Quarterlytics / Real Estate / REIT - Healthcare Facilities / Universal Health Realty Income Trust

Universal Health Realty Income Trust

uht · NYSE Real Estate
Claim this profile
Ticker uht
Exchange NYSE
Sector Real Estate
Industry REIT - Healthcare Facilities
Employees 1-10
Overview Coverage Annual Reports FAQ Peers Earnings Calls Financials News Management
← All annual reports
FY1996 Annual Report · Universal Health Realty Income Trust
Sign in to download
Loading PDF…
                                    FORM 10-K                       SECURITIES AND EXCHANGE COMMISSION                             Washington, D.C. 20549(MARK ONE)                |X|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)                   OF THE SECURITIES AND EXCHANGE ACT OF 1934                   For the fiscal year ended December 31, 1996                                       OR              | |TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)                   OF THE SECURITIES EXCHANGE ACT OF 1934 For                    the transition period from ___________ to                                  _____________                           Commission File No. 1-9321                                UNIVERSAL HEALTH                               REALTY INCOME TRUST             (Exact name of registrant as specified in its charter)           Maryland                                       23-6858580 (State or other jurisdiction of                        (I.R.S. Employer  incorporation or organization)                        Identification Number)   Universal Corporate Center      367 South Gulph Road        P.O. Box 61558                                      19406-0958  King of Prussia, Pennsylvania                             (Zip Code)(Address of principal executive offices)       Registrant's telephone number, including area code: (610) 265-0688           Securities registered pursuant to Section 12(b) of the Act:      Title of each Class                   Name of exchange on which registeredShares of beneficial interest,        $.01 par value                             New York Stock Exchange        Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark whether the registrant (1) has filed all reports to befiled by Section 13 or 15(d) of the Securities and Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.                    Yes   [x]               No   [ ]Indicate by check mark if disclosure of delinquent filers pursuant to Item 405of Regulation S-K is not contained herein, and will not be contained, to thebest of Registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. |X|Aggregate market value of voting shares held by non-affiliates as of January 31,1997: $163,009,548. Number of shares of beneficial interest outstanding ofregistrant as of January 31, 1997: 8,952,340.                       DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive proxy statement for its 1997 AnnualMeeting of Shareholders, which will be filed with the Securities and ExchangeCommission within 120 days after December 31, 1996 (incorporated by referenceunder Part III).                                     PART IItem 1. BUSINESSGeneralThe Trust commenced operations on December 24, 1986. As of December 31, 1996,the Trust had investments in twenty-six facilities located in thirteen statesconsisting of the following:              Facility Name                       Location              Type of Facility                       GuarantorChalmette Medical Centers:                                                                                                          Patricia Street Campus                   (A)    Chalmette, LA         Acute Care               Universal Health Services, Inc.  Virtue Street Campus                     (A)    Chalmette, LA         Rehabilitation           Universal Health Services, Inc.Inland Valley Regional Medical Ctr.        (A)    Wildomar, CA          Acute Care               Universal Health Services, Inc.McAllen Medical Center                     (A)    McAllen, TX           Acute Care               Universal Health Services, Inc.Meridell Achievement Center                (A)    Austin, TX            Behavioral Health        Universal Health Services, Inc.The BridgeWay                              (A)    N.Little Rock, AR     Behavioral Health        Universal Health Services, Inc.Wellington Regional Medical Center         (A)    W.Palm Beach, FL      Acute Care               Universal Health Services, Inc.THC-Chicago                                (B)    Chicago, IL           Sub-Acute Care           Community Psychiatric Ctrs.Tri-State Rehabilitation Hospital          (B)    Evansville, IN        Rehabilitation           HEALTHSOUTH CorporationMadison Irving Medical Center              (C)    Syracuse, NY          Ambulatory Trmt. Ctr.    Crouse Irving Memorial HospitalFresno Herndon Medical Plaza               (B)    Fresno, CA            Medical Office Bldg.                       ---Family Doctor's Medical Office Bldg.       (B)    Shreveport, LA        Medical Office Bldg.     Columbia/HCA Healthcare Corp.Kelsey-Seybold Clinic at Kings Crossing    (B)    Kingwood, TX          Medical Office Bldg.     Caremark International, Inc.Professional Bldgs. at Kings Crossing      (B)    Kingwood, TX          Medical Office Bldg.                      ---Chesterbrook Academy                       (B)    Audubon, PA           Preschool & Childcare    Nobel Education Dynamics & Subs.Carefree Learning Center                   (B)    New Britain, PA       Preschool & Childcare    Nobel Education Dynamics & Subs.Carefree Learning Center                   (B)    Newtown, PA           Preschool & Childcare    Nobel Education Dynamics & Subs.Carefree Learning Center                   (B)    Uwchlan, PA           Preschool & Childcare    Nobel Education Dynamics & Subs.The Southern Crescent Center               (B)    Riverdale, GA         Medical Office Bldg.                      ---Desert Samaritan Hospital MOBs             (D)    Phoenix, AZ           Medical Office Bldg.                      ---Suburban Medical Plaza II                  (E)    Louisville, KY        Medical Office Bldg.                      ---Maryvale Samaritan Hospital MOBs           (D)    Phoenix, AZ           Medical Office Bldg.                      ---Desert Valley Medical Center MOB           (F)    Phoenix, AZ           Medical Office Bldg.                      ---Cypresswood Professional Center            (G)    Houston, TX           Medical Office Bldg.                      ---Samaritan West Valley Medical Ctr.         (H)    Goodyear, AZ          MOB, Imaging Ctr.                         ---Lake Shore Hospital                        (I)    Manchester, NH        Unoccupied                                ---     (A)  Leased to subsidiaries of Universal Health Services, Inc.     (B)  Real estate assets owned by the Trust and leased to an unaffiliated          third party or parties.     (C)  The Trust holds a mortgage loan with Crouse Irving Memorial Properties          on the real estate assets of this facility.     (D)  The Trust has 50% equity interest in a limited liability corporation          ("LLC") which owns the real estate assets of this facility.     (E)  The Trust has 33% equity interest in a LLC which owns the real estate          assets of this facility. Construction on this facility was completed          during the third quarter of 1996. In connection with this property,          the Trust posted a $3.5 million standby letter of credit for the          benefit of the lender providing the construction financing. The          construction loan matures in November, 1997 and the Trust expects the          LLC to arrange for permanent financing prior to that date.     (F)  Trust has 95% equity interest in a LLC which owns the real estate          assets of this facility.     (G)  The Trust is providing construction financing to a limited partnership          in which the Trust has a 77% controlling equity interest during the          construction period, which increases to 98% upon completion and          occupancy of the building. The construction is scheduled to be          completed in the third quarter of 1997. In connection with this          investment, the Trust made a capital contribution of $343,000 to the          limited partnership that will develop and own this facility.     (H)  The Trust is providing construction financing to a LLC in which the          Trust has 50% equity interest during the construction period, which          increases to 70% upon completion and occupancy of the building. The          construction is scheduled to be completed in the fourth quarter of          1997.                                       1     (I)  The Trust received free and clear title to the real estate assets of          Lake Shore Hospital during 1995. The Trust continues to actively          negotiate with third parties interested in purchasing or leasing the          real estate assets of the Lake Shore facility.As of December 31, 1996, the Trust has invested an aggregate of $174 million invarious real estate assets, mortgage loans, construction loans and limitedliability corporations and limited partnerships which own real estate assets.Included in the Trust's portfolio is ownership of nine hospital facilities(aggregate investment of $136 million) which contain an aggregate of 1,279licensed beds. The leases with respect to such facilities have fixed terms withan average of four years remaining and provide for renewal options for up to sixfive-year terms. The initial terms of these leases expire beginning in 1999.Minimum rents are payable based on the initial acquisition costs of thefacilities and, with respect to all facilities other than the one leased toTHC-Chicago, additional rents are payable based upon a percentage of eachfacility's revenue in excess of base year amounts or CPI increases in excess ofbase year amounts. The lessees have rights of first refusal to purchase thebase year amounts. The lessees have rights of first refusal to purchase thefacilities exercisable during and in most cases for 180 days after theexpiration of the lease terms and also have purchase options exercisable uponthree to six months notice at the end of each lease term at the facility's fairmarket value. For the hospital facilities owned by the Trust, the combined ratioof earnings before interest, taxes, depreciation, amortization and lease andrental expense (EBITDAR) (excluding a favorable prior year net revenueadjustment recorded during 1996 at one of the Trust's facilities) to minimumrent plus additional rent payable to the Trust was approximately 5.0, 5.3, and4.3 for the years ended December 31, 1996, 1995 and 1994, respectively. Thecoverage ratio for individual facilities varies (see "Relationship to UniversalHealth Services, Inc.").Lessees are required to maintain all risk, replacement cost and commercialproperty insurance policies on the leased properties. The Trust is one of thenamed insured and believes the leased properties are adequately insured.Relationship to Universal Health Services, Inc.Leases. As of December 31, 1996, subsidiaries of UHS leased seven of the ninehospital facilities owned by the Trust with initial terms expiring in 1999through 2003. The leases to the subsidiaries of UHS are guaranteed by UHS andare cross-defaulted with one another. Each of the leases contains renewaloptions of up to six 5-year periods. These leases accounted for 83% of the totalrevenue of the Trust for the five years ended December 31, 1996.For the year ended December 31, 1996, two of the UHS facilities did not generatesufficient EBITDAR to cover the 1996 rent expense payable to the Trust. Theleases on these facilities, which mature in 2000 and 2001, generated 18% of theTrust's 1996 rental income. One additional UHS facility had 1996 EBITDAR whichwas less than 1.5 times the 1996 rent payable to the Trust. The lease on thisfacility, which matures in 2001, generated 10% of the Trust's 1996 rentalincome. One additional UHS facility had 1996 EBITDAR (excluding a favorableprior year net revenue adjustment) which was less than 2.0 times the 1996 rentexpense payable to the Trust. The lease on this facility, which matures in 1999generated 6% of the Trust's 1996 rental income. All of the Trust's remaininghospital facilities, including the facilities operated by non-related parties,had a combined 1996 EBITDAR of 7.5 times (ranging from 2.1 times to 8.9 times)the 1996 rent expense payable to the Trust.                                       2In recent years, an increasing number of legislative initiatives have beenintroduced or proposed in Congress and in state legislatures that would effectmajor changes in the healthcare system, either nationally or at the state level.In addition, the healthcare industry has been characterized in recent years byincreased competition and consolidation. Management of the Trust is unable topredict the effect, if any, these industry factors will have on the operatingresults of its leasees, including the facilities leased to subsidiaries of UHS,or on their ability to meet their obligations under the terms of their leaseswith the Trust. As mentioned above, certain of the Trust's facilities leased tosubsidiaries of UHS have had EBITDAR of less than 1.5 times the rent payable tothe Trust. Management of the Trust can not predict whether the leases withsubsidiaries of UHS, which have renewal options at existing lease rates, or anyof the Trust's other leases, will be renewed at the end of their initial leaseterms. If the leases are not renewed at their current rates, the Trust would berequired to find other operators for those facilities and/or enter into leaseson terms potentially less favorable to the Trust than the current leases.For the year ended December 31, 1995, one of the UHS facilities did not generatesufficient earnings before interest, taxes, depreciation, amortization and leaseand rental expense (EBITDAR) to cover the 1995 rent expense payable to theTrust. The lease on this facility, which matures in 2001, generated 12% of theTrust's 1995 rental income. Three additional UHS facilities had 1995 EBITDARwhich was less than 1.5 times the 1995 rent expense payable to the Trust. Theleases on these three facilities, which mature in 1999, 2000 and 2001, generatedon a combined basis, 22% of the Trust's 1995 rental income. All of the Trust'sremaining hospital facilities, including the facilities operated by non-relatedparties, had a combined 1995 EBITDAR of 8.1 times (ranging from 2.8 times to10.5 times) the 1995 rent expense payable to the Trust.Pursuant to the terms of the leases with UHS, the lessees have rights of firstrefusal to: (i) purchase the respective leased facilities during and for 180days after the lease terms at the same price, terms and conditions of any thirdparty offer, or; (ii) renew the lease on the respective leased facility at theend of, and for 180 days after, the lease term at the same terms and conditionspursuant to any third party offer. The leases also grant the lessees options,exercisable on at least six months notice, to purchase the respective leasedfacilities at the end of the lease term or any renewal term at the facility'sthen fair market value. The terms of the leases also provide that in the eventUHS discontinues operations at the leased facility for more than one year, orelects to terminate its lease prior to the expiration of its term for prudentbusiness reasons, UHS is obligated to offer a substitution property. If theTrust does not accept the substitution property offered, UHS is obligated topurchase the leased facility back from the Trust at a price equal to the greaterof its then fair market value or the original purchase price paid by the Trust.As noted below, transactions with UHS must be approved by a majority of Trusteeswho are unaffiliated with UHS (the "Independent Trustees"). However, thepurchase options and rights of first refusal granted to the respective lesseesto purchase or lease, after the expiration of the lease term, the respectiveleased facilities may, in addition to adversely affecting the Trust's ability tosell or lease a facility, present a potential conflict of interest between theTrust and UHS since the price and terms offered by a third party are likely tobe dependent, in part, upon the financial performance of the facility during thefinal years of the lease term.                                       3Advisory Agreement. UHS of Delaware, Inc. (the "Advisor"), a wholly-ownedsubsidiary of UHS, serves as Advisor to the Trust under an Advisory Agreementdated December 24, 1986 between the Advisor and the Trust (the "AdvisoryAgreement"). Under the Advisory Agreement, the Advisor is obligated to presentan investment program to the Trust, to use its best efforts to obtaininvestments suitable for such program (although it is not obligated to presentany particular investment opportunity to the Trust), to provide administrativeservices to the Trust and to conduct the Trust's day-to-day affairs. Inperforming its services under the Advisory Agreement, the Advisor may utilizeindependent professional services, including accounting, legal and otherservices, for which the Advisor is reimbursed directly by the Trust. TheAdvisory Agreement expires on December 31 of each year, however, it is renewableby the Trust, subject to a determination by the Independent Trustees that theAdvisor's performance has been satisfactory. The Advisory Agreement may beterminated for any reason upon sixty days written notice by the Trust or theAdvisor. The Advisory Agreement has been renewed for 1997. All transactions withUHS must be approved by the Independent Trustees. The Advisory Agreementprovides 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 fromits consolidated balance sheet from time to time. In addition, the Advisor isentitled to an annual incentive fee equal to 20% of the amount by which cashavailable for distribution to shareholders for each year, as defined in theAdvisory Agreement, exceeds 15% of the Trust's equity as shown on its balancesheet, determined in accordance with generally accepted accounting principleswithout reduction for return of capital dividends. No incentive fees were paidduring 1996, 1995 and 1994. The advisory fee is payable quarterly, subject toadjustment at year end based upon audited financial statements of the Trust.Share Purchase Option. UHS has the option to purchase shares of beneficialinterest in the Trust at fair market value to maintain a 5% interest in theTrust. As of December 31, 1996, UHS owned 8% of the outstanding shares ofbeneficial interest.CompetitionThe Trust believes that it is one of thirteen publicly traded real estateinvestment trusts (REITs) currently investing primarily in income-producing realestate with an emphasis on healthcare related facilities. The REITs compete withone another in that each is continually seeking attractive investmentopportunities in healthcare related facilities.The Trust may also compete with banks and other companies, including UHS, in theacquisition, leasing and financing of healthcare related facilities. In mostgeographical areas in which the Trust's facilities operate, there are otherfacilities which provide services comparable to those offered by the Trust'sfacilities, some of which are owned by governmental agencies and supported bytax revenues, and others of which are owned by nonprofit corporations and may besupported to a large extent by endowments and charitable contributions. Suchsupport is not available to the Trust's facilities. In addition, certainhospitals which are located in the areas served by the Trust's facilities arespecial service hospitals providing medical, surgical and behavioral healthservices that are not available at the Trust's hospitals or other generalhospitals. The competitive position of a hospital is to a large degree dependentupon the number and quality of staff physicians. Although a physician may at anytime terminate his or her affiliation with a hospital, the Trust's hospitalsseek to retain doctors of varied specializations on its hospital staffs and toattract other                                       4qualified doctors by improving facilities and maintaining high ethical andprofessional standards. The competitive position of a hospital is also affectedby alternative healthcare delivery systems such as preferred providerorganizations, health maintenance organizations and indemnity insuranceprograms. Such systems normally involve a discount from a hospital's establishedcharges. Outpatient treatment and diagnostic facilities, outpatient surgicalcenters, and freestanding ambulatory surgical centers also impact the healthcaremarketplace.The Trust anticipates investing in additional healthcare related facilities andleasing the facilities to qualified operators, perhaps including UHS andsubsidiaries of UHS.RegulationPrivate as well as Federal and state payment programs, and the impact of otherlaws and regulations, could have a significant effect on the utilization of theTrust's properties and its revenues. A number of legislative initiatives havebeen proposed that could result in major changes in the healthcare system,either nationally or at the state level. See "Management's Discussion andAnalysis of Financial Condition and Results of Operations".                                       5                      Executive Officers of the Registrant               The executive officers of the Trust are as follows:             Name               Age     Position         Alan B. Miller         59      Chairman of the Board and                                        Chief Executive Officer         Kirk E. Gorman         46      President, Chief Financial                                        Officer,Secretary and Trustee         Charles F. Boyle       37      Vice President and                                        Controller         Cheryl K. Ramagano     34      Vice President and                                        Treasurer         Timothy J. Fowler      41      Vice President,                                        Acquisition and DevelopmentMr. Alan B. Miller has been Chairman of the Board and Chief Executive Officer ofthe Trust since its inception in 1986. He served as President of the Trust untilMarch, 1990. Mr. Miller has been Chairman of the Board, President and ChiefExecutive Officer of UHS since its inception in 1978. Mr. Miller also serves asa director of CDI Corp, Genesis Health Ventures and Penn Mutual Life InsuranceCompany.Mr. Kirk E. Gorman has been President and Chief Financial Officer of the Trustsince March, 1990 and was elected to the Board of Trustees and Secretary inDecember, 1994. Mr. Gorman had previously served as Vice President and ChiefFinancial Officer of the Trust since April, 1987. Mr. Gorman was elected SeniorVice President, Treasurer and Chief Financial Officer of UHS in 1992 and servedas its Senior Vice President and Treasurer since 1989.Mr. Charles F. Boyle was elected Vice President and Controller of the Trust inJune, 1991. Mr. Boyle was promoted to Assistant Vice President - Accounting ofUHS in 1994 and served as its Director of Corporate Accounting since 1989.Ms. Cheryl K. Ramagano was elected Vice President and Treasurer of the Trust inSeptember, 1992. Ms. Ramagano was promoted to Assistant Treasurer of UHS in 1994and served as its Director of Finance since 1990.Mr. Timothy J. Fowler was elected Vice President, Acquisition and Development ofthe Trust upon the commencement of his employment with UHS in October, 1993.Prior thereto, he served as a Vice President of The Chase Manhattan Bank, N.A.since 1986.The Trust has no salaried employees and the Trust's officers are all employeesof UHS and receive no cash compensation from the Trust.                                       6Item 2. PropertiesThe following table shows the Trust's individual investments by the type offacility, capacity in terms of beds, and five-year occupancy levels based on theinformation provided by the lessees or mortgagors.                                                   Number of                                                   available                                                            Lease Term                                  Type of           beds @               Average Occupancy (1)  Minimum       End of       RenewalFacility Name and Location        facility         12/31/96   1996   1995   1994   1993   1992    rent    initial term  term (years)                                                                                                                                          Chalmette Medical Centers Virtue Street Campus             Rehabilitation        45     61%    57%    92%    81%    81%  $1,261,000     1999         25 Patricia Street Campus           Acute Care           118     66%    67%    66%    68%    69%     879,000     2003         15 Chalmette, Louisiana (2)Inland Valley Regional  Medical Center                  Acute Care            80     49%    49%    45%    50%    53%   1,857,000     2001         30 Wildomar, California (3)McAllen Medical Center            Acute Care           407     88%    87%    89%    86%    91%   5,485,000     2001         30 McAllen, Texas (3)Wellington Regional Medical  Center                          Acute Care           120     36%    30%    32%    35%    33%   2,495,000     2001         30 West Palm Beach, Florida (3)The BridgeWay                     Behavioral Health     70     62%    65%    61%    57%    54%     683,000     1999         25 North Little Rock, ArkansasMeridell Achievement Center       Behavioral Health    114     45%    65%    47%    44%    61%    1,071,000    2000         20 Austin, TexasTri-State Regional   Rehabilitation Hospital        Rehabilitation         80     59%    59%    61%    71%    78%    1,113,000    1999         25 Evansville, Indiana (4)THC - Chicago                    Sub-Acute Care         86     45%    38%    38%     -      -     1,065,000    2001         25 Chicago, Illinois (5)Fresno - Herndon Medical Plaza   Medical                 -    100%   100%     -      -      -       704,000    1999 -     various Fresno, California (6)          Office Building                                                               2003Family Doctor's Medical    Office Building               Medical                 -    100%   100%     -      -      -       175,000    2001         10 Shreveport, Louisiana (7)       Office Building                                       7Item 2. Properties (continued)                                                   Number of                                                   available                                                            Lease Term                                  Type of           beds @               Average Occupancy (1)  Minimum       End of       RenewalFacility Name and Location        facility         12/31/96   1996   1995   1994   1993   1992    rent    initial term  term (years)Kelsey-Seybold Clinic at    King's Crossing               Medical                 -    100%   100%     -      -      -      $242,000    2005      variousProfessional Center at           Office Buildings   King's Crossing                                       -     93%   100%     -      -      -       255,000  2000-2005   various Kingwood, Texas (8)Chesterbrook Academy             Preschool &             -    100%     -      -      -      -       155,000    2010        14 Audubon, Pennsylvania (9)       ChildcareCarefree Learning Center         Preschool &             -    100%     -      -      -      -       118,000    2010        14 New Britian, Pennsylvania (9)   ChildcareCarefree Learning Center         Preschool &             -    100%     -      -      -      -       113,000    2010        14 Newtown, Pennsylvania (9)       ChildcareCarefree Learning Center         Preschool &             -    100%     -      -      -      -       118,000    2010        14 Uwchlan, Pennsylvania (9)       ChildcareThe Southern Crescent Center     Medical                 -     89%     -      -      -      -       716,000  1999-2006   various Riverdale, Georgia (10)         Office Buildings                                       8(1) Average occupancy rate for the hospital facilities is based on the averagenumber of available beds occupied during the five years ended December 31, 1996.Average occupancy rate for the preschool and childcare centers and themulti-tenant medical office buildings is based on the occupied square footage ofeach building. See "Management's Discussion and Analysis of Financial Conditionand Results of Operations" for effects of various occupancy levels at theTrust's hospital facilities. Average available beds is the number of beds whichare actually in service at any given time for immediate patient use with thenecessary equipment and staff available for patient care. A hospital may haveappropriate licenses for more beds than are in service for a number of reasons,including lack of demand, incomplete construction, and anticipation of futureneeds.(2) Chalmette Medical Centers, which was formed at the end of 1989 by theconsolidation of two acute care hospitals (Chalmette General Hospital and De LaRonde Hospital), consists of two facilities separated by approximately one mile.Each facility is leased pursuant to a separate lease. The Patricia Street Campusis a 118-bed medical/surgical facility. The Virtue Street Campus is a 73-bedfacility made up of a physical rehabilitation unit, skilled nursing andinpatient behavioral health services. No assurance can be given as to the effectof the consolidation on the underlying value of the Virtue Street and PatriciaStreet Campuses. Rental commitments and the guarantee by UHS under the existingleases continue for the remainder of the respective terms of the leases.(3) During the third quarter of 1995, UHS purchased the assets of WestlakeMedical Center, ("Westlake") a 126-bed hospital of which the majority of realestate assets were owned by the Trust and leased to UHS. In exchange for thereal estate assets of Westlake and the termination of the lease, the Trustreceived substitution properties valued at approximately $19 million (theTrust's original purchase price of Westlake) consisting of additional realestate assets which were owned by UHS but related to three acute carefacilities, of which the Trust owns the real estate and which are operated byUHS (McAllen Medical Center, Inland Valley Regional Medical Center andWellington Regional Medical Center). These additional real estate assetsrepresent major additions and expansions made to these facilities by UHS sincethe purchase of the facilities by the Trust from UHS in 1986. The Trust alsopurchased from UHS, additional real estate assets related to McAllen MedicalCenter for approximately $1.9 million in cash. Total annual base rental paymentsfrom UHS to the Trust on the substituted properties will be $2.4 million whichequals 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 baserental payments on the additional real estate assets purchased related toMcAllen Medical Center will be approximately $200,000. Bonus rental on thesubstituted and purchased real estate assets will be equal to 1% of the growthin revenues, in excess of base year amounts, generated by these additionalassets. The guarantee by UHS under the existing leases, as amended to includethe additional property, will continue.(4) The Trust purchased this hospital during 1989 for approximately $7.5million. During 1993, the Trust purchased for approximately $1.1 million, a 20bed addition which was added to the facility. The Trust entered into anagreement with the operator, an unaffiliated third party, to lease the facilityfor an initial fixed term of 10 years, with the operator having the option toextend the lease for five 5-year renewal terms.(5) During December of 1993, UHS the former lessee and operator of BelmontCommunity Hospital, sold the operations of the facility to THC-Chicago, Inc.("THC"), an indirect wholly-                                       9owned subsidiary of Community Psychiatric Centers ("CPC"). Concurrently, theTrust purchased certain related real property from UHS for $1 million in cashand a note payable with a carrying value of $1,082,000 at December 31, 1996. Thenote payable has a face value of $1 million and is due on December 31, 2001. Theamount of interest payable on this note is contingent upon the financialperformance of this leased facility and its estimated fair value at the end ofthe initial lease term. The Trust has estimated the total amount payable underthe terms of this note and has discounted the payments to their net presentvalue using a 6% rate. Included in the Trust's 1996 financial results isapproximately $61,000 of interest expense related to this note. In connectionwith this transaction, UHS's lease with the Trust was terminated and the Trustentered into an eight year lease agreement with THC, which is guaranteed by CPC,for the real property of this facility, now operating as THC-Chicago.(6) In November of 1994, the Trust purchased the Fresno-Herndon Medical Plazalocated in Fresno, California for $6.3 million. The 37,800 square foot medicaloffice building is leased to several tenants, including an outpatient surgerycenter operated by Columbia/HCA Healthcare Corporation, under the terms ofleases with expiration dates ranging from November, 1999 to March, 2003. TheTrust has granted the seller the option to repurchase the property in November,2001 for $7,250,000.(7) During the third quarter of 1995, the Trust purchased for $1.6 million, amedical office building on the campus of a hospital owned by Columbia/HCAHealthcare Corporation located in Shreveport, Louisiana. The medical officebuilding is currently being leased under the terms of a master lease agreementwith Columbia/HCA Healthcare Corporation.(8) In December of 1994, the Trust agreed to provide construction financing forthe Professional Center at Kings Crossing, of which $1.1 million was advancedduring 1994 and $3.2 million was advanced during 1995. During the fourth quarterof 1995, upon completion and occupancy of the properties, the Trust purchasedthe single tenant and two multi-tenant medical office buildings for the totalconstruction cost of $4.3 million. The single tenant building consists of 20,000net square feet and is leased to Kelsey-Seybold, a subsidiary of CaremarkInternational, Inc., for an initial term of 10 years. The two multi-tenantbuildings total 27,535 net square feet and are occupied by tenants consistingprimarily of medical professionals.(9) During the second quarter of 1996, the Trust purchased four preschool andchildcare centers located in southeast Pennsylvania for a total of $3.9 million.The childcare centers, which were purchased from a subsidiary of Nobel EducationDynamics, Inc. ("Nobel"), were leased back to Nobel pursuant to the terms oflong-term, triple net leases.(10) During the second quarter of 1996, the Trust purchased The SouthernCrescent Center, multi-tenant medical office building, for approximately $6million. The Southern Crescent Center is a 41,400 square foot, multi-tenantmedical office building located adjacent to the Southern Regional Medical Centerin Riverdale, Georgia.Item 3. LEGAL PROCEEDINGSNot Applicable.Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                       10Not applicable. No matter was submitted during the fourth quarter of the yearended December 31, 1996 to a vote of security holders.                                     PART IIItem 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED          STOCKHOLDER MATTERSThe Trust's shares of beneficial interest are listed on the New York StockExchange. The high and low closing sales prices for the Trust shares ofbeneficial interest for each quarter in the two years ended December 31, 1996and 1995 are summarized below:                               1996                         1995                       High Price   Low Price     High Price       Low Price   First Quarter        $ 20        $ 17 1/2      $ 16 7/8         $ 15 7/8   Second Quarter       $ 19 7/8    $ 18 1/8      $ 16 7/8         $ 15 7/8   Third Quarter        $ 19 7/8    $ 18 3/8      $ 16 7/8         $ 16   Fourth Quarter       $ 20 1/2    $ 18 1/2      $ 17 7/8         $ 16 1/2As of January 31, 1997 there were approximately 1,135 shareholders of record ofthe Trust's shares of beneficial interest. It is the Trust's intention todeclare quarterly dividends to the holders of its shares of beneficial interestso as to comply with applicable sections of the Internal Revenue Code governingreal estate investment trusts. Covenants relating to the revolving creditfacility limit the Trust's ability to increase dividends in excess of 95% ofcash available for distribution unless additional distributions are required tobe made as to comply with applicable sections of the Internal Revenue Code andrelated regulations governing real estate investment trusts. In each of the pastfive years, dividends per share were declared as follows:                     1996       1995     1994       1993       1992 First Quarter      $ .420     $ .42    $ .415     $ .415     $ .40 Second Quarter       .425       .42      .415       .415       .41 Third Quarter        .425       .42      .415       .415       .41 Fourth Quarter       .425       .42      .420       .415       .41                    ------     -----    ------     -----      -----                    $1.695     $1.68    $1.665     $1.66      $1.63                    ======     =====    ======     =====      =====                                       11Item 6. SELECTED FINANCIAL DATAFinancial highlights for the Trust for the five years ended December 31, 1996were as follows:                         1996 (1)         1995 (1)         1994 (1)          1993              1992                                                                                                            Revenues               $21,923,000      $20,417,000      $18,826,000      $18,263,000      $19,047,000Net income (loss)      $14,158,000      $13,584,000      $14,312,000      $12,259,000      ($1,782,000)Funds fromOperations (2)         $17,837,000      $17,024,000      $17,501,000      $14,911,000      $13,737,000Per Share Data:Net income (loss)            $1.58            $1.52            $1.60            $1.45           ($0.25)Dividends                   $1.695            $1.68           $1.665            $1.66            $1.63     (1)  See "Management's Discussion and Analysis of Financial Condition and          Results of Operations."     (2)  Funds from operations, which does not represent cash provided by          operating activities as defined by generally accepted accounting          principles and should not be considered as an alternative to net          income as an indicator of the Trust's operating performance or to cash          flows as a measure of liquidity, is calculated as follows:                                         1996              1995              1994              1993               1992                                                                                                                                    Net income (loss)                  $14,158,000       $13,584,000       $14,312,000       $12,259,000        ($1,782,000)   Depreciation expense                 3,554,000         3,315,000         3,127,000         3,023,000          3,052,000   Amortization of interest   rate cap                               125,000           125,000            62,000                --                 --   Provision for investment losses             --                --                --                --         12,467,000   Gain on disposal of assets                  --                --                --          (371,000)                --                                      -----------       -----------       -----------       -----------        -----------   Total                              $17,837,000       $17,024,000       $17,501,000       $14,911,000        $13,737,000                                      ===========       ===========       ===========       ===========        ===========   At End of Period                      1996              1995              1994              1993               1992   Total Assets                      $148,566,000      $132,770,000      $128,907,000      $126,657,000       $126,885,000   Debt                               $43,082,000       $26,396,000       $21,283,000       $18,947,000        $49,600,000                                       12Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS          OF OPERATIONSLiquidity and Capital ResourcesThe Trust commenced operations on December 24, 1986. As of December 31, 1996,the Trust had investments in twenty-six facilities located in thirteen statesconsisting of the following:              Facility Name                       Location              Type of Facility                      Guarantor                                                                                                        Chalmette Medical Centers:  Patricia Street Campus                   (A)    Chalmette, LA         Acute Care               Universal Health Services, Inc.  Virtue Street Campus                     (A)    Chalmette, LA         Rehabilitation           Universal Health Services, Inc.Inland Valley Regional Medical Ctr.        (A)    Wildomar, CA          Acute Care               Universal Health Services, Inc.McAllen Medical Center                     (A)    McAllen, TX           Acute Care               Universal Health Services, Inc.Meridell Achievement Center                (A)    Austin, TX            Behavioral Health        Universal Health Services, Inc.The BridgeWay                              (A)    N.Little Rock, AR     Behavioral Health        Universal Health Services, Inc.Wellington Regional Medical Center         (A)    W.Palm Beach, FL      Acute Care               Universal Health Services, Inc.THC-Chicago                                (B)    Chicago, IL           Sub-Acute Care           Community Psychiatric Ctrs.Tri-State Rehabilitation Hospital          (B)    Evansville, IN        Rehabilitation           HEALTHSOUTH CorporationMadison Irving Medical Center              (C)    Syracuse, NY          Ambulatory Trmt. Ctr     Crouse Irving Memorial HospitalFresno Herndon Medical Plaza               (B)    Fresno, CA            Medical Office Bldg.                       ---Family Doctor's Medical Office Bldg.       (B)    Shreveport, LA        Medical Office Bldg.     Columbia/HCA Healthcare Corp.Kelsey-Seybold Clinic at Kings Crossing    (B)    Kingwood, TX          Medical Office Bldg.     Caremark International, Inc.Professional Bldgs. at Kings Crossing      (B)    Kingwood, TX          Medical Office Bldg.                     ---Chesterbrook Academy                       (B)    Audubon, PA           Preschool & Childcare    Nobel Education Dynamics & Subs.Carefree Learning Center                   (B)    New Britain, PA       Preschool & Childcare    Nobel Education Dynamics & Subs.Carefree Learning Center                   (B)    Newtown, PA           Preschool & Childcare    Nobel Education Dynamics & Subs.Carefree Learning Center                   (B)    Uwchlan, PA           Preschool & Childcare    Nobel Education Dynamics & Subs.The Southern Crescent Center               (B)    Riverdale, GA         Medical Office Bldg.                     ---Desert Samaritan Hospital MOBs             (D)    Phoenix, AZ           Medical Office Bldg.                     ---Suburban Medical Plaza II                  (E)    Louisville, KY        Medical Office Bldg.                     ---Maryvale Samaritan Hospital MOBs           (D)    Phoenix, AZ           Medical Office Bldg.                     ---Desert Valley Medical Center MOB           (F)    Phoenix, AZ           Medical Office Bldg.                     ---Cypresswood Professional Center            (G)    Houston, TX           Medical Office Bldg.                     ---Samaritan West Valley Medical Ctr.         (H)    Goodyear, AZ          MOB, Imaging Ctr.                        ---Lake Shore Hospital                        (I)    Manchester, NH        Unoccupied                               ---     (A)  Leased to subsidiaries of Universal Health Services, Inc.     (B)  Real estate assets owned by the Trust and leased to an unaffiliated          third party or parties.     (C)  The Trust holds a mortgage loan with Crouse Irving Memorial Properties          on the real estate assets of this facility.     (D)  The Trust has 50% equity interest in a limited liability corporation          ("LLC") which owns the real estate assets of this facility.     (E)  The Trust has 33% equity interest in a LLC which owns the real estate          assets of this facility. Construction on this facility was completed          during the third quarter of 1996. In connection with this property,          the Trust posted a $3.5 million standby letter of credit for the          benefit of the lender providing the construction financing. The          construction loan matures in November, 1997 and the Trust expects the          LLC to arrange for permanent financing prior to that date.     (F)  Trust has 95% equity interest in a LLC which owns the real estate          assets of this facility.     (G)  The Trust is providing construction financing to a limited partnership          in which the Trust has a 77% controlling equity interest during the          construction period, which increases to 98% upon completion and          occupancy of the building. The construction is scheduled to be          completed in the third quarter of 1997. In connection with this          investment, the Trust made a capital contribution of $343,000 to the          limited partnership that will develop and own this facility.     (H)  The Trust is providing construction financing to a LLC in which the          Trust has 50% equity interest during the construction period, which          increases to 70% upon completion and occupancy of the building. The          construction is scheduled to be completed in the fourth quarter of          1997.                                       13     (I)  The Trust received free and clear title to the real estate assets of          Lake Shore Hospital during 1995. The Trust continues to actively          negotiate with third parties interested in purchasing or leasing the          real estate assets of the Lake Shore facility.It is the Trust's intention to declare quarterly dividends to the holders of itsshares of beneficial interest so as to comply with applicable sections of theInternal Revenue Code governing real estate investment trusts. Convenantsrelating to the revolving credit facility limit the Trust's ability to increasedividends in excess of 95% of cash available for distribution unless additionaldistributions are required to be made to comply with applicable sections of theInternal Revenue Code and related regulations governing real estate investmenttrusts. During 1996, dividends of $1.695 per share, or $15,174,000 in theaggregate, were declared and paid.Net cash generated by operating activities was $18.0 million in 1996, $17.1million in 1995 and $18.2 million in 1994. The $900,000 net increase in 1996 ascompared to 1995 was due primarily to a $1 million increase in net income plusthe addback of the non-cash charges (depreciation, amortization, reserve forinvestment losses and amortization of interest rate cap expense). The $1.1million net decrease in 1995 as compared to 1994 was attributable to: (i) the$1.5 million of cash received during 1994 related to the settlement agreement onLake Shore Hospital; (ii) a $300,000 increase in the payment of expenses relatedto Lake Shore Hospital during 1995 as compared to 1994, and; (iii) a $700,000favorable increase in 1995 over 1994 in operating cash flows generated from theremainder of the Trust's portfolio.During 1996, the $18.0 million of cash flows generated from operations and the$16.6 million of additional borrowings were used primarily to: (i) pay dividends($15.2 million); (ii) purchase additional real property ($10.2 million, see Note3); (iii) purchase equity interest in various limited liability corporations($7.6 million, see Note 3), and; (iv) begin construction on two new medicaloffice buildings which will be owned by limited liability corporations andlimited partnerships in which the Trust will own equity interests ($1.6 million,see Note 3).During 1995, the $17.1 million of cash flows generated from operations and the$5.1 million of additional borrowings were used primarily to: (i) pay dividends($15.0 million); (ii) purchase additional real property including three medicaloffice buildings ($4.8 million, net, see Note 3), and; (iii) purchase additionalassets at hospitals operated by UHS and owned by the Trust ($1.9 million, seeNote 3). During 1994, the $18.2 million of cash flows generated from operationswere used primarily to pay dividends ($14.9 million) and purchase the realproperty of a medical building held for lease ($6.3 million, see Note 3).The Trust amended and restated its unsecured non-amortizing revolving creditagreement (the "Agreement") in 1996. The Agreement, which expires on September30, 2001, provides for $70 million in borrowing capacity. The Agreement providesfor interest at the Trust's option, at the certificate of deposit rate plus 3/4%to 1 1/8%, Eurodollar rate plus 5/8% to 1 1/8% or the prime rate. A fee of .15%to .375% is required on the unused portion of this commitment. The margins overthe certificate of deposit rate, Eurodollar rate and the commitment fee arebased upon the Trust's debt to cash flow ratio as defined by the agreement. AtDecember 31, 1996 the applicable margin over the certificate of deposit andEurodollar rates were 7/8% and 3/4%, respectively, and the commitment fee was .20%. There are no compensating balance requirements. The Agreement contains aprovision whereby the commitments will be reduced by 50% of the proceedsgenerated from any new equity offering. At December 31, 1996, the Trust hadapproximately $25 million of available borrowing capacity.                                       14Covenants relating to the revolving credit facility require the maintenance of aminimum tangible net worth and specified financial ratios, limit the Trust'sability to incur additional debt, limit the aggregate amount of mortgagereceivables and limit the Trust's ability to increase dividends in excess of 95%of cash available for distribution, unless additional distributions are requiredto comply with the applicable section of the Internal Revenue Code and relatedregulations governing real estate investment trusts.The Trust has entered into interest rate swap agreements and an interest ratecap agreement which are designed to reduce the impact of changes in interestrates on its floating rate revolving credit notes. The Trust has threeoutstanding swap agreements, two in the amount of $5 million each which maturein April, 1997, and May, 1999, and another in the amount of $1,580,000 whichmatures May, 2001. These swap agreements effectively fix the interest rate on$11,580,000 of variable rate debt at 7.55%. The interest rate cap, for which theTrust paid $622,750, (unamortized premium of $311,000 at December 31, 1996)matures in June, 1999 and fixes the maximum rate on $15 million of variable raterevolving credit notes at 7.75%. The interest rate swap and cap agreements wereentered into in anticipation of certain borrowing transactions made by the Trustduring 1994, 1995 and 1996. The effective rate on the Trust's revolving creditnotes including commitment fees and interest rate swap expense was 6.8%, 7.5%and 6.7% during 1996, 1995 and 1994, respectively. Additional interest expenserecorded as a result of the Trust's hedging activity was $130,000, $69,000 and$109,000 in 1996, 1995 and 1994, respectively. The Trust is exposed to creditloss in the event of nonperformance by the counterparties to the interest rateswap and cap agreements. These counterparties are major financial institutionsand the Trust does not anticipate nonperformance by the counterparties which arerated A or better by Moody's Investors Service. Termination of the interest rateswaps at December 31, 1996 would have resulted in payments to the counterpartiesof approximately $202,000 and termination of the interest rate cap would haveresulted in a payment to the Trust of approximately $73,000. The fair value ofthe interest rate swap and cap agreements at December 31, 1996 reflects theestimated amounts that the Trust would pay or receive to terminate the contractsand are based on quotes from the counterparties.GeneralThe matters discussed in this report as well as the news releases issued fromtime to time by the Trust contain certain forward-looking statements thatinvolve risks and uncertainties, including the fact that a substantial portionof the Trust's revenues are dependent on one operator, Universal HealthServices, Inc., and that a substantial portion of the Trust's leases andmortgagors are involved in the healthcare industry which is undergoingsubstantial changes and is subject to pressure from government reimbursementprograms and other third party payors. In recent years, an increasing number oflegislative initiatives have been introduced or proposed in Congress and instate legislatures that would effect major changes in the healthcare system,either nationally or at the state level. In addition, the healthcare industryhas been characterized in recent years by increased competition andconsolidation. Management of the Trust is unable to predict the effect, if any,these industry factors will have on the operating results of its lessees,including the facilities leased to subsidiaries of UHS, or on their ability tomeet their obligations under the terms of their leases with the Trust. Inaddition, certain of the Trust's facilities leased to subsidiaries of UHS havehad EBITDAR of less than 1.5 times the rent payable to the Trust. (see Note 2).Management of the Trust can not predict whether the leases with subsidiaries ofUHS, which have renewal options at existing lease rates, or any of the Trust'sother leases, will be renewed at the end of their                                       15initial lease terms. If the leases are not renewed at their current rates, theTrust would be required to find other operators for those facilities and/orenter into leases on terms potentially less favorable to the Trust than thecurrent leases. Results of OperationsTotal revenues increased 7% or $1.5 million to $21.9 million in 1996 as comparedto 1995 and 9% or $1.6 million to $20.4 million in 1995 as compared to 1994. The$1.5 million increase during 1996 over 1995 was primarily attributable to anincrease in base rentals from non-related parties due to the variousacquisitions made by the Trust during the fourth quarter of 1995 and the secondquarter of 1996 (see Note 3). The $1.6 million increase during 1995 as comparedto 1994 was attributable to: (i) a $224,000 increase in base rental from UHSfacilities resulting from the purchase by the Trust of additional real estateassets related to McAllen Medical Center and additional base rental generatedfrom the Westlake Medical Center swap transaction (see Note 3), (ii) a $1.1million increase in base rental from non-related parties resulting from theacquisitions of office buildings in November of 1994 and the third and fourthquarters of 1995 (see Note 3), (iii) a $144,000 increase in bonus rentals, whichare computed as a percentage of each facility's revenue in excess of base yearamounts or CPI increases in excess of base year amounts, and; (iv) a $125,000increase in interest income.The average occupancy rate of a hospital is affected by a number of factors,including the number of physicians using the hospital, changes in the number ofbeds, the composition and size of the population of the community in which thehospital is located, general and local economic conditions, variations in localmedical and surgical practices and the degree of outpatient use of the hospitalservices. Current industry trends in utilization and occupancy have beensignificantly affected by changes in reimbursement policies of third partypayors. A continuation of such industry trends could have a material adverseimpact upon the future operating performance of the Trust's facilities. TheTrust's facilities have experienced growth in outpatient utilization over thepast several years. The increase is primarily the result of advances in medicaltechnologies, which allow more services be provided on an outpatient basis, andincreased pressure from Medicare, Medicaid, health maintenance organizations(HMOs), preferred provider organizations (PPOs) and insurers to reduce hospitalstays and provide services, where possible, on a less expensive outpatientbasis. The Trust expects growth in outpatient services to continue, although therate of growth may be moderated in the future.An increased proportion of the Trust's hospitals revenue is derived from fixedpayment services, including Medicare and Medicaid. Management of the Trust'shospitals expects the Medicare and Medicaid revenues to continue to increase asa larger portion of the general population qualifies for coverage as a result ofthe aging population and expansion of the state Medicaid programs. The Medicareprogram reimburses the Trust's hospitals primarily based on established rates bya diagnosis related group for acute care hospitals and by a cost based formulafor behavioral health facilities. In addition to the Medicare and Medicaidprograms, other payors continue to actively negotiate the amounts they will payfor services performed. In general, management of the Trust's hospitals expectsthe percentage of its business from managed care programs, including HMOs andPPOs to grow. The consequent growth in managed networks and the resulting impactof these networks on the operating results of the Trust's facilities vary amongthe market in which the Trust's facilities operate. Management of the Trust isunable to predict the rate of growth of the net revenues of its facilities andthe resulting impact on bonus revenues, which are computed as a percentage ofeach facility's net revenues in excess of base year amounts or CPI increases inexcess of base year amounts, because the net revenues of the Trust's facilitiesare dependent upon                                        16developments in medical technologies and physician practice patterns, both ofwhich are beyond the control of management of the facilities.In addition to the trends described above that continue to have an impact on therevenues of the Trust's facilities, there are a number of other, more generalfactors affecting the Trust's facilities. In February 1997, the Presidentsubmitted his fiscal year 1998 budget plan which calls for a $100 billionreduction in the rate of increase in Medicare spending over the next five yearsand a $138 billion reduction over six years. Included in this proposal arereductions in the future rate of increases to payments made to hospitals. BothRepublicans and Democrats are working towards a balanced budget by the year 2002and it is likely that future budgets will contain certain reductions in the rateof increase of Medicare and Medicaid spending. The Trust cannot predict whetherthe above proposal or any other proposals will be adopted, and if adopted, noassurance can be given that the implementation of such plans will not have amaterial adverse effect on the operating results of the Trust's facilities.Interest expense increased $740,000 or 41% in 1996 as compared to 1995 dueprimarily to the additional borrowings used to finance the purchase of equityinterests in various limited liability corporations and limited partnershipsduring the first and second quarters of 1996, the purchase of the four preschooland child-care centers during the second quarter of 1996, and the medical officebuildings acquired by the Trust during the third and fourth quarters of 1996(see Note 3). Interest expense increased $679,000 or 59% in 1995 over 1994 dueprimarily to the increased borrowings used to finance the purchase of themedical office buildings in Kingwood, Texas and Shreveport, Louisiana and thepurchase of an additional $1.9 million of real assets related to McAllen MedicalCenter. Also contributing to the increased interest expense in 1995 as comparedto 1994 was the $6.3 million of additional borrowings used to finance thepurchase of the Fresno-Herndon Medical Plaza in November of 1994.Depreciation and amortization expense increased $254,000 or 8% in 1996 ascompared to 1995 due primarily to the depreciation expense related to the 1996and 1995 acquisitions described in Note 3. Depreciation and amortization expenseincreased $100,000 or 3% in 1995 as compared to 1994 due to: (i) a $188,000increase in depreciation expense related primarily to the purchase of themedical office buildings and additional real estate assets purchased in 1995, asmentioned above, and a full year of depreciation expense recorded on theFresno-Herndon MOB which was purchased by the Trust in December of 1994, and;(ii) an $88,000 decrease in amortization of financing costs related to the oldrevolving credit agreement.Other operating expenses increased $476,000 or 70% in 1996 as compared to 1995due primarily to the expenses related to the medical office buildings acquiredby the Trust during the fourth quarter of 1995 and the second quarter of 1996and a $220,000 increase in the reserve established for future expenses relatedto the settlement of Lake Shore Hospital. As of December 31, 1996, the balancein the Lake Shore Hospital reserve account was $151,000. The expenses related tothe medical office buildings, which totaled $551,000 in 1996 and $290,000 in1995, are passed on directly to the tenants and are included as revenue in theTrust's statements of income. Other operating expenses increased $262,000 or 64%in 1995 as compared to 1994 due primarily to the expenses related to theFresno-Herndon Medical Plaza which was acquired by the Trust in November of1994.                                       17Included in the financial results for 1994, and recorded as recovery ofinvestment losses was $1,234,000 consisting of $1.5 million of cash paymentsreceived related to the Lake Shore Hospital settlement agreement and $184,000 ofproceeds received during 1994 related to an investment in marketable equitysecurities which was written down to zero in a prior year. Partially offsettingthese amounts was a $450,000 increase in the reserve established for futureexpenses related to the settlement of Lake Shore Hospital.Net income for 1996 was $14.2 million or $1.58 per share compared to $13.6million or $1.52 per share in 1995 and $14.3 million or $1.60 per share in 1994.Funds from operations ("FFO"), which is the sum of net income plus depreciationexpense and amortization of interest rate cap expense, totaled $17.8 million in1996, $17.0 million in 1995 and $17.5 million in 1994. FFO does not representcash flows from operations as defined by generally accepted accountingprinciples and should not be considered as an alternative to net income as anindicator of the Trust's operating performance or to cash flows as a measure ofliquidity.Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe Trust's Balance Sheets and its Statements of Income, Changes inShareholders' Equity and Cash Flows, together with the report of Arthur AndersenLLP, independent public accountants, are included elsewhere herein. Reference ismade to the "Index to Financial Statements and Schedules."Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURENot applicable.                                       18                                    PART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTThere is hereby incorporated by reference the information to appear under thecaption "Election of Trustees" in the Trust's definitive Proxy Statement to befiled with the Securities and Exchange Commission within 120 days after December31, 1996. See also "Executive Officers of the Registrant" appearing in Part Ihereof.Item 11. EXECUTIVE COMPENSATIONThere is hereby incorporated by reference the information under the caption"Executive Compensation" and "Compensation Pursuant to Plans" in the Trust'sdefinitive Proxy Statement to be filed with the Securities and ExchangeCommission within 120 days after December 31, 1996.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThere is hereby incorporated by reference the information under the caption"Security Ownership of Certain Beneficial Owners and Management" in the Trust'sdefinitive Proxy Statement to be filed with the Securities and ExchangeCommission within 120 days after December 31, 1996.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSThere is hereby incorporated by reference the information under the caption"Transactions With Management and Others" in the Trust's definitive ProxyStatement to be filed with the Securities and Exchange Commission within 120days after December 31, 1996.                                       19                                     PART IVItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K(a) Financial Statements and Financial Statement Schedules:     1)   Report of Independent Public Accountants     2)   Financial Statements          Consolidated Balance Sheets - December 31, 1996 and December 31, 1995.          Consolidated Statements of Income - Years Ended December 31, 1996,          1995 and 1994.          Consolidated Statements of Shareholders' Equity - Years Ended December          31, 1996, 1995 and 1994.          Consolidated Statements of Cash Flows - Years Ended December 31, 1996,          1995 and 1994.          Notes to Consolidated Financial Statements - December 31, 1996    (3)   Schedules          Schedule II - Valuation and Qualifying Accounts - Years Ended December          31, 1996, 1995 and 1994.          Schedule III - Real Estate and Accumulated Depreciation - December 31,          1996.          Notes to Schedule III - December 31, 1996.(b) Reports on Form 8-K:     No reports on Form 8-K were filed during the last quarter of the year ended     December 31, 1996.(c) Exhibits:     3.1 Declaration of Trust, dated as of August 1986, previously filed asExhibit 3.1 Amendment No. 3 of the Registration Statement on Form S-11 and FormS-2 of Universal Health Services, Inc. and the Trust (Registration No. 33-7872),is incorporated herein by reference.     3.2 Amendment to Declaration of Trust, dated as of June 23, 1993,previously filed as Exhibit 3.2 to the Trust's Annual Report on Form 10-K forthe year ended December 31, 1993, is incorporated herein by reference.     3.3 Amended and restated bylaws, filed as Exhibit 3.2 to the Trust's AnnualReport on Form 10-K for the year ended December 31, 1988, is incorporated hereinby reference.     10.1 Advisory Agreement, dated as of December 24, 1986, between UHS ofDelaware, Inc. and The Trust, previously filed as Exhibit 10.2 to the Trust'sCurrent Report on Form 8-K dated December 24, 1986, is incorporated herein byreference.                                       20     10.2 Agreement effective January 1, 1997, to renew Advisory Agreement datedas of December 24, 1986 between Universal Health Realty Income Trust and UHS ofDelaware, Inc.     10.3 Contract of Acquisition, dated as of August 1986, between the Trustand certain subsidiaries of Universal Health Services, Inc., previously filed asExhibit 10.2 to Amendment No. 3 of the Registration Statement on Form S-11 andS-2 of Universal Health Services, Inc. and the Trust (Registration No. 33-7872),is incorporated herein by reference.     10.4 Form of Leases, including Form of Master Lease Document Leases,between certain subsidiaries of Universal Health Services, Inc. and the Trust,previously filed as Exhibit 10.3 to Amendment No. 3 of the RegistrationStatement on Form S-11 and Form S-2 of Universal Health Services, Inc. and theTrust (Registration No. 33-7872), is incorporated herein by reference.     10.5 Share Option Agreement, dated as of December 24, 1986, between theTrust and Universal Health Services, Inc., previously filed as Exhibit 10.4 tothe Trust's Current Report on Form 8-K dated December 24, 1986, is incorporatedherein by reference.     10.6 Corporate Guaranty of Obligations of Subsidiaries Pursuant to Leasesand Contract of Acquisition, dated December 1986, issued by Universal HealthServices, Inc. in favor of the Trust, previously filed as Exhibit 10.5 to theTrust's Current Report on Form 8-K dated December 24, 1986, is incorporatedherein by reference.     10.7 Contract of Acquisition dated August 31, 1988 between the Trust, RehabSystems Company, Inc. and Tri-State Regional Rehabilitation Hospital, Inc.,previously filed as Exhibit 10.2 to the Trust's September 30, 1988 Form 10-Q, isincorporated herein by reference.     10.8 Key Employees' Restricted Share Purchase Plan approved by the Trusteeson December 1, 1988 which authorized the issuance of up to 50,000 common shares,previously filed as Exhibit 10.11 to the Trust's Annual Report on form 10-K forthe year ended December 31, 1988, is incorporated herein by reference.     10.9 Share Compensation Plan for Outside Trustees, previously filed asExhibit 10.12 to the Trust's Annual Report on Form 10-K for the year endedDecember 31, 1991, is incorporated herein by reference.     10.10 1988 Non-Statutory Stock Option Plan, as amended, previously filed asExhibit 10.13 to the Trust's Annual Report on Form 10-K for the year endedDecember 31, 1991, is incorporated herein by reference.     10.11 Lease dated December 22, 1993, between Universal Health Realty IncomeTrust and THC-Chicago, Inc. as lessee, previously filed as Exhibit 10.14 to theTrust's Annual Report on Form 10-K for the year ended December 31, 1993, isincorporated herein by reference.     10.12 Mortgage Modification, Consolidation and Extension Agreement andConsolidated Note dated December 28, 1993 in the amount of $6,500,000 fromCrouse Irving Memorial Properties, Inc. to Universal Health Realty Income Trust,previously filed as Exhibit 10.15 to the Trust's Annual Report on Form 10-K forthe year ended December 31, 1993, is incorporated herein by reference.                                       21     10.13 Agreement for Purchase and Sale and Repurchase Agreement dated as ofNovember 4, 1994 between Fresno-Herndon Partners, Limited and Universal HealthRealty Income Trust, previously filed as Exhibit 10.16 to the Trust's AnnualReport on Form 10-K for the year ended December 31, 1994, is incorporated hereinby reference.     10.14 Agreement of Purchase and Sale, and Construction Loan Agreement datedas of December 20, 1994 between Turner Adreac, L.C. and Universal Health RealtyIncome Trust, previously filed as Exhibit 10.17 to the Trust's Annual Report onForm 10-K for the year ended December 31, 1994, is incorporated herein byreference.     10.15 Sale Agreement, dated as of September 1, 1995, by and among UniversalHealth Realty Income Trust and Desert Commercial Properties Limited Partnership,previously filed as Exhibit 10.18 to the Trust's Annual Report on Form 10-K forthe year ended December 31, 1996, is incorporated herein by reference.     10.16 Operating Agreement of DSMB Properties, L.L.C., dated as of September1, 1995, by and among Universal Health Realty Income Trust and Desert CommercialProperties Limited Partnership, previously filed as Exhibit 10.19 to the Trust'sAnnual Report on Form 10-K for the year ended December 31, 1996, is incorporatedherein by reference.     10.17 Agreement and Escrow Instructions, dated as of August 15, 1995, byand between Phase III Desert Samaritan Medical Building Partners and DesertCommercial Properties Limited Partnership, previously filed as Exhibit 10.20 tothe Trust's Annual Report on 10-K for the year ended December 31, 1996, isincorporated herein by reference.     10.18 Amendment to Credit Agreement dated as of September 27, 1996 by andamong Universal Health Realty Income Trust, Corestates Bank, N.A. as agent,NationsBank, N.A, and First Union National Bank, previously filed as Exhibit10.1 to the Trust's Form 10-Q for the quarter ended September 30, 1996, isincorporated herein by reference.     27 Financial Data Schedule     28.1 Dividend Reinvestment Plan for Stockholders, previously filed asExhibit 28.1 to the Trust's Form 10-Q for the quarter ended March 31, 1987, isincorporated herein by reference.                                       22                                   SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.  Date:  March 6, 1997                                UNIVERSAL HEALTH REALTY INCOME TRUST                                            (Registrant)                               By: /s/ Alan B. Miller                                   Alan B. Miller, Chairman of the Board                                   and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this reporthas been signed below by the following persons on behalf of the registrant andin the capacities and on the dates indicated.          Date              Signature and Title                            /s/ Alan B. Miller     March  6, 1997         Alan B. Miller, Chairman of the Board                            and Chief Executive Officer                            /s/ Kirk E. Gorman     March  6, 1997         Kirk E. Gorman, President, Chief                            Financial Officer, Secretary and Trustee                            /s/ Peter Linneman     March 10, 1997         Peter Linneman, Trustee                            /s/ Myles H. Tanenbaum     March 10, 1997         Myles H. Tanenbaum, Trustee                            /s/ Michael R. Walker     March 10, 1997         Michael R. Walker, Trustee                            /s/ Daniel M. Cain     March 10, 1997         Daniel M. Cain, Trustee                            /s/ Charles F. Boyle     March  7, 1997         Charles F. Boyle, Vice President and                            Controller                             /s/ Cheryl K. Ramagano     March  7, 1997          Cheryl K. Ramagano, Vice President and                             Treasurer                             /s/ Timothy J. Fowler     March 10, 1997          Timothy J. Fowler, Vice President,                             Acquisitions and Development                                       23                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES                                                                           Page  Report of Independent Public Accountants                                 F-2  Consolidated Balance Sheets - December 31, 1996 and December 31, 1995    F-3  Consolidated Statements of Income - Years Ended December 31, 1996,  1995 and 1994                                                            F-4  Consolidated Statements of Shareholders' Equity - Years Ended  December 31, 1996, 1995 and 1994                                         F-5  Statements of Cash Flows - Years Ended December 31, 1996,  1995 and 1994                                                            F-6  Notes to Consolidated Financial Statements - December 31, 1996           F-7  Schedule II - Valuation and Qualifying Accounts -  Years Ended December 31, 1996, 1995 and 1994                            F-17  Schedule III - Real Estate and Accumulated Depreciation -  December 31, 1996                                                       F-18  Notes to Schedule III - December 31, 1996                               F-19                                       F-1                    Report of Independent Public AccountantsTo The Shareholders and Board of Trustees ofUniversal Health Realty Income Trust:We have audited the accompanying consolidated balance sheets of Universal HealthRealty Income Trust (a Maryland real estate investment trust) as of December 31,1996 and 1995 and the related consolidated statements of income, changes inshareholders' equity and cash flows for each of the three years in the periodended December 31, 1996. These financial statements and the schedules referredto below are the responsibility of the Trust's management. Our responsibility isto express an opinion on these financial statements and schedules based on ouraudits.We conducted our audits in accordance with generally accepted auditingstandards. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, inall material respects, the consolidated financial position of Universal HealthRealty Income Trust, as of December 31, 1996 and 1995 and the consolidatedresults of their operations and their cash flows for each of the three years inthe period ended December 31, 1996, in conformity with generally acceptedaccounting principles.Our audits were made for the purpose of forming an opinion on the basicfinancial statements taken as a whole. The schedules listed in the Index toFinancial Statements and Schedules on Page F-1 are presented for the purpose ofcomplying with the Securities and Exchange Commission's rules and are not arequired part of the basic financial statements. These schedules have beensubjected to the auditing procedures applied in our audit of the basic financialstatements and, in our opinion, fairly state in all material respects thefinancial data required to be set forth therein in relation to the basicfinancial statements taken as a whole.Philadelphia, PennsylvaniaJanuary 17, 1997                                       F-2                      Universal Health Realty Income Trust                          Consolidated Balance Sheets                                                                          December 31,                                                                      1996             1995Assets:                                                                                                  Real Estate Investments:        Buildings & improvements                                  $138,400,000     $129,961,000        Accumulated depreciation                                   (26,540,000)     (22,986,000)                                                                 -------------    -------------                                                                   111,860,000      106,975,000        Land                                                        19,683,000       17,927,000        Mortgage loans receivable, net                               6,405,000        6,444,000        Construction loan receivable                                   391,000               --         Construction in progress                                     1,246,000               --         Reserve for investment losses                                 (151,000)        (158,000)                                                                 -------------    -------------                    Net Real Estate Investments                    139,434,000      131,188,000Other Assets:        Cash                                                           137,000          139,000        Bonus rent receivable from UHS                                 634,000          606,000        Rent receivable from non-related parties                        32,000           13,000        Construction and mortgage loan interest receivable               7,000               --         Investments in limited liability corporations                7,932,000          308,000        Deferred charges, net                                          390,000          516,000                                                                 -------------    -------------                                                                  $148,566,000     $132,770,000                                                                 =============    =============Liabilities and Shareholders' Equity:Liabilities:        Bank borrowings                                            $42,000,000      $25,375,000        Note payable to UHS                                          1,082,000        1,021,000        Accrued interest                                               234,000          157,000        Accrued expenses & other liabilities                           753,000          676,000        Tenant reserves, escrows, deposits and deferred rental         515,000          544,000Commitments and ContingenciesShareholders' Equity:        Preferred shares of beneficial interest,              $.01 par value; 5,000,000 shares authorized;              none outstanding                                              --               --         Common shares, $.01 par value;              95,000,000 shares authorized; issued              and outstanding: 8,952,340 shares              in 1996 and 8,947,192 shares in 1995                      90,000           89,000        Capital in excess of par value                             128,643,000      128,643,000        Cumulative net income                                       98,154,000       83,996,000        Cumulative dividends                                      (122,905,000)    (107,731,000)                                                                 -------------    -------------                    Total Shareholders' Equity                     103,982,000      104,997,000                                                                 -------------    -------------                                                                  $148,566,000     $132,770,000                                                                 =============    =============The accompanying notes are an integral part of these financial statements                                      F-3                      Universal Health Realty Income Trust                        Consolidated Statements of Income                                                                              Year ended December 31,                                                                        1996             1995             1994Revenues (Note 2):                                                                                                                          Base rental - UHS facilities                                   $13,731,000      $13,491,000      $13,267,000     Base rental - Non-related parties                                4,706,000        3,195,000        2,097,000     Bonus rental                                                     2,735,000        2,773,000        2,629,000     Interest                                                           751,000          958,000          833,000                                                                   ------------     ------------     ------------                                                                     21,923,000       20,417,000       18,826,000                                                                   ------------     ------------     ------------Expenses:     Depreciation & amortization                                      3,636,000        3,382,000        3,282,000     Interest expense                                                 2,565,000        1,825,000        1,146,000     Advisory fees to UHS (Note 2)                                    1,044,000          953,000          909,000     Other operating expenses                                         1,149,000          673,000          411,000     Recovery of investment losses                                           --               --       (1,234,000)                                                                   ------------     ------------     ------------                                                                      8,394,000        6,833,000        4,514,000                                                                   ------------     ------------     ------------     Income before equity in limited liability corporations          13,529,000       13,584,000       14,312,000     Equity in income of limited liability corporations                 629,000               --               --                                                                   ------------     ------------     ------------                                 Net Income                         $14,158,000      $13,584,000      $14,312,000                                                                   ============     ============     ============                            Net Income Per Share                          $1.58            $1.52            $1.60                                                                   ============     ============     ============             Weighted average number of shares and equivalents        8,960,000        8,947,000        8,947,000                                                                   ============     ============     ============The accompanying notes are an integral part of these financial statements.                                      F-4                      Universal Health Realty Income Trust                 Consolidated Statements of Shareholders' Equity              For the Years Ended December 31, 1996, 1995 and 1994                                        Common Shares          Capital in                                   Number                       excess of       Cumulative      Cumulative                                   of Shares        Amount      par value       net income      dividends                                                                                                                    January 1, 1994                    8,947,192         $89,000    $128,643,000     $56,100,000    ($77,802,000)Net Income                                --              --              --      14,312,000              --Dividends ($1.665/share)                  --              --              --              --     (14,897,000)- --------------------------------------------------------------------------------------------------------------January 1, 1995                    8,947,192          89,000     128,643,000      70,412,000     (92,699,000)Net Income                                --              --              --      13,584,000              --Dividends ($1.68/share)                   --              --              --              --     (15,032,000)- --------------------------------------------------------------------------------------------------------------January 1, 1996                    8,947,192          89,000     128,643,000      83,996,000    (107,731,000)Net Income                                --              --              --      14,158,000              --Issuance of shares ofbeneficial interest                    5,148           1,000              --              --              --Dividends ($1.695/share)                  --              --              --              --     (15,174,000)==============================================================================================================           December 31, 1996       8,952,340         $90,000    $128,643,000     $98,154,000   ($122,905,000)==============================================================================================================The accompanying notes are an integral part of these financial statements.                                      F-5                      Universal Health Realty Income Trust                      Consolidated Statements of Cash Flows                                                                                             Year ended December 31,                                                                                    1996             1995               1994                                                                                                                                   Cash flows from operating activities:     Net income                                                                 $14,158,000       $13,584,000       $14,312,000     Adjustments to reconcile net income to net cash        provided by operating activities:          Depreciation & amortization                                             3,636,000         3,382,000         3,282,000          Reserve for investment losses                                             220,000                --           450,000          Amortization of interest rate cap                                         125,000           125,000            62,000          Loss on disposal of assets                                                     --                --            15,000          Gain on investment in marketable securities                                    --                --          (184,000)     Changes in assets and liabilities:          Rent receivable                                                           (47,000)           70,000            80,000          Accrued expenses & other liabilities                                       77,000           (22,000)           57,000          Tenant escrows, deposits & deferred rents                                 (29,000)          180,000            92,000          Construction & mortgage loan interest receivable                           (7,000)            3,000            11,000          Accrued interest                                                           77,000            40,000            78,000          Reserve for investment losses                                            (227,000)         (332,000)          (37,000)          Deferred charges & other                                                   20,000            43,000           (19,000)                                                                               ------------      ------------      ------------        Net cash provided by operating activities                                18,003,000        17,073,000        18,199,000                                                                               ------------      ------------      ------------Cash flows from investing activities:          Acquisition of real property                                          (10,195,000)       (7,794,000)       (6,340,000)          Investments in limited liability corporations                          (7,624,000)         (308,000)               --          Payments made for construction in progress                             (1,246,000)               --                --          Advances under construction note receivable                              (391,000)       (3,190,000)       (1,727,000)          Repayments under construction note receivable                                  --         4,333,000         2,759,000          Proceeds from investments in marketable securities                             --                --           184,000          Sale of real property                                                          --                --            40,000          Other                                                                          --                --           272,000                                                                               ------------      ------------      ------------        Net cash used in investing activities                                   (19,456,000)       (6,959,000)       (4,812,000)                                                                               ------------      ------------      ------------Cash flows from financing activities:          Additional borrowings, net of financing costs                          16,625,000         5,055,000         2,091,000          Purchase of interest rate cap                                                  --                --          (623,000)          Dividends paid                                                        (15,174,000)      (15,032,000)      (14,897,000)                                                                               ------------      ------------      ------------        Net cash provided by (used in) financing activities                       1,451,000        (9,977,000)      (13,429,000)                                                                               ------------      ------------      ------------     (Decrease) increase in cash                                                     (2,000)          137,000           (42,000)     Cash, beginning of period                                                      139,000             2,000            44,000                                                                               ============      ============      ============                              Cash, end of period                                  $137,000          $139,000            $2,000                                                                               ============      ============      ============Supplemental disclosures of cash flow information:     Interest paid                                                               $2,302,000        $1,602,000        $1,012,000                                                                               ============      ============      ============Supplemental disclosures of non-cash investing and financing activities:         See Notes 3 and 5The accompanying notes are an integral part of these financial statements                                       F-6                      Universal Health Realty Income Trust                 Notes to the Consolidated Financial Statements                                December 31, 1996(1) Summary of Significant Accounting PoliciesNature of OperationsUniversal Health Realty Income Trust (the "Trust") is organized as a Marylandreal estate investment trust. As of December 31, 1996 the Trust had investmentsin twenty-six facilities located in thirteen states consisting of investments inhealthcare and human service related facilities including acute care hospitals,behavioral healthcare facilities, rehabilitation hospitals, sub-acute carefacilities, surgery centers, childcare centers and medical office buildings,seven of which are leased to subsidiaries of Universal Health Services, Inc.,("UHS").Federal Income TaxesNo provision has been made for Federal income tax purposes since the Trustqualifies as a real estate investment trust under Sections 856 to 860 of theInternal Revenue Code of 1986, and intends to continue to remain so qualified.As such, it is required to distribute at least 95 percent of its real estateinvestment taxable income to its shareholders.The Trust is subject to a Federal excise tax computed on a calendar year basis.The excise tax equals 4% of the excess, if any, of 85% of the Trust's ordinaryincome plus 95% of any capital gain income for the calendar year over cashdistributions during the calendar year, as defined. No provision for excise taxhas been reflected in the financial statements as no tax was due.Earnings and profits, which will determine the taxability of dividends toshareholders, will differ from net income reported for financial reportingpurposes due to the differences for Federal tax purposes in the cost basis ofassets and in the estimated useful lives used to compute depreciation and therecording of provision for investment losses.Real Estate PropertiesThe Trust records acquired real estate at cost and uses the straight-line methodof depreciation for buildings and improvements over estimated useful lives of 25to 45 years.It is the Trust's policy to review the carrying value of long-lived assets forimpairment whenever events or changes in circumstances indicate that thecarrying value of such assets may not be recoverable. In 1995, the FinancialAccounting Standards Board released Statement of Financial Accounting Standards(SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed of." The Statement requires the recognition ofan impairment loss for an asset held for use when the estimate of undiscountedfuture cash flows expected to be generated by the asset is less than itscarrying amount. Measurement of the impairment loss is based on fair value ofthe asset. Generally, fair value will be determined using valuation techniquessuch as the present value of expected future cash flows. The Trust adopted theprovisions of SFAS No. 121 in 1996, however, the adoption of the pronouncementdid not have any effect on its financial statements.                                       F-7The Trust invests primarily in healthcare-related facilities and, therefore, issubject to certain industry risk factors, which directly impact the operatingresults of its lessees. In recent years, an increasing number of legislativeinitiatives have been introduced or proposed in Congress and in statelegislatures that would effect major changes in the healthcare system, eithernationally or at the state level. In addition, the healthcare industry has beencharacterized in recent years by increased competition and consolidation.In assessing the carrying value of the Trust's real estate investments forpossible impairment in connection with the adoption of SFAS No. 121 in 1996,management reviewed estimates of future cash flows expected from each of itsfacilities and evaluated the creditworthiness of its lessees based on theircurrent operating performance and on current industry conditions.Management of the Trust is unable to predict the effect, if any, that theindustry factors discussed above will have on the operating results of itslessees or on their ability to meet their obligations under the terms of theirleases with the Trust. In addition, management of the Trust cannot predictwhether any of the leases will be renewed. As a result, management's estimate offuture cash flows from its leased properties could be materially affected in thenear term, if certain of the legislative proposals are adopted or if certain ofthe leases are not renewed at the end of their initial lease terms.Investments in Limited Liability CorporationsThe consolidated financial statements of the Trust include the accounts of itscontrolled investments. In accordance with the American Institute of CertifiedPublic Accountants' Statement of Position 78-9 "Accounting for Investments inReal Estate Ventures", the Trust accounts for its investment in limitedliability corporations which it does not control using the equity method ofaccounting. These investments, which represent 33% to 95% non-controllingownership interests, are recorded initially at the Trust's cost and subsequentlyadjusted for the Trust's net equity in income and cash contributions anddistributions.Per Share DataNet income per share is based on the weighted average number of shares ofbeneficial interest outstanding during the year adjusted to give effect to shareequivalents, consisting of stock options.Statements of Cash FlowsFor purposes of the Consolidated Statements of Cash Flows, the Trust considersall highly liquid investment instruments with original maturities of threemonths or less to be cash equivalents.Interest Rate Protection AgreementsIn managing interest rate exposure, the Trust at times enters into interest rateswap agreements and interest rate cap agreements. When interest rates change,the differential to be paid or received under the Trust's interest rate swapagreements is accrued as interest expense. Premiums paid for purchased interestrate cap agreements are amortized to interest expense over the terms of thecaps. Unamortized premiums are included in deferred charges in the accompanyingbalance sheet. Amounts receivable under the cap agreements is accrued as areduction of interest expense.                                       F-8Use of EstimatesThe preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.ReclassificationsCertain prior year amounts have been reclassified to conform with current yearfinancial statement presentation.(2) Related Party TransactionsUHS of Delaware, Inc. (the "Advisor"), a wholly-owned subsidiary of UHS, servesas Advisor to the Trust under an Advisory Agreement dated December 24, 1986between the Advisor and the Trust (the "Advisory Agreement"). Under the AdvisoryAgreement, the Advisor is obligated to present an investment program to theTrust, to use its best efforts to obtain investments suitable for such program(although it is not obligated to present any particular investment opportunityto the Trust), to provide administrative services to the Trust and to conductthe Trust's day-to-day affairs. In performing its services under the AdvisoryAgreement, the Advisor may utilize independent professional services, includingaccounting, legal and other services, for which the Advisor is reimburseddirectly by the Trust. The Advisory Agreement expires on December 31 of eachyear; however, it is renewable by the Trust, subject to a determination by theIndependent Trustees that the Advisor's performance has been satisfactory. TheAdvisory Agreement may be terminated for any reason upon sixty days writtennotice by the Trust or the Advisor. The Advisory Agreement has been renewed for1997. All transactions with UHS must be approved by the Independent Trustees.The Advisory Agreement provides that the Advisor is entitled to receive anannual advisory fee equal to .60% of the average invested real estate assets ofthe Trust, as derived from its consolidated balance sheet from time to time. Inaddition, the Advisor is entitled to an annual incentive fee equal to 20% of theamount by which cash available for distribution to shareholders, as defined inthe Advisory Agreement, for each year exceeds 15% of the Trust's equity as shownon its balance sheet, determined in accordance with generally acceptedaccounting principles without reduction for return of capital dividends. Noincentive fees were paid during 1996, 1995 and 1994. The advisory fee is payablequarterly, subject to adjustment at year end based upon audited financialstatements of the Trust.For the years ended December 31, 1996, 1995 and 1994, 74%, 79% and 83%,respectively, of the Trust's gross revenues were earned under the terms of theleases with wholly-owned subsidiaries of UHS. The leases to subsidiaries of UHSare guaranteed by UHS and cross-defaulted with one another.For the year ended December 31, 1996, two of the UHS facilities did not generatesufficient earnings before interest, taxes, depreciation, amortization and leaseand rental expense (EBITDAR) to cover the 1996 rent expense payable to theTrust. The leases on these facilities, which mature in 2000 and 2001, generated18% of the Trust's 1996 rental income. One                                       F-9additional UHS facility had 1996 EBITDAR which was less than 1.5 times the 1996rent payable to the Trust. The lease on this facility, which matures in 2001,generated 10% of the Trust's 1996 rental income. One additional UHS facility had1996 EBITDAR (excluding a favorable prior year net revenue adjustment) which wasless than 2.0 times the 1996 rent expense payable to the Trust. The lease onthis facility, which matures in 1999 generated 6% of the Trust's 1996 rentalincome. All of the Trust's remaining hospital facilities, including thefacilities operated by non-related parties, had a combined 1996 EBITDAR of 7.5times (ranging from 2.1 times to 8.9 times) the 1996 rent expense payable to theTrust.In recent years, an increasing number of legislative initiatives have beenintroduced or proposed in Congress and in state legislatures that would effectmajor changes in the healthcare system, either nationally or at the state level.In addition, the healthcare industry had been characterized in recent years byincreased competition and consolidation. Management of the Trust is unable topredict the effect, if any, these industry factors will have on the operatingresults of its lessees, including the facilities leased to subsidiaries of UHS,or on their ability to meet their obligations under the terms of their leaseswith the Trust. As mentioned above, certain of the Trust's facilities leased tosubsidiaries of UHS have had EBITDAR of less than 1.5 times the rent payable tothe Trust. Management of the Trust can not predict whether the leases withsubsidiaries of UHS, which have renewal options at existing lease rates, or anyof the Trust's other leases, will be renewed at the end of their initial leaseterms. If the leases are not renewed at their current rates, the Trust would berequired to find other operators for those facilities and/or enter into leaseson terms potentially less favorable to the Trust than the current leases.For the year ended December 31, 1995, one of the UHS facilities did not generatesufficient earnings before interest, taxes, depreciation, amortization and leaseand rental expense (EBITDAR) to cover the 1995 rent expense payable to theTrust. The lease on this facility, which matures in 2001, generated 12% of theTrust's 1995 rental income. Three additional UHS facilities had 1995 EBITDARwhich was less than 1.5 times the 1995 rent expense payable to the Trust. Theleases on these three facilities, which mature in 1999, 2000 and 2001, generatedon a combined basis, 22% of the Trust's 1995 rental income. All of the Trust'sremaining hospital facilities, including the facilities operated by non-relatedparties, had a combined 1995 EBITDAR of 8.1 times (ranging from 2.8 times to10.5 times) the 1995 rent expense payable to the Trust.Revenues received from UHS and from other non-related parties were as follows:                                                                   Year Ended December 31,                                                         1996               1995              1994                                                                                                           Base rental - UHS facilities                           $13,731,000        $13,491,000       $13,267,000Base rental - Non-related parties                        4,706,000          3,195,000         2,097,000                                                      ------------       ------------     -------------  Total base rental                                     18,437,000         16,686,000        15,364,000                                                       -----------        -----------      ------------Bonus rental - UHS facilities                            2,506,000          2,552,000         2,414,000Bonus rental - Non-related parties                         229,000            221,000           215,000                                                     -------------     --------------     -------------  Total bonus rental                                     2,735,000          2,773,000         2,629,000                                                      ------------        -----------      ------------Interest - Non-related parties                             751,000            958,000           833,000                                                     -------------       ------------      ------------  Total revenues                                       $21,923,000        $20,417,000       $18,826,000                                                       ===========        ===========       ===========At December 31, 1996, approximately 8% of the Trust's outstanding shares ofbeneficial interest were held by UHS. The Trust has granted UHS the option topurchase Trust shares in the future at fair market value to enable UHS tomaintain a 5% interest in the Trust.                                      F-10The Trust has no salaried employees and the Trust's officers are all employeesof UHS and receive no cash compensation from the Trust.(3)  Acquisitions and Dispositions1996 - During 1996 the Trust added eleven new investments to its portfolioconsisting of the following: (i) the purchase of a 50% equity interest in alimited liability corporation ("LLC") which owns three medical office buildingslocated on the campus of Desert Samaritan Hospital in Phoenix, Arizona totalingapproximately 219,000 gross square feet and leased to several tenants ($5.0million); (ii) the purchase of four preschool and child-care centers located insoutheastern, Pennsylvania ($3.9 million); (iii) the acquisition of a 33% equityinterest in a LLC which owns a 94,000 square foot medical office buildinglocated on the campus of Columbia/HCA Healthcare Corporation's 260-bed SuburbanMedical Center in Louisville, Kentucky; (iv) the purchase of a 41,400 squarefoot, multi-tenant medical office building adjacent to the Southern RegionalMedical Center in Riverdale, Georgia ($6.2 million); (v) the purchase of a 50%equity interest in a LLC which owns two medical office buildings on the campusof Maryvale Samaritan Hospital located in Phoenix, Arizona ($1.4 million); (vi)the purchase of a 95% equity interest in a LLC which purchased the Desert ValleyMedical Center, a 54,000 net square foot medical office building located on thecampus of the Columbia Paradise Valley Hospital in Phoenix, Arizona ($4.3million including $2.7 million of long-term, non-recourse debt); (vii) theagreement to provide up to $4.1 million of construction financing to a limitedpartnership, of which the Trust owns a 77% initial equity interest, for theconstruction of Cypresswood Professional Center located in Houston, Texas ($1.2million advanced as of December 31, 1996 including a $343,000 capitalcontribution), and; (viii) the agreement to provide up to $5.1 million ofconstruction financing to a LLC (excluding $525,000 of capital to be contributedby the Trust upon completion of the center in the fourth quarter of 1997), ofwhich the Trust owns a 50% initial equity interest, for the construction ofSamaritan West Valley Medical Center located in Goodyear, Arizona ($391,000advanced as of December 31, 1996). In connection with the Trust's acquisition ofa 33% equity interest in the LLC which owns the medical office building on thecampus of Suburban Medical Center, the Trust posted a $3.5 million standbyletter of credit for the benefit of the lender providing the constructionfinancing. The construction loan matures in November, 1997 and the Trust expectsthe LLC, which owns the medical office building, to arrange for permanentfinancing prior to that date. The Trust expects the construction of theCypresswood Professional Center and the Samaritan West Valley Medical Center tobe completed in the third quarter of 1997 and of the fourth quarter of 1997,respectively.1995 - During the third quarter of 1995, the Trust sold the real estate assetsof Westlake Medical Center ("Westlake") a 126-bed hospital, of which themajority of real estate assets were owned by the Trust and leased to UHS. Inexchange for the real estate assets of Westlake and the termination of thelease, the Trust received substitution properties valued at approximately $19million (the Trust's original purchase price of Westlake) consisting ofadditional real estate assets which were owned by UHS but related to three acutecare facilities, of which the Trust owns the real estate and which are operatedby UHS (McAllen Medical Center, Inland Valley Regional Medical Center andWellington Regional Medical Center). These additional real estate assetsrepresent major additions and expansions made to these facilities by UHS sincethe purchase of the facilities by the Trust from UHS in 1986. The Trust alsopurchased from UHS, additional real estate assets related to McAllen MedicalCenter for approximately $1.9 million in cash.                                       F-11Total annual base rental payments from UHS to the Trust on substitutedproperties will be $2.4 million which equals the total base and bonus rentalearned 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 estateassets purchased related to McAllen Medical Center will be approximately$200,000. Bonus rental on the substituted and purchased real estate assets willbe 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 existingleases, as amended to include the additional property, will continue.During the third quarter of 1995, the Trust purchased for $1.6 million, amedical office building located on the campus of a hospital owned byColumbia/HCA Healthcare Corporation located in Shreveport, Louisiana. Themedical office building is currently being leased under the terms of a masterlease agreement with Columbia/HCA Healthcare Corporation.In December of 1994, the Trust agreed to provide construction financing for theProfessional Center at Kings Crossing, of which $1.1 million was advanced during1994 and $3.2 million was advanced during 1995. Interest accrued monthly at amargin over the one month LIBOR. During the fourth quarter of 1995, uponcompletion and occupancy of the properties, the Trust purchased the singletenant and two multi-tenant medical office buildings for the total constructioncost of $4.3 million. The single tenant building consists of 20,000 net squarefeet and is leased to Kelsey-Seybold, a subsidiary of Caremark International,Inc., for an initial term of 10 years. The two multi-tenant buildings total27,535 net square feet and are occupied by tenants consisting primarily ofmedical professionals.1994 - In November of 1994, the Trust purchased the Fresno-Herndon Medical Plazalocated in Fresno, California, for $6.3 million. The 37,800 square foot medicaloffice building is leased to seven tenants, including an outpatient surgerycenter operated by Columbia/HCA Healthcare Corporation, under the terms ofleases with expiration dates ranging from November, 1999 to March, 2003. TheTrust has granted the seller the option to repurchase the property in November,2001 for $7,250,000.(4)  LeasesAll of the Trust's leases are classified as operating leases with initial termsranging from 5 to 15 years with up to six 5-year renewal options. Under theterms of the leases, the Trust earns fixed monthly base rents and may earnperiodic additional rents (see Note 2). The additional rent payments aregenerally computed as a percentage of facility net patient revenue or CPIincrease in excess of a base amount. The base year amount is typically netpatient revenue for the first full year of the lease.                                      F-12Minimum future base rents on noncancelable leases are as follows:      1997                                              $18,505,000      1998                                               18,545,000      1999                                               18,585,000      2000                                               15,285,000      2001                                               14,096,000      Later Years                                         9,795,000                                                        -----------      Total Minimum Base Rents                          $94,811,000                                                        ===========Under the terms of the hospital leases, the lessees are required to pay alloperating costs of the properties including property insurance and real estatetaxes. Tenants of the medical office buildings are required to pay theirpro-rata share of the property's operating costs above a stipulated amount.(5)  DebtThe Trust amended and restated its unsecured non-amortizing revolving creditagreement (the "Agreement") in 1996. The Agreement, which expires on September30, 2001, provides for $70 million in borrowing capacity. The Agreement providesfor interest at the Trust's option, at the certificate of deposit rate plus 3/4%to 1 1/8%, Eurodollar rate plus 5/8% to 1 1/8% or the prime rate. A fee of .15%to .375% is required on the unused portion of this commitment. The margins overthe certificate of deposit rate, Eurodollar rate and the commitment fee arebased upon the Trust's debt to cash flow ratio. At December 31, 1996 theapplicable margin over the certificate of deposit and Eurodollar rates were 7/8%and 3/4% respectively and the commitment fee was .20%. There are no compensatingbalance requirements. The Agreement contains a provision whereby the commitmentswill be reduced by 50% of the proceeds generated from any new equity offering.At December 31, 1996, the Trust had approximately $25 million of availableborrowing capacity.The average amounts outstanding under the revolving credit agreement during1996, 1995 and 1994 were $34,410,000, $21,589,000, and $15,218,000,respectively, with corresponding effective interest rates, including commitmentfees but not including the effect of interest rate swaps of 6.3%, 7.2%, and5.3%. The maximum amounts outstanding at any month end were $42,200,000,$25,375,000 and $20,320,000 during 1996, 1995 and 1994, respectively.Covenants relating to the revolving credit facility require the maintenance of aminimum tangible net worth and specified financial ratios, limit the Trust'sability to incur additional debt, limit the aggregate amount of mortgagereceivables and limit the Trust's ability to increase dividends in excess of 95%of cash available for distribution, unless additional distributions are requiredto comply with the applicable section of the Internal Revenue Code and relatedregulations governing real estate investment trusts.The Trust has entered into interest rate swap agreements and an interest ratecap agreement which are designed to reduce the impact of changes in interestrates on its floating rate revolving credit notes. The Trust has threeoutstanding swap agreements, two in the amount of $5 million each which maturein April, 1997, and May, 1999, and another in the amount of $1,580,000 whichmatures May, 2001. These swap agreements effectively fix the interest rate on$11,580,000 of variable rate debt at 7.55%. The interest rate cap, for which theTrust paid $622,750,                                      F-13(unamortized premium of $311,000 at December 31, 1996) matures in June, 1999 andfixes the maximum rate on $15 million of variable rate revolving credit notes at7.75%. The interest rate swap and cap agreements were entered into inanticipation of certain borrowing transactions made by the Trust during 1994,1995 and 1996. The effective rate on the Trust's revolving credit notesincluding commitment fees and interest rate swap expense was 6.8%, 7.5% and 6.7%during 1996, 1995 and 1994, respectively. Additional interest expense recordedas a result of the Trust's hedging activity was $130,000, $69,000 and $109,000in 1996, 1995 and 1994, respectively. The Trust is exposed to credit loss in theevent of nonperformance by the counterparties to the interest rate swap and capagreements. These counterparties are major financial institutions and the Trustdoes not anticipate nonperformance by the counterparties which are rated A orbetter by Moody's Investors Service. Termination of the interest rate swaps atDecember 31, 1996 would have resulted in payments to the counterparties ofapproximately $202,000 and termination of the interest rate cap would haveresulted in a payment to the Trust of approximately $73,000. The fair value ofthe interest rate swap and cap agreements at December 31, 1996 reflects theestimated amounts that the Trust would pay or receive to terminate the contractsand are based on quotes from the counterparties.(6)  DividendsDividends of $1.695 per share were declared and paid in 1996, of which $1.622was ordinary income and $.073 was a return of capital distribution. Dividends of$1.68 per share were declared and paid in 1995, of which $1.575 per share wasordinary income and $.105 was a return of capital distribution. Dividends of$1.665 per share were declared and paid in 1994, of which $1.528 was ordinaryincome and $0.137 was a return of capital distribution.(7)  FinancingDuring the fourth quarter of 1993, the Trust funded $6.5 million for thepurchase of the real assets of the Madison Irving Medical Center, by CrouseIrving Memorial Properties, located in Syracuse, New York. The loan, which canbe prepaid without penalty at any time, has a fifteen-year repayment term. TheTrust has received prepaid commitment fees related to this mortgage notereceivable totaling $65,000. The unearned portion ($52,000 as of December 31,1996) is being recognized as income over the fifteen-year repayment term. Theloan accrues interest monthly at a margin over the one month LIBOR or at amargin over the five-year Treasury rate. The interest rate is selected at theborrower's option. Interest on the mortgage loan, including amortization ofprepaid commitment fees, accrued at an average rate of 11.3% during 1996 and11.5% during 1995.During 1995, the Trust received free and clear title to Lake Shore Hospital, onwhich the Trust held a mortgage loan receivable. During 1994, the Trust reacheda settlement agreement with Lake Shore Hospital, Inc. and Community CareSystems, Inc. concerning the default of their obligations under the Trust'smortgage loan with Lake Shore Hospital. Under the terms of the settlementagreement, the Trust received $1.5 million in cash payments during 1994, ofwhich $1,050,000 was included in net income as recovery of investment losses and$450,000 was reserved for future expenses related to the settlement of thefacility. The carrying value of this facility was reduced to zero in 1992. TheTrust continues to actively negotiate with third parties interested inpurchasing or leasing the real estate assets of the Lake Shore facility.                                      F-14(8) Incentive PlansDuring 1988, the Trustees approved a Key Employees' Restricted Share PurchasePlan. Under the terms of this plan, which expires in 1998, up to 50,000 shareshave been reserved for issuance to key employees (47,500 shares available forgrant as of December 31, 1996). Eligible employees may purchase shares of theTrust at par value subject to certain restrictions. The restrictions lapse overfour years if the employee remains employed by the Trust.In 1991, the Trustees adopted a share compensation plan for Trustees who areneither employees nor officers of the Trust ("Outside Trustees"). Pursuant tothe plan, each Outside Trustee may elect to receive, in lieu of all or a portionof the quarterly cash compensation for services as a Trustee, shares of theTrust based on the closing price of the shares on the date of issuance. As ofDecember 31, 1996, no shares have been issued under the terms of this plan.During 1992, the Trust amended the 1988 Non-Statutory Stock Option Plan toincrease the number of shares reserved under the plan from 50,000 to 200,000. Asof December 31, 1996, options to purchase 95,000 shares of beneficial interestwere granted, of which 85,000 were granted to officers of the Trust during 1992at an exercise price of $16.875 per share and 10,000 were granted to an officerof the Trust during 1993 at an exercise price of $16.125. During 1996, 36,976options were exercised. As of December 31, 1996 all 58,024 remaining optionswere exercisable at an aggregate purchase price of $973,137.In October 1995, the Financial Accounting Standards Board issued Statement No.123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 encourages afair value based method of accounting for employee stock options and similarequity instruments, which generally would result in the recording of additionalcompensation expense in an entity's financial statements. The statement alsoallows an entity to continue to account for stock-based employee compensationusing the intrinsic value for equity instruments using APB Opinion No. 25. TheTrust has adopted the disclosure-only provisions of SFAS 123. Accordingly nocompensation cost has been recognized for the stock option plans. Because theSFAS 123 method of accounting has not been applied to options granted prior toJanuary 1, 1995 and since there were no stock options granted by the Trustduring 1995 or 1996, no pro forma disclosures are required.(9)  Summarized Financial Information of Equity AffiliatesThe following table represents summarized unaudited financial information of thelimited liability corporations ("LLC") accounted for by the equity method.Amounts presented include investments in the following LLCs: DSMB Properties,LLC (50%); DVMC Properties, LLC (95%); Parkvale Properties, LLC (50%), and;Suburban Properties, LLC (33%).                                                  1996                                                 (000s)                Net property                    $42,236                Other assets                      2,889                Debt                            (33,302)                Other liabilities                  (962)                                             ----------                Equity                          $10,861                                             ==========                Revenue                          $5,371                                             ==========                                      F-15(10)  Sale of Marketable SecuritiesDuring 1994, the Trust received $107,000 related to a class action lawsuitsettlement filed against a real estate investment trust in which the Trust ownedmarketable securities. Also during the year, the Trust sold the remainder of itsinvestment in the marketable securities of the real estate investment trust fortotal net proceeds of $77,000. The entire $184,000 generated from the settlementand sale transactions are included in net income (recovery of investment losses)since the carrying value of this investment was reduced to zero in 1990.(11) Quarterly Results (Unaudited)                                                              1996                                  First             Second            Third            Fourth                                 Quarter           Quarter           Quarter           Quarter                Total                                                                                                                            Revenues                        $5,343,000        $5,379,000        $5,611,000        $5,590,000           $21,923,000Net Income                      $3,583,000        $3,590,000        $3,466,000        $3,519,000           $14,158,000Earnings Per Share                   $0.40             $0.40             $0.39             $0.39                 $1.58                                                              1995                                  First             Second            Third            Fourth                                 Quarter           Quarter           Quarter           Quarter                TotalRevenues                        $4,914,000        $5,129,000        $5,215,000        $5,159,000           $20,417,000Net Income                      $3,303,000        $3,452,000        $3,451,000        $3,378,000           $13,584,000Earnings Per Share                   $0.37             $0.39             $0.38             $0.38                 $1.52                                      F-16                      Universal Health Realty Income Trust                 Schedule II - Valuation and Qualifying Accounts                                 Balance at    Charged to                      Balance                                 beginning     costs and                       at end    Description                  of period     expenses       Other            of periodReserve for Investment Losses:                                                                                            Year ended December 31, 1996      $158,000     $220,000     ($227,000)(a)      $151,000                                 =========     ========     =========         =========Year ended December 31, 1995      $490,000           --     ($332,000)(a)      $158,000                                 =========     ========     =========         =========Year ended December 31, 1994       $77,000     $450,000      ($37,000)(a)      $490,000                                 =========     ========     =========         =========(a)  Amounts charged against the reserve.                                      F-17                                  Schedule III                      Universal Health Realty Income Trust          Real Estate and Accumulated Depreciation - December 31, 1996                             (amounts in thousands)                                Initial Cost to    Cost capitalized     Gross amount                     Date of                                Universal Health    subsequent to         at which                      construction                              Realty Income Trust    acquisition          carried at        Accumulated   or most                                                                                    close of period     Depreciation   recent            Average                                                                                               as of    significant          Deprec-                                          Building  Land &  Carrying     Building             Dec. 31, expansion or  Date    iableDescription                       Land    & Improv. Improv. Costs   Land & Improv.   Total      1996    renovation  Acquired  Life                                                                                                                                             Chalmette Medical Centers     Virtue Street Campus         $1,825    $9,445       --   -   $1,770   $9,445    $11,215    $2,704     1975     1986   35 Years     Patricia Street Campus        2,000     7,473       --   -    2,000    7,473      9,473     1,925     1981     1988   34 Years     Chalmette, LouisianaInland Valley Regional Medical Center     Wildomar, California          2,050    10,701    2,868   -    2,050   13,569     15,619     2,506     1986     1986   43 YearsMcAllen Medical Center     McAllen, Texas                4,720    31,442   10,188   -    6,281   40,069     46,350     7,371     1994     1986   42 YearsWellington Regional Medical Center     West Palm Beach, Florida      1,190    14,652    4,822   -    1,663   19,001     20,664     3,449     1986     1986   42 YearsThe Bridgeway     North Little Rock, Arkansas     150     5,395      499   -      150    5,894      6,044     1,665     1983     1986   35 YearsMeridell Achievement Center     Austin, Texas                 1,350     3,782    4,139   -    1,350    7,921      9,271     2,160     1991     1986   28 YearsTri-State Rehabilitation Hospital     Evansville, Indiana             500     6,945    1,062   -      500    8,007      8,507     1,413     1993     1989   40 YearsTHC - Chicago     Chicago, Illinois               158     6,404    1,907   -      158    8,311      8,469     2,856     1993     1986   25 YearsFresno-Herndon Medical Plaza     Fresno, California            1,073     5,266       24   -    1,073    5,290      6,363       245     1992     1994   45 YearsFamily Doctor's Medical Office Building     Shreveport, Louisiana            54     1,526       --   -       54    1,526      1,580        51     1991     1995   45 YearsKelsey-Seybold Clinic at King's Crossing                     439     1,618       --   -      439    1,618      2,057        45     1995     1995   45 YearsProfessional Center at King's Crossing                     439     1,837       43   -      439    1,880      2,319        45     1995     1995   45 Years     Kingwood, TexasChesterbrook Academy      Audubon, Pennsylvania           --       996       --   -       --      996        996        15     1996     1996   45 YearsCarefree Learning Center     New Britian, Pennsylvania       250       744       --   -      250      744        994        11     1991     1996   45 YearsCarefree Learning Center     Uwchlan, Pennsylvania           180       815       --   -      180      815        995        12     1992     1996   45 YearsCarefree Learning Center     Newtown, Pennsylvania           195       749       --   -      195      749        944        11     1992     1996   45 YearsThe Southern Crescent Center     Riverdale, Georgia            1,130     5,092       --   -    1,131    5,092      6,223        56     1994     1996   45 Years                                 -------  --------  ------- ---  -------  -------   --------   -------                  TOTALS         $17,703  $114,882  $25,552 $--  $19,683 $138,400   $158,083   $26,540                                 =======  ========  ======= ===  ======= ========   ========   =======                                      F-18                      Universal Health Realty Income Trust                              Notes to Schedule III                                December 31, 1996(1) Reconciliation of Real Estate PropertiesThe following table reconciles the Real Estate Properties from January 1, 1994to December 31, 1996:                                                                      1996                    1995                      1994                                                                                                                                          Balance at January 1                                       $147,888,000            $143,069,000             $136,784,000       Acquisitions                                                 10,195,000               7,794,000                6,340,000       Dispositions                                                         --              (2,975,000)(a)              (55,000)                                                             ------------------       -----------------       ------------------       Balance at December 31                                     $158,083,000            $147,888,000             $143,069,000                                                             ==================       =================       ==================(2)  Reconciliation of Accumulated DepreciationThe following table reconciles the Accumulated Depreciation from January 1, 1994to December 31, 1996:                                                                      1996                    1995                      1994                                                                                                                                          Balance at January 1                                        $22,986,000             $22,646,000              $19,519,000       Current year depreciation expense                             3,554,000               3,315,000                3,127,000       Dispositions                                                         --              (2,975,000)(a)                   --                                                             ------------------       -----------------       ------------------       Balance at December 31                                      $26,540,000             $22,986,000              $22,646,000                                                             ==================       =================       ==================(a) The real property of Westlake Medical Center (original cost of approximately$20 million and accumulated depreciation of approximately $3 million) wasexchanged during 1995 for additional real estate assets (valued at approximately$20 million) of three acute care facilities owned by the Trust and operated byUHS. The swapping of these assets was accounted for as an exchange, andtherefore no gain was recognized.The aggregate cost basis and net book value of the properties for Federal incometax purposes at December 31, 1996 are approximately $146,000,000 and$118,000,000, respectively.                                      F-19                               INDEX TO EXHIBITS     10.2 Agreement effective January 1, 1997, to renew Advisory Agreement,          dated as of December 24, 1986, between Universal Health Realty Income          Trust and UHS of Delaware, Inc.     27.  Financial Data Schedule                                                                January 10, 1997Mr. Alan B. MillerPresidentUHS of Delaware, Inc.367 South Gulph RoadKing of Prussia, PA  19406Dear Alan:     The Board of Trustees of Universal Health Realty Income Trust at theirDecember 2, 1996, meeting authorized the renewal of the current AdvisoryAgreement between the Trust and UHS of Delaware, Inc. ("Agreement") upon thesame terms and conditions.     This letter constitutes the Trust's offer to renew the Agreement untilDecember 31, 1997, upon the same terms and conditions. Please acknowledge UHS ofDelaware, Inc.'s acceptance of this offer by signing in the space provided belowand returning one copy of this letter to me.                                            Sincerely yours,                                            Kirk E. Gorman                                            President and Secretarycc:      Warren J. Nimetz, Esquire         Charles BoyleAgreed to and Accepted:UHS OF DELAWARE, INC.By:     Alan B. Miller, Presidentj:lashj/letters/miller2.doc          
 5 0000798783 UNIVERSAL HEALTH REALTY INCOME TRUST 1,000 U.S. DOLLARS                                                               YEAR                          DEC-31-1996                             JAN-01-1996                               DEC-31-1996                                      1                                             137                                         0                                   12,469                                     5,151                                          0                                     0                                         159,329                                  26,540                                 148,566                                0                                         43,082                                0                                          0                                            90                                     103,892                   148,566                                              0                                22,552                                                0                                    1,973                                 3,636                                   220                               2,565                                 14,158                                         0                             14,158                                       0                                      0                                            0                                    14,158                                     1.58                                     1.58