees of the University of Pennsylva-
nia.
3
Class of Principal Occupation Trustee
Name Trustee Age During the Last Five Years Since
---- -------- --- -------------------------- -------
TRUSTEES WHOSE TERMS
EXPIRE IN 2003
- ---------------------
Daniel M. Cain* II 57 President and CEO, Cain Brothers & Com- 1986
pany, LLC since 1986. Prior thereto, se-
nior partner in Cain Brothers & Company
since 1982. Mr. Cain is a Trustee of N-
Vest Mutual Funds (NYSE) and eBenX, an
employee benefits internet provider.
James E. Dalton, Jr.* II 59 President and Chairman, Edinburgh Asso- 1997
ciates, Inc. Prior thereto, President,
Chief Executive Officer and Director of
Quorum Health Group, Inc.; Regional Vice
President of Health Trust, Inc., Divi-
sion Vice President of Hospital Corpora-
tion of America, and Regional Vice Pres-
ident of HCA Management Company. Direc-
tor of AmSouth Bancorporation, Select
Medical, Genesis Health Ventures, Triad
Hospitals, and a Trustee of the American
Hospital Association.
TRUSTEES WHOSE TERMS
EXPIRE IN 2004
- ---------------------
Kirk E. Gorman III 51 President and Chief Financial Officer of 1994
the Trust since 1990, Secretary of the
Trust since December 1994 and Vice Pres-
ident and Chief Financial Officer of the
Trust since 1987. Senior Vice President,
Treasurer and Chief Financial Officer of
UHS since December 1992; Director of
VIASYS Healthcare, Inc. and Physician's
Dialysis, Inc.
Miles L. Berger* III 71 Chairman of the Board, Berger Financial 1998
Services Corp., and Berger Management
Services; Trustee, Innkeepers Trust USA.
- ----------
* Independent Trustee
Vote Required
The nominees receiving the highest number of affirmative votes of the shares
of beneficial interest, present in person or represented by proxy and entitled
to vote, a quorum being present shall be elected as the Class I Trustees. Only
votes cast for a nominee will be counted, except that the accompanying proxy
will be voted for all nominees in the absence of instruction to the contrary.
Abstentions, broker non-votes and instructions on the accompany proxy card to
withhold authority to vote for one or more nominees will result in the
respective nominees receiving few votes. However, the number of votes
otherwise received by the nominee will not be reduced by such action.
The Trustees recommends a vote FOR the election of these nominees as
Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Trust's
trustees and executive officers, and persons who own more than ten percent of
a registered class of the Trust's equity securities, to file with the
Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of the Shares and
other equity securities of the Trust. Based on reports filed with the Trust,
the Trust believes all required reports of executive officers and Trustees
were filed in a timely manner.
4
Universal Health Realty Income Trust
Summary Compensation Table
Long-term
Compensation
Annual Compensation Awards
---------------------------- ---------------------
Other Restricted Securities
Annual stock Underlying All
Fscal Salary Compensation awards Options Other
Name and principal position Year ($) Bonus($) ($)(a) ($) (#) Compensation
--------------------------- ----- ------ -------- ------------ ---------- ---------- ------------
Alan B. Miller, 2001 -- -- $84,375 -- -- --
Chairman of the Board and 2000 -- -- 82,800 -- 20,000 --
Chief Executive Officer 1999 -- -- 45,250 -- -- --
Kirk E. Gorman, 2001 -- $50,000 $23,438 -- -- --
President, Chief Financial 2000 -- 50,000 23,000 -- -- --
Officer, Secretary and Trustee 1999 -- 50,000 22,625 -- -- --
Charles F. Boyle, 2001 -- -- $14,063 -- -- --
Vice President and Controller 2000 -- -- 13,800 -- -- --
1999 -- -- 13,575 -- -- --
Cheryl K. Ramagano, 2001 -- -- $14,063 -- -- --
Vice President and Treasurer 2000 -- -- 13,800 -- -- --
1999 -- -- 13,575 -- -- --
Timothy J. Fowler, 2001 -- -- $14,063 -- -- --
Vice President, 2000 -- -- 13,800 -- -- --
Acquisition and Development 1999 -- -- 13,575 -- -- --
- ----------
(a) Other Annual Compensation in 2001, 2000 and 1999 for Messrs. Miller,
Gorman, Boyle and Fowler and Ms. Ramagano consists of dividend equivalent
rights accrued in connection with the Trust's 1997 Incentive Plan. Mr.
Miller held 45,000 dividend equivalent rights as of December 31, 2001 and
2000 and 25,000 dividend equivalent rights as of December 31, 1999. As of
December 31, 2001, 2000 and 1999, Messrs. Gorman, Boyle, Fowler and Ms.
Ramagano held 12,500, 7,500, 7,500 and 7,500 dividend equivalent rights,
respectively. The Other Annual Compensation amounts shown above were
computed by multiplying each participant's dividend equivalent rights by
the declared dividends per share of $1.875 in 2001, $1.84 in 2000 and
$1.810 in 1999.
Option Grants In Last Fiscal Year
There were no options granted during 2001.
5
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities
Underlying Value of Value of Unexercised in-
Unexercised Options at the-Money Options at
Name Shares Fiscal Year-end(#) Fiscal Year-end($)(2)
---- Acquired on Value ------------------------- -------------------------
Exercise(#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
----------- ----------- ----------- ------------- ----------- -------------
Alan B. Miller.......... 50,000 415,750 30,000 15,000 $165,625 $131,250
Kirk E. Gorman.......... 0 0 12,500 0 $ 60,938 $ 0
Charles F. Boyle........ 0 0 7,500 0 $ 36,563 $ 0
Cheryl K. Ramagano...... 0 0 7,500 0 $ 36,563 $ 0
Timothy J. Fowler....... 8,024 31,093 7,500 0 $ 36,563 $ 0
(1) Based on the difference between the exercise price and the closing sale
price of the share of beneficial interest on the New York Stock Exchange
on the date of exercise.
(2) Based on the difference between the exercise price (excluding effect of
dividend equivalent rights) and the closing price of the share of
beneficial interest on the New York Stock Exchange on December 31, 2001
of $23.50 per share.
Report of Compensation and Benefits Committee
The Trust has established incentive plans to incentivize those persons to
render greater service to the Trust. During 1997, the Trust's Board of
Trustees approved the Universal Health Realty Income Trust 1997 Incentive Plan
("The Plan"), which is a stock option and dividend equivalent rights plan for
the employees of the Trust, including officers and directors. There are
400,000 shares reserved for issuance under the Plan. As of December 31, 2001,
300,000 stock options and 300,000 dividend equivalent rights remain available
for issuance pursuant to the terms of The Plan. Since inception of The Plan, a
net total of 100,000 stock options and 100,000 dividend equivalent rights
(excluding cancelled stock options and dividend equivalent rights) were
granted to various officers and Trustees of the Trust.
The Compensation and Benefits Committee, which is composed of independent
trustees of the Trust, believes that in the general absence of cash
compensation, it is important to provide the officers of the Trust, including
the chief executive officer, an incentive to increase shareholder value by
awarding equity based compensation. Because the substantial portion of the
return of real estate investment trusts like the Trust is comprised of the
dividend payable on the shares rather than share price appreciation the
Committee believes that the 1997 Incentive Plan with its dividend equivalent
rights feature provides the appropriate incentive for officers and Trustees of
the Trust. The Committee believes that Mr. Gorman's special efforts on behalf
of the Trust merit a special cash bonus of $50,000 which commenced in 1999. As
Mr. Gorman is compensated by UHS which, as the Trust's advisor, receives an
advisory fee, UHS has agreed to reduce this advisory fee commencing in 1999 by
the amount of Mr. Gorman's bonus thus resulting in no net cost to the Trust.
The Committee will evaluate from time to time the compensation payable to its
officers in light of the performance of the Trust, the individuals involved
and competitive factors.
COMPENSATION AND BENEFITS COMMITTEE
Daniel M. Cain
James E. Dalton Jr.
Miles Berger
6
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Daniel M. Cain has from time to time performed investment banking
services for the Trust. No compensation was paid to him for any services in
2001.
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent the Trust specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(The Trust, S&P 500, Peer Group)
[Graph]
1996 1997 1998 1999 2000 2001
Universal Health Realty
Income Trust $100.00 $115.86 $113.41 $ 93.50 $140.61 $180.64
S&P 500 $100.00 $133.36 $171.48 $207.56 $188.66 $166.24
Peer Group $100.00 $119.35 $101.52 $ 71.51 $ 81.51 $122.58
The total cumulative return on investment (change in the year-end stock price
plus reinvested dividends) for each of the periods for the Trust, the peer
group and the S&P 500 Composite is based on the stock price or composite index
at the end of fiscal 1996.
7
The above graph compares the performance of the Trust with that of the S&P
500 and a group of peer companies with the investment weighted on market
capitalization. Companies in the peer group are as follows: Health Care
Property Investors, Inc., Nationwide Health Properties, Inc., American Health
Properties, Inc., Omega Healthcare Investors, Health Care REIT, Inc., G&L
Realty Corp. (acquired in Oct. 2001), Healthcare Realty Trust Incorporated,
LTC Properties, Inc., National Health Investors, Inc. and National Health
Realty, Inc.
BOARD OF TRUSTEES
MEETINGS OF THE BOARD
Regular meetings of the Trustees are generally held quarterly, while special
meetings are called when necessary. Before each meeting, Trustees are
furnished with an agenda and background materials relating to matters to be
discussed. During 2001, there were nine Board meetings. All Trustees attended
at least 75% of the meetings.
COMPENSATION OF TRUSTEES
Each Independent Trustee is paid by the Trust annual compensation of $10,000
for service as a Trustee plus $1,000 for attendance in person at each meeting
of the Board of Trustees plus an additional $500 for attendance for each
Committee meeting thereof on a day on which the Board of Trustees does not
meet. In addition, the Trust reimburses all Trustees for travel expenses
incurred in connection with their duties as Trustees of the Trust. In 1992,
the Board of Trustees and the shareholders adopted a Share Compensation Plan
For Outside Trustees, pursuant to which Trustees may elect to receive their
annual compensation in the form of Shares in lieu of cash. No Trustee elected
to receive Shares in 2001. During 1997, the Trust's Board of Trustees approved
the Universal Health Realty Income Trust 1997 Incentive Plan ("The Plan"),
which is a stock option and dividend equivalent rights plan for the employees
of the Trust, including officers and Trustees. The Plan was adopted by the
shareholders at the 1998 Annual Shareholders Meeting. There are 400,000 shares
reserved for issuance under the Plan. In connection with this plan, Messrs.
Daniel M. Cain and Myles H. Tanenbaum each received 2,500 stock options and
2,500 dividend equivalents rights with an exercise price of $18.625 per share
representing the closing sale price of the Trust's shares of beneficial
interest on the New York Stock Exchange on June 23, 1997. In March 1998, Mr.
James E. Dalton, Jr. received 2,500 stock options and 2,500 dividend
equivalent rights, with an exercise price of $21.4375 per share representing
the closing sale price of the Trust's shares of beneficial interest on the
date of grant. In December 1998, Mr. Miles L. Berger received 2,500 stock
options and 2,500 dividend equivalent rights, with an exercise price of
$19.625 per share representing the closing sale price of the Trust's shares of
beneficial interest on the date of grant. In March 2000, Messrs. Daniel M.
Cain, Myles H. Tanenbaum, James E. Dalton Jr., Miles L. Berger and Elliot J.
Sussman, M.D., M.B.A. each received 1,000 stock options and 1,000 dividend
equivalent rights, with an exercise price of $14.75 per share representing the
closing sale price of the Trust's shares of beneficial interest on the date of
grant. There were no stock options or dividend equivalent rights issued during
2001.
AUDIT COMMITTEE
The Audit Committee is responsible for providing assistance to the Board of
Trustees in fulfilling its responsibilities relating to corporate accounting
and reporting practices and in maintaining a direct line of communication
between the Trustees and the independent accountants. It recommends the firm
to be appointed as independent auditor, reviews the scope and results of the
audit with the independent auditors and considers the adequacy of the internal
accounting and control procedures of the Company. The Audit Committee met once
in 2001. Members of this Committee are Daniel M. Cain, James E. Dalton, Jr.
and Myles H. Tanenbaum.
8
AUDIT COMMITTEE REPORT
The Audit Committee of the Trustees of Universal Health Realty Income Trust
(the Committee) is composed of three independent Trustees and operates under a
written charter adopted by the Board of Trustees. The Board of Trustees has
determined that each Committee member is independent in accordance with the
listing standards of the New York Stock Exchange.
Management is responsible for the Trust's internal controls and the
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Trust's consolidated financial
statements in accordance with generally accepted auditing standards and to
issue a report thereon. The Committee's responsibility is to monitor and
oversee these processes.
In this context, the Committee has met and held discussions with management
and the independent auditors. Management represented to the Committee that the
Trust's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Committee has reviewed and
discussed the consolidated financial statements with management and the
independent auditors. The Committee discussed with the independent auditors
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
Arthur Andersen LLP, the Trust's independent auditors, also provided to the
Committee the written disclosures required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and the
Committee discussed with Arthur Andersen LLP their independence as independent
auditors of the Trust.
Based on the Committee's discussion with management and Arthur Andersen LLP,
and the Committee's review of the representation of management and the report
of Arthur Andersen LLP to the Committee, the Committee recommended to the
Board of Trustees, and the Board has approved, that the audited consolidated
financial statements be included in the Trust's Annual Report on Form 10-K for
the year ended December 31, 2001, for filing with the Securities and Exchange
Commission. The Committee and the Board also have approved the selection of
Arthur Andersen LLP as the Trust's independent auditors.
Audit Committee
Myles H. Tanenbaum
James E. Dalton, Jr.
Daniel M. Cain
9
COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee was established December 1, 1988 and
is responsible for administering the 1997 Incentive Plan. It has full
authority in its discretion from time to time, and at any time, to select
those employees of the Trust, as the term employee is defined in the plan, to
whom options will be granted, to determine the number of options subject
thereto, the times at which such options shall be granted, the time at which
the options shall vest, and the terms and conditions of the agreements to be
entered into by the employees with the Trust. The Compensation and Benefits
Committee met once in 2001. Members of this Committee are Daniel M. Cain,
James E. Dalton, Jr. and Miles L. Berger.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Trust's officers are all employees of UHS of Delaware, Inc. ("UHS") and
as of December 31, 2001, the Trust had no salaried employees. Commencing in
1999, Mr. Kirk E. Gorman, President, Chief Financial Officer, Secretary and
Trustee of the Trust, received $50,000 annual bonuses awarded by the Trustees,
subject to UHS agreeing to a $50,000 reduction in the annual advisory fee paid
by the Trust.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
RELATIONSHIP WITH UHS
THE ADVISOR AND THE ADVISORY AGREEMENT
The Trust, with the approval of the Board of Trustees, including all the
Independent Trustees, has entered into an Advisory Agreement with UHS of
Delaware, Inc. (the "Advisor"), a Delaware corporation and wholly owned
subsidiary of UHS, pursuant to which the Advisor will act as advisor to the
Trust with respect to the Trust's operations. Mr. Alan B. Miller serves as
Director and President of the Advisor and of UHS; Mr. Kirk E. Gorman serves as
Director and Chief Financial Officer of the Advisor; Mr. Steve Filton serves
as Director, Vice President and Controller of the Advisor; Mr. Bruce R.
Gilbert serves as Secretary of the Advisor. Alan B. Miller is Chairman of the
Board and Chief Executive Officer of the Trust, Kirk E. Gorman is President,
Chief Financial Officer, Secretary and Trustee of the Trust, Charles F. Boyle
is Vice President and Controller of the Trust, Cheryl K. Ramagano is Vice
President and Treasurer of the Trust, Timothy J. Fowler is Vice President,
Acquisitions and Development, of the Trust, and Bruce R. Gilbert serves as
General Counsel to the Trust. All such persons are also employees of the
Advisor. Under the Advisory Agreement, the Advisor is obligated to present an
investment program to the Trust, to use its best efforts to obtain investments
suitable for such program (although it is not obligated to present any
particular investment opportunity to the Trust), to provide administrative
services to the Trust and to conduct the Trust's day-to-day affairs. In
performing its services under the Advisory Agreement, the Advisor may utilize
facilities, personnel and support services of various UHS affiliates,
including accounting, legal and other services, for which the Advisor will be
reimbursed directly by the Trust, but only if such services are first approved
by a majority of the Independent Trustees. No additional compensation will be
paid by the Trust for these services.
The term of the Advisory Agreement expired on December 31, 2001. The Board
of Trustees, on December 3, 2001, voted to renew the Advisory Agreement for
2002. The Advisory Agreement is renewable annually thereafter by the Trust,
subject to a determination by a majority of the Independent Trustees that the
Advisor's performance has been satisfactory, and subject to the termination
rights of the parties. The Advisory Agreement may be terminated for any reason
upon sixty days' written notice by the Trust or the Advisor.
10
The Advisory Agreement does not restrict the Advisor from rendering advice
to other investors (including other real estate investment trusts) or from
managing other investments, including those of investors or investments
advised, sponsored or organized by the Advisor. The Advisor also may render
such services to joint ventures and partnerships in which the Trust is a co-
venturer or partner and to the other entities in such joint ventures and
partnerships, and the Advisor is not obligated to present any particular
investment opportunity to the Trust. There is no restriction on the right of
any director, officer, employee or stockholder of the Advisor, or any
affiliate of UHS, to engage in any other business or to render services of any
kind to any other corporation, partnership or other entity (including
competitive business activities). The Advisor has informed the Board of
Trustees that it does not presently intend to provide advisory services to any
other real estate investment trust and has agreed to inform the Board of any
change in such intention.
Pursuant to the Advisory Agreement, the Trust paid the Advisor $1.3 million
in consideration for services rendered by the Advisor to the Trust during
fiscal 2001. UHS agreed to reduce its advisory fee commencing in 1999 by the
cash bonus paid by the Trust to Mr. Kirk Gorman. The Advisory Agreement
provides that the Advisor is entitled to receive an annual advisory fee equal
to .60% of the average invested real estate assets of the Trust, as derived
from its consolidated balance sheet from time to time. In addition, the
Advisor will be entitled to an annual incentive fee equal to 20% of the amount
by which cash available for distribution to shareholders for each year, as
defined in the Advisory Agreement, exceeds 15% of the Trust's equity as shown
on its balance sheet, determined in accordance with generally accepted
accounting principles without reduction for return of capital dividends. No
incentive fees were paid during 2001, 2000 or 1999. The advisory fee is
payable quarterly, subject to adjustment at year end based upon audited
financial statements of the Trust.
PROPERTIES
The Trust effectively commenced business on December 24, 1986, the closing
date for the purchase of properties from certain subsidiaries of UHS (the
"Subsidiaries"). In exchange for shares of beneficial interest, $.01 par
value, in the Trust, the Trust acquired 10 properties (the "Initial
Properties") from the Subsidiaries having an appraised value of approximately
$122,000,000. The Initial Properties were immediately leased back to the
respective Subsidiaries. In March 1988, the Trust acquired the real property
of a 118-bed acute care hospital operated by a subsidiary of UHS for
approximately $9,500,000. The Trust concurrently leased the hospital to that
UHS subsidiary on a long-term basis. The fixed term of the leases ranges from
10-15 years with up to five additional five-year renewal options. In 1989, two
of these facilities consolidated their operations. The leases all provide for
minimum rents and additional rents are payable if facility revenues increase.
Additional rent is equal to 5% of the increase in facility revenues over a
base period until the facility lease rate grows to 13.5% of the Trust's
original shareholders' equity. Thereafter, additional rent is equal to 1% of
the increase in facility revenues. The obligations under the leases are
guaranteed by UHS.
During 1991, the Trust sold to UHS a 124-bed acute care hospital for its net
book value of approximately $5.7 million, which was higher than its appraised
value. The real property of this hospital was previously leased to UHS. Also
during 1991, the Trust acquired from UHS, for approximately $4.1 million,
newly constructed patient buildings on the campus of one of the behavioral
health facilities already owned by the Trust.
In 1992, one of the Subsidiaries of UHS ceased operations at the facility
leased by it from the Trust and, in 1993, UHS purchased the real property of
that facility from the Trust for approximately $3.2 million, the original
purchase price of the facility, which was higher than its appraised value, and
resulted in a $371,000 gain, which was included in the Trust's 1993 first
quarter results. Also during the fourth quarter of 1993, UHS, the former
lessee and operator of Belmont Community Hospital, sold the operations of the
facility to Transitional Hospitals Corporation ("THC"), an unaffiliated third
party. Concurrently, the Trust purchased certain related real property from
UHS for $1 million in cash and a note payable in the amount of $1.4 million,
including accrued interest, which will be paid by the Trust on April 30, 2002.
No further obligation will be owed by UHS to the Trust in
11
connection with this transaction. In connection with this transaction, UHS's
lease with the Trust was terminated, and the Trust entered into an eight year
lease agreement (scheduled to expire in December, 2006) with THC-Chicago for
the real property of this facility.
During the third quarter of 1995, UHS purchased the assets of Westlake
Medical Center, ("Westlake") a 126-bed hospital of which the majority of real
estate assets were owned by the Trust and leased to UHS. In exchange for the
real estate assets of Westlake and the termination of the lease, the Trust
received substitution properties valued at approximately $19 million (the
Trust's original purchase price of Westlake) consisting of additional real
estate assets which were owned by UHS but related to three acute care
facilities, of which the Trust owns the real estate and which are operated by
UHS (McAllen Medical Center, Inland Valley Regional Medical Center and
Wellington Regional Medical Center). These additional real estate assets
represent major additions and expansions made to these facilities by UHS since
the purchase of the facilities by the Trust from UHS in 1986. The Trust also
purchased from UHS, additional real estate assets related to McAllen Medical
Center for approximately $1.9 million in cash. Total annual base rental
payments from UHS to the Trust on the substituted properties will be $2.4
million which equals the total base and bonus rental earned by the Trust on
the Westlake facility during 1994 ($2.1 million base and $300,000 bonus).
Total annual base rental payments on the additional real estate assets
purchased related to McAllen Medical Center will be approximately $200,000.
Bonus rental on the substituted and purchased real estate assets will be equal
to 1% of the growth in revenues, in excess of base year amounts, generated by
these additional assets. The guarantee by UHS under the existing leases, as
amended to include the additional property, will continue.
During the third quarter of 1998, wholly-owned subsidiaries of UHS exercised
five-year renewal options on four hospitals owned by the Trust which were
scheduled to expire in 1999 through 2001 (Virtue Street Pavilion, The
Bridgeway, Inland Valley Regional Medical Center and Wellington Regional
Medical Center). The leases on these facilities were renewed at the same lease
rates and terms as the initial leases and these renewals remove the majority
of the previously disclosed uncertainty regarding the lease renewals with
subsidiaries of UHS. As part of the renewal agreement, the Trust also agreed
to grant additional fixed rate renewal options to a wholly-owned subsidiary of
UHS commencing in 2002 on the real property of McAllen Medical Center.
During 1999, the Trust paid $5.0 million to acquire a 98% interest in a
limited liability company that owns the Summerlin Hospital Medical Office
Building, which was constructed in 1997 and is connected to the Summerlin
Hospital Medical Center in Las Vegas, Nevada. Summerlin Hospital Medical
Center is owned by a limited liability company in which UHS holds a 72%
ownership interest. Summerlin Hospital Medical Office Building was owned by
this same limited liability company prior to the sale to the limited liability
company in which the Trust holds a 98% ownership interest. Also during 1999,
the Trust acquired the Orthopedic Specialists of Nevada Building in Las Vegas,
Nevada for $1.6 million. The ground lease on this medical office building is
based upon an agreement between Valley Health Systems, LLC (a UHS subsidiary)
and the Trust. In addition, the Trust purchased from UHS, additional real
estate assets related to Chalmette Medical Center for approximately $3.2
million in cash.
During the third quarter of 1999, the Trust recorded a provision for
investment loss of $2.6 million on Meridell Achievement Center, Inc., a
behavioral health services facility operated by, and leased to, a wholly-owned
subsidiary of UHS, pursuant to the terms of a lease that expired in December,
2000. In measuring the provision for investment loss during the third quarter
of 1999, the Trust estimated fair value by discounting (using the Trust's
internal hurdle rate) expected future cash flows, consisting of estimated
future rental payments and residual value. During the second quarter of 2000,
the wholly-owned subsidiary of UHS exercised its option pursuant to the lease
to purchase the leased property upon the December 31, 2000 expiration of the
initial lease. Pursuant to the terms of the lease agreement, three appraisals
were obtained to determine the fair market value of the property and
accordingly, the sale price was determined to be $5,450,00. This sale was
completed in December, 2000 resulting in a gain of approximately $1.9 million
which was included in the Trust's 2000 results of operations.
12
Also during 2000, the Trust invested $2.0 million to acquire a 98% interest
in a LLC that purchased the Summerlin Hospital Medical Office Building II
which is connected to the Summerlin Hospital Medical Center in Las Vegas,
Nevada. This medical office building was purchased from a LLC in which UHS
holds a 72% ownership interest. The purchase price paid for the property to
the UHS majority-owned LLC was $10.5 million. The Trust made a cash investment
of $2.0 million, and the LLC, which is majority-owned by the Trust, obtained a
$9.8 million third-party, non-recourse mortgage to fund the balance of the
purchase price and finance tenant improvements.
During 2001, McAllen Hospitals, L.P., a subsidiary of UHS, exercised its
renewal option to renew its lease with the Trust at substantially the same
terms for another five years commencing January 1, 2002 and expiring December
31, 2006.
Also during 2001, UHS purchased the assets and operations of the 60-bed
McAllen Heart Hospital located in McAllen, Texas. Upon the acquisition by UHS,
the Heart Hospital began operating under the same license as an integrated
department of McAllen Medical Center. As a result of combining the operations
of the two facilities, the revenues of McAllen Medical Center include revenues
generated by the Heart Hospital, the real property of which is not owned by
the Trust. Accordingly, since the bonus rent calculation for McAllen Medical
Center is based on net revenues and since the financial results of the two
facilities are no longer separable, the McAllen Medical Center lease was
amended during 2001 to exclude from the bonus rent calculation, the estimated
net revenues generated at the Heart Hospital. Base rental commitments and the
guarantee by UHS under the original lease continue for the remainder of the
lease terms. During 2000, UHS purchased a non-acute care facility located in
McAllen, Texas that had been closed. The license for this facility was merged
with the license for McAllen Medical Center and this non-acute facility, the
real property of which is not owned by the Trust, was re-opened during 2001.
There was no amendment to the McAllen Medical Center lease related to this
non-acute care facility. No assurance can be given as to the effect, if any,
the consolidation of the two facilities as mentioned above, had on the
underlying value of McAllen Medical Center.
Pursuant to the terms of the leases with UHS, the lessees have rights of
first refusal to: (i) purchase the respective leased facilities during and for
180 days after the lease terms expire at the same price, terms and conditions
of any third party offer, or; (ii) renew the lease on the respective leased
facility at the end of, and for 180 days after, the lease term on the same
terms and conditions as to any third party offer. The leases also grant the
lessees options, exercisable on at least six months notice, to purchase the
respective leased facilities at the end of the lease term or any renewal term
at the facility's then fair market value. The terms of the leases also provide
that in the event UHS discontinues operations at the leased facility for more
than one year, or elects to terminate its lease prior to the expiration of its
term for prudent business reasons, UHS is obligated to offer a substitution
property. If the Trust does not accept the substitution property offered, UHS
is obligated to purchase the leased facility back from the Trust at a price
equal to the greater of its then fair market value or the original purchase
price paid by the Trust.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has been retained by the Board of Trustees, on the
recommendation of the Audit Committee, to perform all accounting and audit
services during the 2002 fiscal year. The Audit Committee is continuing to
evaluate the Trust's engagement of Arthur Andersen LLP. It is anticipated that
representatives of the Trust's independent public accountants will be present
at the Annual Meeting and will have an opportunity to make a statement, if
they desire to do so, and to respond to any appropriate inquiries of the
Shareholders or their representatives.
13
During 2001, the Trust and many of its equity affiliates retained Arthur
Andersen LLP, to provide services in the following categories and amounts:
Audit fees $124,750
Financial information, system
design & implementation fees 0
All other fees 120,400
--------
Total Fees $245,150
========
Included in the Arthur Andersen LLP fees listed above are audit and tax fees
(tax fees are included in all other fees) of $81,750 and $77,400,
respectively, incurred in connection with services rendered on behalf of, and
paid by, the various limited liability companies and limited partnership in
which the Trust owns various equity interests.
The Audit Committee has considered and determined that the provision of non-
audit services by the Trust's principal auditor is compatible with maintaining
auditor independence.
EXPENSES FOR PROXY SOLICITATION
The principal solicitation of Proxies is being made by mail; however,
certain officers and employees of the Trust and of the Advisor, or its
affiliates, none of whom will receive additional compensation therefor, may
solicit Proxies by telegram, telephone or other personal contact. The Trust
will bear the cost of the solicitation of the Proxies, including postage,
printing and handling and will reimburse the reasonable expenses of brokerage
firms and others for forwarding material to beneficial owners of Shares.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR
NEXT YEAR'S ANNUAL MEETING
Any proposal that a Shareholder wishes to present for consideration at the
2003 Annual Meeting must be received by the Trust no later than December 30,
2002. This date provides sufficient time for inclusion of the proposal in the
2002 proxy materials.
14
OTHER BUSINESS TO BE TRANSACTED
As of the date of this Proxy Statement, the Board of Trustees knows of no
other business to be presented for action at the Annual Meeting. As for any
other business that may properly come before the Annual Meeting, the Proxies
confer discretionary authority in the persons named therein. Those persons
will vote or act in accordance with their best judgment with respect thereto.
YOU ARE URGED TO VOTE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AT YOUR EARLIEST CONVENIENCE, WHETHER OR NOT
YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON.
BY ORDER OF THE BOARD OF TRUSTEES
/s/ Kirk E. Gorman
KIRK E. GORMAN
Secretary
King of Prussia, Pennsylvania
April 29, 2002
A COPY OF THE TRUST'S ANNUAL REPORT ON FORM 10-K WILL BE SENT WITHOUT CHARGE
TO ANY SHAREHOLDER REQUESTING IT IN WRITING FROM: INVESTOR RELATIONS, UNIVER-
SAL HEALTH REALTY INCOME TRUST, UNIVERSAL CORPORATE CENTER, 367 SOUTH GULPH
ROAD, P.O. BOX 61558, KING OF PRUSSIA, PENNSYLVANIA 19406-0958.
15
UNIVERSAL HEALTH REALTY INCOME TRUST
C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940
DETACH HERE
[X] Please mark
votes as in
this example
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED. IF NO CHOICE IS
SPECIFIED, THE PROXY WILL BE VOTED "FOR" ELECTION OF THE NOMINEES FOR TRUSTEES.
1. The Election of Trustees.
Nominees: (01) Alan B. Miller, (02) Myles H. Tanenbaum and
(03) Elliot J. Sussman, M.D., M.B.A.
FOR WITHHELD
THREE [_] [_] FROM THREE
NOMINEES NOMINEES
[_]_________________________________________________
For, except vote withheld from the above nominee:
Discretionary authority is hereby granted with respect to such other matters as
may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement furnished herewith.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
NOTE: Please sign exactly as name appears hereon. Each joint owner shall sign.
Executors, administrators, trustees, etc. should give full title.
Signature:________________ Date:_______ Signature:_______________ Date:_______
DETACH HERE
PROXY
UNIVERSAL HEALTH REALTY INCOME TRUST
This Proxy is Solicited By The Board of Trustees For The Annual Meeting of
Shareholders
To Be Held on June 3, 2002
Alan B. Miller and Kirk E. Gorman, and each of them, as the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, are hereby authorized to represent and to vote, as designated on
the reverse side, all shares of Universal Health Realty Income Trust held of
record by the undersigned on April 23, 2002 at the Annual Meeting of
Shareholders to be held at 10.00 a.m., on Monday, June 3, 2002 at Universal
Corporate Center, 367 South Gulph Road, King of Prussia, Pennsylvania and at any
adjournment thereof. Any and all proxies heretofore given are hereby revoked.
(This proxy is continued on reverse side)
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SEE REVERSE PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY SEE REVERSE
SIDE SIDE
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