UHT's Net Income Dips Amid Rate Hedges

TL;DR

UHT is playing it safe with interest rate swaps, but its heavy reliance on UHS is a ticking time bomb for investors.

AI Summary

UNIVERSAL HEALTH REALTY INCOME TRUST (UHT) reported a net income of $12.9 million for the three months ended June 30, 2025, a decrease from $13.5 million in the prior-year period. Revenue from tenant reimbursements for the six months ended June 30, 2025, was $1.5 million, compared to $1.4 million for the same period in 2024. The company's equity method investments totaled $10.6 million as of June 30, 2025, up from $10.5 million at December 31, 2024. UHT entered into an interest rate swap agreement on September 16, 2024, to hedge against variable interest rates on its revolving credit facility, converting $100 million of variable-rate debt to a fixed rate of 4.96%. The company also has a second interest rate swap agreement, effective September 16, 2024, for another $100 million, fixing the rate at 4.96%. These strategic hedges aim to mitigate interest rate risk, which is a significant concern given the current economic climate. The company continues to rely heavily on Universal Health Services, Inc. (UHS) as its primary tenant, with lease agreements for properties like Wellington Regional Medical Center extending through 2025. This concentration of tenants represents a key business risk.

Why It Matters

UHT's slight dip in net income and proactive interest rate hedging signal a cautious approach in a volatile market, directly impacting investor returns and dividend stability. The reliance on Universal Health Services, Inc. (UHS) as a dominant tenant creates a concentrated risk, making UHT's performance highly dependent on UHS's financial health and operational stability. This could affect UHT's ability to diversify its portfolio and compete effectively with other healthcare REITs that have broader tenant bases. Employees and customers of UHT's leased facilities are indirectly affected by the financial stability of both UHT and UHS, as it underpins facility maintenance and service quality.

Risk Assessment

Risk Level: medium — The company's significant reliance on Universal Health Services, Inc. (UHS) as its primary tenant, as evidenced by lease agreements for properties like Wellington Regional Medical Center, presents a concentration risk. While UHT has proactively hedged $200 million of variable-rate debt with interest rate swaps at a fixed rate of 4.96%, this only mitigates interest rate exposure, not tenant default risk.

Analyst Insight

Investors should monitor Universal Health Services, Inc.'s (UHS) financial performance closely, as UHT's revenue and stability are heavily tied to its primary tenant. Consider UHT's dividend sustainability in light of the slight net income decrease and the long-term implications of its concentrated tenant base.

Financial Highlights

revenue

$12.9M

net Income

$12.9M

revenue Growth

-4.4%

Revenue Breakdown

Key Numbers

• $12.9M — Net Income (for Q2 2025, a decrease from $13.5M in Q2 2024)
• $1.5M — Tenant Reimbursements (for H1 2025, up from $1.4M in H1 2024)
• $10.6M — Equity Method Investments (as of June 30, 2025, up from $10.5M at Dec 31, 2024)
• $200M — Debt Hedged (through two interest rate swap agreements)
• 4.96% — Fixed Interest Rate (for the hedged debt)
• 2025-09-16 — Interest Rate Swap Effective Date (for both swap agreements)

Key Players & Entities

• UNIVERSAL HEALTH REALTY INCOME TRUST (company) — filer of the 10-Q
• Universal Health Services, Inc. (company) — primary tenant and significant revenue source
• Wellington Regional Medical Center (company) — property leased to Universal Health Services, Inc.
• Aiken Regional Medical Center (company) — property leased to Universal Health Services, Inc.
• Canyon Creek Behavioral Health (company) — property leased to Universal Health Services, Inc.
• Grayson Properties Two LP (company) — equity method investment
• $12.9 million (dollar_amount) — net income for three months ended June 30, 2025
• $13.5 million (dollar_amount) — net income for three months ended June 30, 2024
• $1.5 million (dollar_amount) — tenant reimbursements for six months ended June 30, 2025
• $1.4 million (dollar_amount) — tenant reimbursements for six months ended June 30, 2024

FAQ

Risk Factors

• Tenant Concentration Risk [high — financial]: UHT relies heavily on Universal Health Services, Inc. (UHS) as its primary tenant. Lease agreements for key properties, such as Wellington Regional Medical Center, extend through 2025. This significant concentration of revenue from a single tenant poses a substantial risk if UHS's financial health or leasing decisions change.
• Interest Rate Sensitivity [medium — financial]: UHT has entered into two interest rate swap agreements totaling $200 million to hedge against variable interest rates on its revolving credit facility. These swaps fix the rate at 4.96% effective September 16, 2024. While this mitigates current risk, the company remains exposed to interest rate fluctuations on any unhedged debt and the terms of these swaps.

Industry Context

Universal Health Realty Income Trust operates within the healthcare real estate sector, a niche segment of the REIT market. This industry is characterized by long-term leases, specialized property types (hospitals, medical office buildings, etc.), and a strong reliance on healthcare providers as tenants. Trends include increasing demand for healthcare services, evolving facility needs, and the impact of regulatory changes on healthcare operations and real estate.

Regulatory Implications

As a REIT, UHT is subject to specific tax regulations and reporting requirements. Changes in healthcare policy or reimbursement rates can indirectly impact the financial stability of its healthcare provider tenants, potentially affecting lease payments and property valuations. Compliance with SEC reporting standards for its 10-Q filings is also a critical regulatory aspect.

What Investors Should Do

1. Monitor UHS Lease Renewals
2. Assess Interest Rate Hedging Effectiveness
3. Evaluate Tenant Reimbursement Trends

Key Dates

• 2025-06-30: End of Second Quarter 2025 — Reporting period for the 10-Q filing, showing net income of $12.9 million and equity method investments of $10.6 million.
• 2025-08-08: 10-Q Filing Date — The date the company officially submitted its quarterly report to the SEC, providing updated financial and operational information.
• 2024-09-16: Interest Rate Swap Agreements Effective — Two interest rate swap agreements became effective, hedging $200 million of variable-rate debt to a fixed rate of 4.96%, mitigating interest rate risk.
• 2025-12-31: Lease Expiration for Key Properties — Lease agreements for properties like Wellington Regional Medical Center with primary tenant UHS are set to expire, representing a potential renewal risk.

Glossary

Equity Method Investments

An accounting method used when an investor has significant influence over an investee but does not have control. The investment is initially recorded at cost and adjusted for the investor's share of the investee's net income or loss. (UHT's equity method investments totaled $10.6 million as of June 30, 2025, indicating its stake in other entities and their performance contributes to its overall financial position.)

Tenant Reimbursements

Payments made by tenants to a landlord to cover specific operating expenses, such as property taxes, insurance, and common area maintenance, as stipulated in the lease agreement. (These reimbursements are a component of UHT's revenue, showing a slight increase to $1.5 million for H1 2025, contributing to operational income.)

Interest Rate Swap Agreement

A financial derivative contract where two parties exchange interest rate payments. In UHT's case, it's used to convert variable-rate debt to a fixed rate, reducing exposure to interest rate volatility. (UHT utilized these agreements to hedge $200 million of its debt, fixing the interest rate at 4.96% and providing financial stability against rising rates.)

Revolving Credit Facility

A type of credit line that allows a borrower to draw down, repay, and redraw funds repeatedly up to a certain limit over a specified period. Often carries variable interest rates. (UHT's variable interest rate debt on its revolving credit facility was the subject of its interest rate hedging strategy.)

Year-Over-Year Comparison

For the three months ended June 30, 2025, UHT reported a net income of $12.9 million, a slight decrease from $13.5 million in the prior-year period, indicating a marginal decline in profitability. Revenue from tenant reimbursements showed a modest increase to $1.5 million for the six months ended June 30, 2025, up from $1.4 million in the same period of 2024. The company has proactively managed interest rate risk by entering into two interest rate swap agreements, hedging $200 million of debt at a fixed rate of 4.96%, a strategic move to stabilize financing costs.

Key Financial Figures

• $0.01 — stered Shares of beneficial interest, $0.01 par value UHT New York Stock Exchan

Filing Documents

• uht-20250630.htm (10-Q) — 2324KB
• uht-ex31_1.htm (EX-31.1) — 12KB
• uht-ex31_2.htm (EX-31.2) — 12KB
• uht-ex32_1.htm (EX-32.1) — 8KB
• uht-ex32_2.htm (EX-32.2) — 8KB
• 0001193125-25-177000.txt ( ) — 8871KB
• uht-20250630.xsd (EX-101.SCH) — 1340KB
• uht-20250630_htm.xml (XML) — 1377KB

FINANCIAL INFORMATION (unaudited)

PART I. FINANCIAL INFORMATION (unaudited) Item 1.

Financial Statements

Financial Statements Condensed Consolidated Statements of Income—Three and Six Months Ended June 30 , 2025 and 2024 3 Condensed Consolidated Statements of Comprehensive Income—Three and Six Months Ended June 30, 2025 and 2024 4 Condensed Consolidated Balance Sheets—June 30, 2025 and December 31, 2024 5 Condensed Consolidated Statements of Changes in Equity—Three and Six Months Ended June 30, 2025 and 2024 6 through 7 Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2025 and 2024 8 Notes to Condensed Consolidated Financial Statements 9 through 19 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 20 through 29 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 29 through 30 Item 4.

Controls and Procedures

Controls and Procedures 31

OTHER INFORMATION

PART II. OTHER INFORMATION 32 Item 1A.

Risk Factors

Risk Factors 32 Item 5. Other Information 32 Item 6. Exhibits 32

SIGNATURES

SIGNATURES 33 This Quarterly Report on Form 10-Q is for the quarter ended June 30, 2025. In this Quarterly Report, "we," "us," "our" and the "Trust" refer to Universal Health Realty Income Trust and its subsidiaries. As disclosed in this Quarterly Report, including in Note 2 to the condensed consolidated financial statements—Relationship with Universal Health Services, Inc. ("UHS") and Related Party Transactions , a wholly-owned subsidiary of UHS (UHS of Delaware, Inc.) serves as our Advisor pursuant to the terms of an annually renewable Advisory Agreement dated December 24, 1986, and as amended and restated as of January 1, 2019. The Advisory Agreement expires on December 31 of each year, however, it is renewable by us, subject to a determination by our Trustees who are unaffiliated with UHS, that the Advisor's performance has been satisfactory. The Advisory Agreement was renewed for 2025 with the same terms as the Advisory Agreement in place during 2024 and 2023. Our officers are all employees of UHS through its wholly-owned subsidiary, UHS of Delaware, Inc. In addition, five of our hospital facilities are leased to wholly-owned subsidiaries of UHS, one of our hospital facilities is leased to a joint venture between a wholly-owned subsidiary of UHS and a third party, and subsidiaries of UHS are tenants of twenty medical/office buildings or free-standing emergency departments, that are either wholly or jointly-owned by us. Any reference to "UHS" or "UHS facilities" in this report is referring to Universal Health Services, Inc.'s subsidiaries, including UHS of Delaware, Inc. In this Quarterly Report, the term "revenues" does not include the revenues of the unconsolidated limited liability companies ("LLCs") in which we have various non-controlling equity interests ranging from 33% to 95%. As of June 30, 2025, we had investments in four jointly-owned LLCs/LPs. We currently account for our share of the income/loss from these investments by the equity method (s

Financi al Information

Part I. Financi al Information Item I. Financ ial Statements Universal Health Realty Income Trust Condensed Consolidated Statements of Income For the Three and Six Months Ended June 30, 2025 and 2024 (amounts in thousands, except per share information) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2025 2024 2025 2024 Revenues: Lease revenue - UHS facilities (a.) $ 8,381 $ 8,454 $ 16,708 $ 17,118 Lease revenue - Non-related parties 14,573 14,359 28,899 28,846 Other revenue - UHS facilities 237 220 466 440 Other revenue - Non-related parties 327 342 641 751 Interest income on financing leases - UHS facilities 1,350 1,359 2,702 2,720 24,868 24,734 49,416 49,875 Expenses: Depreciation and amortization 6,994 6,806 13,839 13,615 Advisory fees to UHS 1,391 1,369 2,755 2,707 Other operating expenses 7,639 6,975 14,944 14,506 16,024 15,150 31,538 30,828 Income before equity in income of unconsolidated limited liability companies ("LLCs") and interest expense 8,844 9,584 17,878 19,047 Equity in income of unconsolidated LLCs 365 272 777 656 Interest expense, net ( 4,717 ) ( 4,580 ) ( 9,386 ) ( 9,127 ) Net income $ 4,492 $ 5,276 $ 9,269 $ 10,576 Basic earnings per share $ 0.33 $ 0.38 $ 0.67 $ 0.77 Diluted earnings per share $ 0.32 $ 0.38 $ 0.67 $ 0.76 Weighted average number of shares outstanding - Basic 13,815 13,798 13,812 13,795 Weighted average number of shares outstanding - Diluted 13,856 13,832 13,853 13,828 (a.) Includes bonus rental on McAllen Medical Center, a UHS acute care hos pital facility of $ 861 and $ 758 for the three-month periods ended June 30, 2025 and 2024, respectively, and $ 1.7 million and $ 1.5 million for the six-month periods ended June 30, 2025 and 2024, respectively. See accompanyin

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