Item 1.01 Entry into a Material Definitive Agreement.
As previously disclosed, UHS of Rancho Springs, Inc. ("Rancho Springs"), a
wholly-owned subsidiary of Universal Health Services, Inc. ("UHS"), had notified
us that it intended to terminate the lease on Southwest Healthcare System,
Inland Valley Campus, upon the scheduled expiration of the lease term which
occurred on December 31, 2021. As permitted pursuant to the terms of the lease,
Rancho Springs had the right to purchase the leased property at its appraised
fair-market value at the end of the existing lease term. However, UHS agreed to
exchange, and lease back from us, substitution properties with an approximate
aggregate fair-market value substantially equal to that of Southwest Healthcare
System, Inland Valley Campus, in return for the real estate assets of the Inland
On December 31, 2021 (the "Closing Date"), we entered into an Asset Purchase and
Sale Agreement ("APSA"), with UHS and certain of its affiliates. Pursuant to the
terms of the APSA, Rancho Springs agreed to purchase the real estate assets of
the Inland Valley Campus of Southwest Healthcare System, at its deemed fair
market value of $79.6 million. The APSA is set forth in Exhibit 10.1 hereto.
In consideration therefor, two wholly-owned subsidiaries of UHS transferred the
real estate assets of the following properties to us: (i) Aiken Regional Medical
Center ("ARMC"), located in Aiken, South Carolina, at its deemed fair-market
value of approximately $57.7 million, and; (ii) Canyon Creek Behavioral Health
("Temple"), located in Temple, Texas, at its deemed fair-market value of
approximately $24.7 million. In connection with this transaction, since the
deemed fair-market value of ARMC and Temple, which totaled approximately $82.4
million in the aggregate, exceeded the $79.6 million deemed fair-market value of
the Inland Valley Campus of Southwest Healthcare System, we paid approximately
$2.8 million in cash to UHS on the Closing Date.
On the Closing Date: (i) ARMC and Temple entered into the Master Lease, in the
form attached as Exhibit 10.2 (the "Master Lease"); (ii) ARMC, as lessee,
entered into a lease for the ARMC property ("ARMC Lease") with us as lessor, in
the form attached hereto as Exhibit 10.3; (iii) Temple, as lessee, entered a
lease for the Canyon Creek property ("Canyon Creek Lease") with us as lessor, in
the form attached hereto as Exhibit 10.4, and; (iv) UHS entered into
the Guaranty of the ARMC Lease and the Canyon Creek Lease (the "Guaranty")
pursuant to which it guaranteed all the obligations of ARMC and Temple under the
leases, in the form attached hereto as Exhibit 10.5.
We intend to structure the purchase and sale as a like-kind exchange of property
under the provisions of Section 1031 of the Internal Revenue Code of 1986, as
Pursuant to the Master Lease, each lessee has the option, among other things, to
renew the lease at the lease terms described below by providing notice to us at
least 90 days prior to the termination of the then current term. The lessees
also have the right to purchase the respective leased facilities from us at
their appraised fair market value upon any of the following: (i) at the end of
the lease terms or any renewal terms; (ii) upon one month's notice should a
change of control of the Trust occur, or; (iii) within the time period as
specified in the lease in the event that the lessee provides notice to us of
their intent to offer a substitution property/properties in exchange for one
of facilities leased from us, should we be unable to reach an agreement with the
lessee on the properties to be substituted. Additionally, each lessee has rights
of first refusal to: (i) purchase the respective leased facilities during and
for 180 days after the lease terms 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 at the same terms
and conditions pursuant to any third-party offer.
The Fixed Term of each of the Canyon Creek Lease and ARMC Lease is approximately
twelve (12) years, ending on December 31, 2033. Subject to the terms of the
Master Lease, each lessee is granted the right to renew its lease for seven,
five (5)-year optional renewal terms ("Extended Terms") for a maximum term if
all such options are exercised of thirty-five (35) years after the expiration of
the Fixed Term.
The Minimum Rent (as defined in the Master Lease) payable pursuant to the Master
Lease for the first lease year is the annual sum of approximately $3.9 million
payable in equal monthly installments for the ARMC Lease and the annual sum of
approximately $1.7 million payable in equal monthly installments for the Canyon
Creek Lease. Beginning on January 1, 2023, and thereafter on each January 1
during the Fixed Term, Minimum Rent shall be increased by 2.25% on a cumulative
and compounded basis. For the Extended Terms, the Minimum Rent shall be at the
then current Fair Market Rent (as defined in the Master Lease).
The foregoing description of the APSA, Master Lease, Aiken Lease, Temple Lease
and Guaranty is a summary and does not purport to be complete and is qualified
in its entirety by reference to the full text of the APSA, Master, Lease, Aiken
Lease, Temple Lease and Guaranty, copies of which are filed as Exhibits 10.1,
10.2, 10.3, 10.4 and 10.5, respectively, to this Report.
Related Party Matters: All of our officers are employees of a wholly-owned
subsidiary of UHS. In addition, our Chairman of the Board and Chief Executive
Officer is Executive Chairman of UHS and one of our directors is a director and
Chief Executive Officer of UHS.
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"). Our
advisory fee payable to UHS under the Advisory Agreement is equal to 0.70% of
our average invested real estate assets, as derived from our condensed
consolidated balance sheets. The Advisory Agreement, which is scheduled to
expire on December 31st of each year, was recently renewed for 2022 at the same
terms in effect for 2021. All transactions between us and UHS must be approved
by the Trustees who are unaffiliated with UHS (the "Independent Trustees").
UHS owns 5.7% of our outstanding shares of beneficial interest.
We now have four hospital facilities leased to wholly-owned subsidiaries of
UHS. Additionally, another hospital facility of ours is leased to a joint
venture between a subsidiary of UHS and a third party. We also
have nineteen medical office buildings, general office buildings
or free-standing emergency departments that are either wholly or jointly-owned
by us that include tenants which are subsidiaries or joint ventures of UHS.
Item 2.01 Completion of Acquisition or Disposition of Assets.
The transactions described in Item 1.01 hereto were completed on December 31,
The information provided in "Item 1.01 - Entry into a Material Definitive
Agreement" is hereby incorporated into this Item 2.01 by reference.
Item 9.01 Financial Statements and Exhibits.
10.1 Asset Purchase and Sale Agreement, dated as of December 31, 2021 by
and among Universal Health Realty Income Trust, a Maryland real estate
investment trust, Universal Health Services, Inc., a Delaware
corporation and certain of its wholly-owned subsidiaries, Aiken Regional
Medical Centers, LLC, a South Carolina limited liability company, Temple
Behavioral Healthcare Hospital, Inc., a Texas corporation, and Universal
Health Services of Rancho Springs, Inc., a California corporation.
10.2 Master Lease Document adopted as part of the leases to be executed by
Universal Health Realty Income Trust, a Maryland real estate investment
trust, as Lessor, and Wholly-Owned Subsidiaries Of Universal Health
Services, Inc., a Delaware corporation ("UHS").
10.3 Lease made as of December 31, 2021 between Universal Health Realty
Income Trust, a Maryland real estate investment trust, and Aiken
Regional Medical Centers, LLC, a South Carolina limited liability
10.4 Lease made as of December 31, 2021 between Universal Health Realty
Income Trust, a Maryland real estate investment trust, and Temple
Behavioral Healthcare Hospital, Inc., a Texas corporation.
10.5 Guaranty of Universal Health Services, Inc., a Delaware corporation in
favor of Universal Health Realty Income Trust, a Maryland real estate
investment trust of those certain leases, dated as of December 31, 2021,
(i) by and between Lessor and Aiken Regional Medical Center LLC, as
lessee, and (ii) by and between Lessor and Temple Behavioral Healthcare
Hospital, Inc., as lessee.
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