Executive Summary / Key Takeaways

• Universal Health Realty Income Trust ($UHT) maintains a stable position in the healthcare real estate sector, underpinned by a diversified portfolio of acute care hospitals, behavioral health facilities, medical office buildings, and a strategic, long-standing relationship with Universal Health Services .
• The company's operational model, characterized by long-term leases and a focus on essential healthcare infrastructure, serves as its core differentiator, providing predictable revenue streams and supporting consistent dividend payouts, with a TTM dividend yield of 7.46%.
• Recent financial performance for the nine months ended September 30, 2025, showed a slight decrease in net income to $13.30 million, primarily due to higher interest expenses and non-recurring depreciation, though revenues saw a modest increase to $74.70 million.
• UHT is actively expanding its portfolio through strategic developments, such as the Palm Beach Gardens Medical Plaza I, which is largely pre-leased to a UHS subsidiary, signaling continued growth and tenant commitment.
• Key risks include significant revenue dependence on UHS (39-41% of consolidated revenues), exposure to rising interest rates on unhedged debt, and potential impacts from legislative changes to Medicaid funding and broader healthcare industry pressures.

A Resilient Core in Healthcare Real Estate

Universal Health Realty Income Trust ($UHT) has carved out a specialized niche within the expansive healthcare real estate market since its inception in 1986. The company's foundational strategy involves investing in and leasing a diverse array of healthcare and human service facilities, ranging from acute care and behavioral health hospitals to medical office buildings (MOBs), free-standing emergency departments (FEDs), and childcare centers. This diversified portfolio acts as UHT's primary operational strength, spreading risk across various healthcare sub-sectors and patient demographics. A cornerstone of UHT's business model is its enduring, symbiotic relationship with Universal Health Services (UHS), a major healthcare provider whose subsidiaries serve as both UHT's advisor and its largest tenant, contributing approximately 39% to 41% of consolidated revenues.

UHT's strategic asset allocation and management within the healthcare real estate sector serve as its core differentiator. This "operational technology" focuses on acquiring and developing properties critical to healthcare delivery, ensuring long-term utility and demand. The tangible benefits of this approach are evident in its lease structures, which typically feature long terms and embedded escalators. For instance, the McAllen Doctors Center, an MOB acquired in Q3 2023 for approximately $7.60 million, is 100% master leased to a UHS subsidiary until August 31, 2035, providing a predictable income stream. Similarly, UHS subsidiaries renewed 5-year leases on two Texas FEDs through January 2030, with compounded annual rent increases, reinforcing long-term income stability. This strategic focus on essential, long-term leased assets contributes to UHT's competitive moat by ensuring consistent revenue generation and mitigating vacancy risks inherent in other commercial real estate segments.

The company's innovation in this context is primarily seen through its development pipeline and strategic acquisitions. In October 2025, UHT initiated a significant development project: the Palm Beach Gardens Medical Plaza I, an 80,000-square-foot multi-tenant MOB in Florida. This project, estimated to cost $34 million and slated for completion in Q3 2026, already has a 10-year master flex lease agreement with a UHS subsidiary covering approximately 75% of its rentable square feet. This forward-looking investment, strategically located on the campus of a new UHS acute care hospital, underscores UHT's commitment to modernizing its portfolio and capitalizing on its strong tenant relationships for future growth. For investors, this strategic asset management and development approach translates into a stable income profile and a clear pathway for portfolio expansion, supporting UHT's commitment to maintaining a stable dividend and prudent balance sheet management.

Competitive Landscape and Market Positioning

In the competitive healthcare REIT sector, UHT distinguishes itself through its diversified portfolio, which includes a broader mix of facility types compared to some specialized peers. While Omega Healthcare Investors (OHI) primarily focuses on skilled nursing and assisted living, and Healthcare Realty Trust (HR) concentrates on medical office buildings, UHT's inclusion of acute care hospitals, behavioral health facilities, and free-standing emergency departments offers a wider exposure to the evolving healthcare ecosystem. This diversification provides UHT with greater market adaptability and resilience against downturns in specific sub-sectors, potentially leading to more robust cash flow over time.

Compared to Medical Properties Trust (MPW), which emphasizes acute care hospitals with a significant international footprint, UHT's domestic focus may offer advantages in navigating U.S.-specific regulatory environments, although it might limit global growth opportunities. Sabra Health Care REIT (SBRA), with its focus on senior housing and behavioral health, presents a more concentrated strategy, whereas UHT's broader asset base allows for versatility in mixed-use healthcare developments. UHT's gross profit margin of 78.81% and EBITDA margin of 78.75% (TTM) demonstrate solid operational efficiency within its model. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, UHT's consistent investment in diverse, essential healthcare infrastructure suggests a strong competitive ability in operational execution and strategic adaptability.

Financial Performance and Liquidity

UHT's financial performance for the nine months ended September 30, 2025, reflects a period of both growth and challenges. Total revenues increased modestly by $349,000 to $74.70 million compared to $74.37 million in the prior year period. This growth was primarily driven by a $268,000 increase in bonus rental revenue and a $275,000 gain from a one-time settlement, partially offset by a $194,000 net decrease in revenues from other properties. For the third quarter of 2025, revenues rose by $808,000 to $25.30 million, an increase of approximately 3.30% year-over-year.

Despite revenue growth, net income for the nine months ended September 30, 2025, decreased by $1.30 million to $13.30 million, down from $14.57 million in the comparable 2024 period. This decline was largely attributable to a $730,000 aggregate net decrease in income from various properties, including approximately $900,000 of non-recurring depreciation expense, a $563,000 decrease from a property tax reduction recorded in 2024, and a $282,000 increase in interest expense. The company's net profit margin (TTM) stands at 18.06%.

Funds From Operations (FFO), a key REIT performance metric, decreased by $166,000 to $35.90 million for the first nine months of 2025, primarily due to the decrease in net income, partially offset by an increase in depreciation and amortization expense. However, FFO for the third quarter of 2025 increased by $908,000 to $12.20 million, largely due to the aforementioned increase in depreciation and amortization, including the non-recurring depreciation.

UHT's liquidity and capital resources remain robust. Net cash provided by operating activities increased by $1.70 million to $35.50 million for the nine months ended September 30, 2025. The company had $67.90 million of available borrowing capacity under its $425 million Credit Agreement as of September 30, 2025, which matures on September 30, 2028. UHT actively manages its interest rate exposure through swap agreements, with $165 million in notional debt hedged through 2028 at favorable fixed rates. Management asserts that its operating cash flows, cash and cash equivalents, and available borrowing capacity provide sufficient capital to fund its operating, investing, and financing requirements for the next twelve months, including maintaining its REIT status.

Outlook and Key Risks

UHT has not provided specific forward earnings or FFO guidance for upcoming quarters, but management has reaffirmed its commitment to maintaining a stable dividend and prudent balance sheet management amidst a challenging interest rate environment. The company's development pipeline, exemplified by the Palm Beach Gardens Medical Plaza I, indicates a strategic focus on expanding its portfolio with pre-leased assets that promise future rental income.

However, several risks warrant investor attention. A significant concentration risk stems from UHT's substantial revenue dependence on UHS, which comprised approximately 39% of consolidated revenues in Q3 2025. The uncertainty surrounding lease renewals and potential purchase options by UHS subsidiaries could impact future revenues if UHT is unable to secure favorable terms or reinvest sale proceeds effectively.

Rising interest rates continue to pose a challenge, increasing interest expense and potentially affecting access to capital markets on favorable terms. While UHT utilizes interest rate swaps, approximately $185 million of its debt was exposed to variable rates as of Q1 2025, leaving it vulnerable to further rate increases. Legislative changes, such as the "One Big Beautiful Bill Act" adopted on July 4, 2025, are expected to reduce Medicaid enrollment and expenditures, potentially increasing uncompensated care for operators like UHS and unfavorably impacting UHT's results. Furthermore, a federal government shutdown that began on October 1, 2025, due to a lack of federal budget approval, could materially impact tenant operations and, consequently, UHT's financial performance. The company also continues to incur operating expenses on non-revenue-generating assets, including a vacant specialty facility in Evansville, Indiana, and a vacant land parcel in Chicago, Illinois.

Conclusion

Universal Health Realty Income Trust stands as a fundamentally sound healthcare REIT, leveraging its diversified portfolio and strategic relationship with UHS to generate stable income streams. The company's operational model, focused on long-term leases and targeted development, provides a resilient foundation in a dynamic healthcare landscape. While UHT's recent financial performance reflects the impact of higher interest expenses and non-recurring items, its strong liquidity, disciplined capital management, and commitment to dividend stability underscore its appeal to income-focused investors.

The ongoing development of new, strategically located medical facilities and the renewal of key tenant leases demonstrate a proactive approach to growth and asset optimization. However, investors must carefully weigh the concentration risk associated with UHS, the sensitivity to interest rate fluctuations, and the evolving regulatory environment in healthcare. UHT's ability to navigate these sector shifts and capitalize on its established competitive advantages will be crucial for sustained long-term value creation, positioning it as a steady, albeit moderately growing, player in the specialized healthcare real estate market.