Universal Health Realty Q3 earnings rise to $4.93M
UHS-related tenants accounted for approximately 40% of UHT’s consolidated revenue in the quarter, alongside nine-month operating cash flow of $33.479 million.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Universal Health Realty Income Trust (UHT) reported third-quarter 2026 revenue of $25.346 million and net income of $4.929 million, compared with $25.302 million and $4.016 million a year earlier. Diluted earnings per share were $0.35 versus $0.29. For the first nine months, revenue was $74.866 million and net income was $15.855 million, versus $74.718 million and $13.285 million in 2025.
Operating cash flow for the nine months was $33.479 million, compared with $35.495 million. At September 30, 2026, line-of-credit borrowings were $377.7 million, with $97.3 million of available capacity; the amended facility has $475 million borrowing capacity and matures September 30, 2028. UHS-related tenants generated approximately 40% of consolidated revenue in the quarter and nine-month period, and a UHS subsidiary serves as advisor.
In October, UHT sold a remaining Chicago land parcel for net cash proceeds of $1.96 million and expects to record an approximately $1.90 million gain in the fourth quarter of 2026. The company is constructing an 80,000-square-foot medical office building estimated to cost $34 million, with completion expected in December 2026.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNine-month net income: $15.855 million versus $13.285 million.
Negative
- Moderate pointNine-month operating cash flow: $33.479 million versus $35.495 million.
Filing Explained
UHS has notified the Trust of its intent to renew the McAllen and Wellington hospital leases for five-year terms beginning
Key Figures
Key Terms
equity method financial
failed sale leaseback financial
non-recourse financial
cash flow hedge financial
master flex lease agreement financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much did UHT earn in the third quarter of 2026?
How much of UHT’s revenue came from UHS-related tenants?
What is UHT building in Palm Beach Gardens?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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 number
(Exact name of registrant as specified in its charter)
|
|
|
(State or other jurisdiction of incorporation or organization) |
|
(I. R. S. Employer Identification No.) |
|
|
|
|
||
(Address of principal executive offices) |
|
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated Filer |
☐ |
|
|
|
|
☒ |
Smaller reporting company |
||
|
|
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Number of common shares of beneficial interest outstanding at October 31, 2026—
UNIVERSAL HEALTH REALTY INCOME TRUST
INDEX
|
|
|
|
PAGE NO. |
PART I. FINANCIAL INFORMATION (unaudited) |
|
|
||
Item 1. |
|
Financial Statements |
|
|
|
|
Condensed Consolidated Statements of Income—Three and Nine Months Ended September 30, 2026 and 2025 |
|
3 |
|
|
Condensed Consolidated Statements of Comprehensive Income—Three and Nine Months Ended September 30, 2026 and 2025 |
|
4 |
|
|
Condensed Consolidated Balance Sheets—September 30, 2026 and December 31, 2025 |
|
5 |
|
|
Condensed Consolidated Statements of Changes in Equity—Three and Nine Months Ended September 30, 2026 and 2025 |
|
6 through 7 |
|
|
Condensed Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2026 and 2025 |
|
8 |
|
|
Notes to Condensed Consolidated Financial Statements |
|
9 through 19 |
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
20 through 30 |
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
|
30 through 31 |
Item 4. |
|
Controls and Procedures |
|
31 through 31 |
PART II. OTHER INFORMATION |
|
32 |
||
Item 1A. |
|
Risk Factors |
|
32 |
Item 5. |
|
Other Information |
|
32 |
Item 6. |
|
Exhibits |
|
32 |
|
|
|
|
|
SIGNATURES |
|
33 |
||
|
|
|
||
This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2026. 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 2026 with the same terms as the Advisory Agreement in place during 2025 and 2024. 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 nineteen 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, except as the context otherwise requires, 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 September 30, 2026, 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 (see Note 5 to the condensed consolidated financial statements - Summarized Financial Information of Equity Affiliates).
2
Part I. Financial Information
Item I. Financial Statements
Universal Health Realty Income Trust
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2026 and 2025
(amounts in thousands, except per share information)
(unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Lease revenue - UHS facilities (a.) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lease revenue - Non-related parties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other revenue - UHS facilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other revenue - Non-related parties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income on financing leases - UHS facilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Advisory fees to UHS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before equity in income of unconsolidated limited liability companies ("LLCs") and interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in income of unconsolidated LLCs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of land |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding - Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares outstanding - Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(a.)
See accompanying notes to these condensed consolidated financial statements.
3
Universal Health Realty Income Trust
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2026 and 2025
(amounts in thousands)
(unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized derivative gain/(loss) on cash flow hedges |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total other comprehensive loss: |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total comprehensive income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
See accompanying notes to these condensed consolidated financial statements.
4
Universal Health Realty Income Trust
Condensed Consolidated Balance Sheets
(amounts in thousands, except share information)
(unaudited)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Assets: |
|
|
|
|
|
|
||
Real Estate Investments: |
|
|
|
|
|
|
||
Buildings and improvements and construction in progress |
|
$ |
|
|
$ |
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Net Real Estate Investments |
|
|
|
|
|
|
||
Financing receivable from UHS |
|
|
|
|
|
|
||
Net Real Estate Investments and Financing receivable |
|
|
|
|
|
|
||
Investments in limited liability companies ("LLCs") |
|
|
|
|
|
|
||
Other Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Lease and other receivables from UHS |
|
|
|
|
|
|
||
Lease receivable - other |
|
|
|
|
|
|
||
Intangible assets (net of accumulated amortization of $ |
|
|
|
|
|
|
||
Right-of-use land assets, net |
|
|
|
|
|
|
||
Deferred charges, notes receivable and other assets, net |
|
|
|
|
|
|
||
Total Assets |
|
$ |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
||
Line of credit borrowings |
|
$ |
|
|
$ |
|
||
Mortgage notes payable, non-recourse to us, net |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Accrued expenses and other liabilities |
|
|
|
|
|
|
||
Ground lease liabilities, net |
|
|
|
|
|
|
||
Tenant reserves, deposits and deferred and prepaid rents |
|
|
|
|
|
|
||
Total Liabilities |
|
|
|
|
|
|
||
Equity: |
|
|
|
|
|
|
||
Preferred shares of beneficial interest, |
|
|
- |
|
|
|
- |
|
Common shares, $ |
|
|
|
|
|
|
||
Capital in excess of par value |
|
|
|
|
|
|
||
Cumulative net income and other |
|
|
|
|
|
|
||
Cumulative dividends |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Total Equity |
|
|
|
|
|
|
||
Total Liabilities and Equity |
|
$ |
|
|
$ |
|
||
See accompanying notes to these condensed consolidated financial statements.
5
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2026
(amounts in thousands)
(unaudited)
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
Accumulated other |
|
|
|
|
|||||||
|
|
Number |
|
|
|
|
|
excess of |
|
|
Cumulative |
|
|
Cumulative |
|
|
comprehensive |
|
|
Total |
|
|||||||
|
|
of Shares |
|
|
Amount |
|
|
par value |
|
|
net income |
|
|
dividends |
|
|
income/(loss) |
|
|
Equity |
|
|||||||
January 1, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Shares of Beneficial Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Issued, net |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Repurchased |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Restricted stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends and dividend equivalents ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized net (loss)/gain on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Subtotal - comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
September 30, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Nine Months Ended September 30, 2025
(amounts in thousands)
(unaudited)
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
Accumulated other |
|
|
|
|
|||||||
|
|
Number |
|
|
|
|
|
excess of |
|
|
Cumulative |
|
|
Cumulative |
|
|
comprehensive |
|
|
Total |
|
|||||||
|
|
of Shares |
|
|
Amount |
|
|
par value |
|
|
net income |
|
|
dividends |
|
|
income/(loss) |
|
|
Equity |
|
|||||||
January 1, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Shares of Beneficial Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Issued, net |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Repurchased |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Restricted stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends and dividend equivalents ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized net loss on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Subtotal - comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
September 30, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
See accompanying notes to these condensed consolidated financial statements.
6
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended September 30, 2026
(amounts in thousands)
(unaudited)
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
Accumulated other |
|
|
|
|
|||||||
|
|
Number |
|
|
|
|
|
excess of |
|
|
Cumulative |
|
|
Cumulative |
|
|
comprehensive |
|
|
Total |
|
|||||||
|
|
of Shares |
|
|
Amount |
|
|
par value |
|
|
net income |
|
|
dividends |
|
|
income/(loss) |
|
|
Equity |
|
|||||||
July 1, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Shares of Beneficial Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Issued |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends and dividend equivalents ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized net (loss)/gain on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Subtotal - comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
September 30, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Universal Health Realty Income Trust
Condensed Consolidated Statements of Changes in Equity
For the Three Months Ended September 30, 2025
(amounts in thousands)
(unaudited)
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
|
|
Accumulated other |
|
|
|
|
|||||||
|
|
Number |
|
|
|
|
|
excess of |
|
|
Cumulative |
|
|
Cumulative |
|
|
comprehensive |
|
|
Total |
|
|||||||
|
|
of Shares |
|
|
Amount |
|
|
par value |
|
|
net income |
|
|
dividends |
|
|
income/(loss) |
|
|
Equity |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
July 1, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
Shares of Beneficial Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Issued |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restricted stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Dividends and dividend equivalents ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Unrealized net loss on cash flow hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Subtotal - comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
September 30, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
See accompanying notes to these condensed consolidated financial statements.
7
Universal Health Realty Income Trust
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization related to above/below market leases, net |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Gain on sale of land |
|
|
( |
) |
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Lease receivable |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other liabilities |
|
|
( |
) |
|
|
|
|
Tenant reserves, deposits and deferred and prepaid rents |
|
|
|
|
|
( |
) |
|
Accrued interest |
|
|
( |
) |
|
|
|
|
Leasing costs paid |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Investments in LLCs |
|
|
( |
) |
|
|
( |
) |
Advance made to third-party partners, net |
|
|
|
|
|
( |
) |
|
Cash distributions from LLCs |
|
|
|
|
|
|
||
Additions to real estate investments, net |
|
|
( |
) |
|
|
( |
) |
Cash proceeds received from sale of land, net |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Net borrowings on the line of credit |
|
|
|
|
|
|
||
Repayments of mortgage notes payable |
|
|
( |
) |
|
|
( |
) |
Financing costs paid |
|
|
( |
) |
|
|
|
|
Dividends paid |
|
|
( |
) |
|
|
( |
) |
Issuance of shares of beneficial interest, net |
|
|
|
|
|
|
||
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Increase/(decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Invoices accrued for construction and improvements |
|
$ |
|
|
$ |
|
||
See accompanying notes to these condensed consolidated financial statements.
8
UNIVERSAL HEALTH REALTY INCOME TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(unaudited)
(1) General
This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2026. In this Quarterly Report, “we,” “us,” “our” and the “Trust” refer to Universal Health Realty Income Trust and its subsidiaries.
In this Quarterly Report on Form 10-Q, the term “revenues” does not include the revenues of the unconsolidated LLCs in which we have various non-controlling equity interests ranging from
The condensed consolidated financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the SEC and reflect all normal and recurring adjustments which, in our opinion, are necessary to fairly present results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the accompanying disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements, the notes thereto and accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2025.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.
(2) Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions
Leases: We commenced operations in 1986 by purchasing certain properties from subsidiaries of UHS and immediately leasing the properties back to the respective subsidiaries. The base rentals and lease and renewal terms for each of the hospitals leased to subsidiaries of UHS as of September 30, 2026, are provided below. The base rents are paid monthly. The lease on McAllen Medical Center also provides for bonus rent which is paid quarterly based upon a computation that compares the hospital’s current quarter revenue to a corresponding quarter in the base year. The hospital leases with subsidiaries of UHS, with the exception of the lease on Clive Behavioral Health Hospital (which is operated by UHS in a joint venture with an unrelated third party), are unconditionally guaranteed by UHS and are cross-defaulted with one another. The lease for the Clive Behavioral Health is guaranteed on a several basis by UHS (
The combined revenues generated from the leases on the
In December, 2021, we entered into an asset purchase and sale agreement, as amended, with UHS and certain of its affiliates. Pursuant to the terms of the transaction, in addition to $
9
Pursuant to the terms of the master leases by and among us and certain subsidiaries of UHS, dated December 24, 1986 and December 31, 2021 (the “Master Leases”), which govern the leases of McAllen Medical Center, Wellington Regional Medical Center (governed by the Master Lease dated December 24, 1986), Aiken Regional Medical Center and Canyon Creek Behavioral Health (governed by the Master Lease dated December 31, 2021, as amended), all of which are hospital properties that are wholly-owned subsidiaries of UHS, UHS has the option, among other things, to renew the leases at the lease terms described below by providing notice to us at least
In addition, a wholly-owned subsidiary of UHS is the managing, majority member in a joint-venture with an unrelated third-party that operates, and leases from us, Clive Behavioral Health, a
The table below details the existing lease terms and renewal options for each of the hospital leases that are related to UHS as of September 30, 2026, consisting of
Hospital Name |
|
Annual |
|
|
End of |
|
Renewal |
|
|
||
McAllen Medical Center |
|
$ |
|
|
|
|
|
(a) |
|||
Wellington Regional Medical Center |
|
$ |
|
|
|
|
|
(b) |
|||
Aiken Regional Medical Center/Aurora Pavilion Behavioral Health Services |
|
$ |
|
|
|
|
|
(c) |
|||
Canyon Creek Behavioral Health |
|
$ |
|
|
|
|
|
(c) |
|||
Clive Behavioral Health Hospital |
|
$ |
|
|
|
|
|
(d) |
|||
In October, 2024,
10
Management cannot predict whether the leases with wholly-owned subsidiaries of UHS, which have renewal options at existing lease rates or fair market value lease rates, or any of our other leases, will be renewed at the end of their lease term. If the leases are not renewed at their current rates or the fair market value lease rates, we would be required to find other operators for those facilities and/or enter into leases on terms potentially less favorable to us than the current leases. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital or FED facilities in accordance with the terms of the leases, our future revenues could decrease if we were unable to earn a favorable rate of return on the sale proceeds received, as compared to the rental revenue currently earned pursuant to these leases.
In October 2025, we entered into a ground lease with a wholly-owned subsidiary of UHS with the intent to develop, construct and own the Miller Medical Plaza, an
As of September 30, 2026 we are the lessee on
Officers and Employees: Our officers are all employees of a wholly-owned subsidiary of UHS and although as of September 30, 2026 we had no salaried employees, our officers do typically receive annual stock-based compensation awards in the form of restricted stock or restricted stock units. In special circumstances, if warranted and deemed appropriate by the Compensation Committee of the Board of Trustees, our officers may also receive one-time compensation awards in the form of restricted stock, and/or cash bonuses.
Advisory Agreement: UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an advisory agreement dated December 24, 1986, and as amended and restated as of January 1, 2019 (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Advisor is obligated to present an investment program to us, to use its best efforts to obtain investments suitable for such program (although it is not obligated to present any particular investment opportunity to us), to provide administrative services to us and to conduct our day-to-day affairs. All transactions between us and UHS must be approved by the Trustees who are unaffiliated with UHS (the “Independent Trustees”). In performing its services under the Advisory Agreement, the Advisor may utilize independent professional services, including accounting, legal, tax and other services, for which the Advisor is reimbursed directly by us. The Advisory Agreement may be terminated for any reason upon sixty days written notice by us or the Advisor. The Advisory Agreement expires on December 31 of each year; however, it is renewable by us, subject to a determination by the Independent Trustees, that the Advisor’s performance has been satisfactory. The Advisory Agreement was renewed for 2026 with the same terms as the Advisory Agreement in place during 2025 and 2024.
Our advisory fee was computed at
Share Ownership: As of September 30, 2026 and December 31, 2025, UHS owned
SEC reporting requirements of UHS: UHS is subject to the reporting requirements of the Securities and Exchange Commission ("SEC") and is required to file annual reports containing audited financial information and quarterly reports containing unaudited financial information. Since the aggregate revenues generated from the UHS-related tenants comprised approximately
11
(3) Dividends and Equity Issuance Program
Dividends and dividend equivalents:
We declared and paid dividends of approximately $
Equity Issuance Program:
During the second quarter of 2024, we filed a shelf registration statement on Form S-3 (File No. 333-278730) (the "Form S-3"), registering the offer and sale, from time-to-time, of an indeterminate amount of the common shares of beneficial interest, preferred shares and debt securities up to an aggregate initial offering price of $
(4) Acquisitions, Divestitures and New Construction
Acquisitions:
There were
Divestitures:
In June 2026, we sold a parcel of land located in Chicago, Illinois, for cash proceeds of $
There were
Subsequent event:
In October 2026, we sold
New Construction:
In October 2025, we entered into a ground lease with a wholly-owned subsidiary of UHS with the intent to develop, construct and own the Miller Medical Plaza, an
(5) Summarized Financial Information of Equity Affiliates
In accordance with U.S. GAAP and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting. The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent
12
Distributions received from equity method investees in the consolidated statements of cash flows are classified based upon the nature of the distribution. Returns on investments are presented net of equity in income from unconsolidated investments as cash flows from operating activities. Returns of investments are classified as cash flows from investing activities.
At September 30, 2026, we have non-controlling equity investments or commitments in
The following property table represents the four LLCs/LPs in which we owned a non-controlling interest and were accounted for under the equity method as of September 30, 2026:
|
|
|
|
|
|
|
Name of LLC/LP |
|
Ownership |
|
|
Property Owned by LLC/LP |
|
Suburban Properties |
|
|
% |
|
||
Brunswick Associates (a.)(b.) |
|
|
% |
|
||
FTX MOB Phase II |
|
|
% |
|
||
Grayson Properties II (c.) |
|
|
% |
|
||
Below are the condensed combined statements of income (unaudited) for the four LLCs/LPs accounted for under the equity method at September 30, 2026 and 2025:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
|
|
(amounts in thousands) |
(amounts in thousands) |
|
||||||||||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating expenses |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Interest, net |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Our share of net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Below are the condensed combined balance sheets (unaudited) for the four above-mentioned LLCs/LPs that were accounted for under the equity method as of September 30, 2026 and December 31, 2025:
13
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(amounts in thousands) |
|
|||||
Net property, including construction in progress |
|
$ |
|
|
$ |
|
||
Other assets (a.) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other liabilities (a.) |
|
$ |
|
|
$ |
|
||
Mortgage notes payable, non-recourse to us |
|
|
|
|
|
|
||
Equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Investments in and advances to LLCs before amounts included in |
|
|
|
|
|
|
||
accrued expenses and other liabilities |
|
$ |
|
|
$ |
|
||
Amounts included in accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Our share of equity in LLCs, net |
|
$ |
|
|
$ |
|
||
As of September 30, 2026, and December 31, 2025, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs/LPs, which are accounted for under the equity method and are non-recourse to us, are as follows (amounts in thousands):
|
|
Mortgage Loan Balance (a.) |
|
|
|
|||||
Name of LLC/LP |
|
9/30/2026 |
|
|
12/31/2025 |
|
|
Maturity Date |
||
Brunswick Associates (2.80% fixed rate mortgage loan) |
|
$ |
|
|
$ |
|
|
|||
|
|
$ |
|
|
$ |
|
|
|
||
Pursuant to the operating and/or partnership agreements of the four LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and the Trust, at any time, potentially subject to certain conditions, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it either agrees to: (i) sell the entire ownership interest of the Offering Member to the Non-Offering Member at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member at the equivalent proportionate Transfer Price. The Non-Offering Member has
(6) Recent Accounting Pronouncements
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815), Hedging Accounting Improvements. ASU 2025-09 intends to more closely align hedge accounting with the economics of an entity's risk management activities. This ASU is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. We are currently evaluating the impact this new standard will have on the consolidated financial statements.
In November 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (subtopic 220-40)". ASU 2024-03 requires disclosures, in the notes to financial statements, of specified information about certain costs and expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. We are currently evaluating the impact this new standard will have on the related disclosures in the consolidated financial statements.
From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by us as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. We have assessed the recently issued guidance that is not yet effective and, unless otherwise indicated above, we believe the new guidance will not have a material impact on our results of operations, cash flows or financial position.
14
(7) Lease Accounting
As Lessor:
We lease most of our operating properties to customers under agreements that are typically classified as operating leases (
The components of the “Lease revenue – UHS facilities” and “Lease revenue – Non-related parties” captions for the three and nine month periods ended September 30, 2026 and 2025 are disaggregated below (in thousands). Base rents are primarily stated rent amounts provided for under the leases that are recognized on a straight-line basis over the term of the lease. Bonus rents and tenant reimbursements represent amounts where tenants are contractually obligated to pay an amount that is variable in nature.
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
UHS facilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Base rents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Bonus rents (a.) |
|
|
|
|
|
|
|
|
|
|
|
||||
Tenant reimbursements |
|
|
|
|
|
|
|
|
|
|
|
||||
Lease revenue - UHS facilities |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-related parties: |
|
|
|
|
|
|
|
|
|
|
|
||||
Base rents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Tenant reimbursements |
|
|
|
|
|
|
|
|
|
|
|
||||
Lease revenue - Non-related parties |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As Lessee:
We are the lessee with various third parties, including subsidiaries of UHS, in connection with ground leases for land at
Disclosures Related to Certain Land and Specialty Facility:
Chicago, Illinois - Land: In June 2026, we sold a parcel of land located in Chicago, Illinois, for cash proceeds of $
In October 2026, we sold
15
expect that our consolidated statements of income for the fourth quarter of 2026 will include a gain of approximately $
Evansville, Indiana - Specialty Facility: The facility has been vacant since 2019.
The aggregate operating expenses incurred by us in connection with these properties were $
We continue to market the remaining parcel of land located in Chicago, Illinois, and the property located in Evansville, Indiana, to third parties. Future operating expenses related to these properties will be incurred by us during the time they remain owned and unleased.
(8) Debt and Financial Instruments
Debt:
Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of equity issuances. This ongoing analysis considers factors such as the current debt market and interest rate environment, the current/projected occupancy and financial performance of our properties, the current loan-to-value ratio of our properties, the Trust’s current stock price, the capital resources required for anticipated acquisitions and the expected capital to be generated by anticipated divestitures. This analysis, together with consideration of the Trust’s current borrowings outstanding under the credit agreement, non-recourse mortgage borrowings and equity, assists management in deciding which capital resource to utilize when events such as refinancing of specific debt components occur or additional funds are required to finance the Trust’s growth.
On April 21, 2026, we entered into the First Amendment ("First Amendment") to the Second Amended and Restated Credit Agreement, among the Trust as borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent ("Credit Agreement"). Pursuant to the terms of the First Amendment, among other things, the borrowing capacity was increased to $
The Credit Agreement, as amended by the First Amendment, is comprised of $
The margins over Adjusted Term SOFR, Base Rate and the facility fee are based upon our total leverage ratio. At September 30, 2026, the applicable margin over the Adjusted Term SOFR rate for revolving loans was
At September 30, 2026, we had $
The Credit Agreement is structured to allow the Trust to select a one, three or six-month borrowing term for all borrowings on the Term Loan and revolving line of credit, which can be renewed through the commitment period that matures on
16
Agreement were $
The Credit Agreement contains customary affirmative and negative covenants, including limitations on certain indebtedness, liens, acquisitions and other investments, fundamental changes, asset dispositions and dividends and other distributions. The Credit Agreement also contains restrictive covenants regarding the Trust’s ratio of total debt to total assets, the fixed charge coverage ratio, the ratio of total secured debt to total asset value, the ratio of total unsecured debt to total unencumbered asset value, and minimum tangible net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts then outstanding under the Credit Agreement. We were in compliance with all of the covenants in the Credit Agreement at each of September 30, 2026 and December 31, 2025. We also believe that we would remain in compliance if, based on the assumption that the majority of the potential new borrowings will be used to fund investments, the full amount of our commitment was borrowed.
The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):
|
|
Covenant |
|
September 30, |
|
December 31, |
|
||
Tangible net worth (a.) |
|
>= $ |
|
$ |
|
$ |
|
||
Total leverage |
|
< = |
|
|
% |
|
% |
||
Secured leverage |
|
< = |
|
|
% |
|
% |
||
Unencumbered leverage |
|
< = |
|
|
% |
|
% |
||
Fixed charge coverage |
|
>= |
|
|
|
||||
(a.)
As indicated on the following table, we have various mortgages, all of which are non-recourse to us, included on our condensed consolidated balance sheet as of September 30, 2026 (amounts in thousands):
Facility Name |
|
Outstanding |
|
|
Interest |
|
|
Maturity |
||
Phoenix Children’s East Valley Care Center fixed rate |
|
$ |
|
|
|
% |
|
|||
Rosenberg Children's Medical Plaza fixed rate mortgage loan |
|
|
|
|
|
% |
|
|||
Total, excluding net debt premium and net financing fees |
|
|
|
|
|
|
|
|
||
Less net financing fees |
|
|
( |
) |
|
|
|
|
|
|
Total mortgages notes payable, non-recourse to us, net |
|
$ |
|
|
|
|
|
|
||
In May, 2025, a fixed rate mortgage loan on Tuscan Professional Building, with a remaining balance of $
At September 30, 2026 and December 31, 2025, we had various mortgages, all of which were non-recourse to us, included in our condensed consolidated balance sheet. The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages outstanding as of September 30, 2026, had a combined carrying value of approximately $
The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosure in connection with debt instruments. Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.
Financial Instruments:
In October, 2024, we entered into an interest rate swap agreement on a total notional amount of $
17
In December, 2023, we entered into an interest rate swap agreement on a total notional amount of $
In March, 2020, we entered into an interest rate swap agreement on a total notional amount of $
We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from third parties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At September 30, 2026, the fair value of our interest rate swaps was a net asset of $
(9) Segment Reporting
Our portfolio is located throughout the United States, however, we do not distinguish or group our operations on a geographical or any other basis for purposes of allocating resources or measuring performance. We review operating and financial data for each property on an individual basis; therefore, each property represents an individual operating segment. Individual properties have been aggregated into one reportable segment based upon their similarities with regard to both the nature and economics of the facilities, tenants and operational processes, as well as long-term average financial performance. No individual property meets the requirements necessary to be considered its own reportable segment. We do not have intra-entity sales or transfers. The presentation of financial results as a single reportable segment is consistent with the way our CODM allocates resources or measures performance.
The accounting policies of our portfolio are the same as those described in the summary of significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2025. The CODM measures and assesses financial performance generated from each property primarily based upon consolidated net income and decides how to allocate resources. Consolidated net income is also used to monitor budget versus actual results in assessing the performance of our properties. The measure of segment assets is reported on the balance sheet as total consolidated assets. The CODM does not regularly review total assets for our single reportable segment, since total assets are generally not used to assess operating performance.
18
The CODM uses consolidated net income to evaluate income from segment assets in deciding whether to reinvest profits into our portfolio of healthcare and human service facilities for recurring capital expenditures, or into other parts of the entity, such as for acquisitions, new developments, scheduled interest and principal payments on our debt, or to pay dividends.
The following table presents information on our reported segment revenue and segment expenses that are included within our single reportable operating segment measure of profit or loss:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues from facilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest income on financing leases - UHS facilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Advisory fees to UHS |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other operating expenses (a.) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Equity in income of unconsolidated LLCs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of land |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Consolidated net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(a.) Property operating expenses are primarily made up of property tax, utilities, maintenance, insurance and other costs related to the leasing of our real estate properties. Our CODM is not provided with further disaggregation and uses total operating expenses to manage the business.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to promote an understanding of our operating results and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements, as included in this Quarterly Report on Form 10-Q. The MD&A contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented below in Forward-Looking Statements and Certain Risk Factors and in Item 1A. Risk Factors as included in our Annual Report on Form 10-K for the year ended December 31, 2025.
Overview
We are a real estate investment trust (“REIT”) that commenced operations in 1986. We invest in healthcare and human-service related facilities currently including acute care hospitals, behavioral health care hospitals, specialty facilities, free-standing emergency departments, childcare centers and medical/office buildings. As of September 30, 2026, we have seventy-seven real estate investments or commitments in twenty-one states consisting of:
Forward Looking Statements and Certain Risk Factors
You should carefully review all of the information contained in this Quarterly Report, and should particularly consider any risk factors that we set forth in our Annual Report on Form 10-K for the year ended December 31, 2025, this Quarterly Report and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In this Quarterly Report, we state our beliefs of future events and of our future financial performance. This Quarterly Report contains “forward-looking statements” that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, or the negative of those words and expressions, as well as statements in future tense, identify forward-looking statements. You should be aware that those statements are only our predictions. Actual events or results may differ materially. In evaluating those statements, you should specifically consider various factors, including the risks described elsewhere herein and in our Annual Report on Form 10-K for the year ended December 31, 2025 in Item 1A Risk Factors and in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements and Risk Factors and in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements and Certain Risk Factors, as included herein. Those factors may cause our actual results to differ materially from any of our forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or our good faith belief with respect to future events and is subject to risks and uncertainties that are difficult to predict and many of which are outside of our control. Many factors could cause actual performance or results to differ materially from those expressed in the statements. Such factors include, among other things, the following:
20
21
22
23
Given these uncertainties, risks and assumptions, you are cautioned not to place undue reliance on such forward-looking statements. Our actual results and financial condition, including the operating results of our lessees and the facilities leased to subsidiaries of UHS, could differ materially from those expressed in, or implied by, the forward-looking statements.
Forward-looking statements speak only as of the date the statements are made. We assume no obligation to publicly update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies or estimates from those disclosed in our 2025 Annual Report on Form 10-K.
Results of Operations
During the three-month period ended September 30, 2026, net income was $4.9 million, as compared to $4.0 million during the third quarter of 2025. The $913,000 increase was attributable to:
During the nine-month period ended September 30, 2026, net income was $15.9 million, as compared to $13.3 million during the corresponding nine-month period of 2025. The $2.6 million increase was attributable to:
Revenues increased slightly amounting to $25.3 million during each of the three-month periods ended September 30, 2026 and 2025. Revenues increased $148,000 to $74.9 million during the nine-month period ended September 30, 2026, as compared to $74.7 million during the nine-month period ended September 30, 2025.
Other operating expenses, which amounted to $7.9 million and $7.6 million during the three-month periods ended September 30, 2026 and 2025, respectively, and $22.4 million and $22.5 million during the nine-month periods ended September 30, 2026 and 2025, respectively, include expenses related to our properties as well as general and administrative expenses. Operating expenses incurred in connection with our properties amounted to $7.0 million and $6.7 million during the three-month periods ended September 30, 2026 and 2025, respectively, and $19.7 million and $19.8 million during the nine-month periods ended September 30, 2026 and 2025, respectively. A large portion of the property-related expenses are incurred in connection with our MOBs which are allocated to the tenants either directly as tenant reimbursements of common area maintenance expenses or included in base rental amounts. Tenant reimbursements for operating expenses are accrued as revenue in the same period during which the related expenses are incurred and are included as lease revenue in our condensed consolidated statements of income.
24
Funds from operations (“FFO”) is a widely recognized measure of performance for Real Estate Investment Trusts (“REITs”). We believe that FFO and FFO per diluted share, which are non-GAAP financial measures, are helpful to our investors as measures of our operating performance. We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definition differently than we interpret the definition. FFO adjusts for the effects of certain items, such as gains on transactions that occurred during the periods presented. To the extent a REIT recognizes a gain or loss with respect to the sale of incidental assets, the REIT has the option to exclude or include such gains and losses in the calculation of FFO. We have opted to exclude gains and losses from sales of incidental assets in our calculation of FFO, if and when applicable. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered an alternative to net income determined in accordance with GAAP. In addition, FFO should not be used as: (i) an indication of our financial performance determined in accordance with GAAP; (ii) an alternative to cash flow from operating activities determined in accordance with GAAP; (iii) a measure of our liquidity, or; (iv) an indicator of funds available for our cash needs, including our ability to make cash distributions to shareholders.
Below is a reconciliation of our reported net income to FFO for the three and nine-month periods ended September 30, 2026 and 2025 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Net income |
|
$ |
4,929 |
|
|
$ |
4,016 |
|
|
$ |
15,855 |
|
|
$ |
13,285 |
|
Depreciation and amortization expense on consolidated |
|
|
7,054 |
|
|
|
7,903 |
|
|
|
21,036 |
|
|
|
21,742 |
|
Depreciation and amortization expense on unconsolidated |
|
|
295 |
|
|
|
306 |
|
|
|
885 |
|
|
|
922 |
|
Gain on sale of land |
|
|
- |
|
|
|
- |
|
|
|
(724 |
) |
|
|
- |
|
Funds From Operations |
|
$ |
12,278 |
|
|
$ |
12,225 |
|
|
$ |
37,052 |
|
|
$ |
35,949 |
|
Weighted average number of shares outstanding - Diluted |
|
|
13,899 |
|
|
|
13,874 |
|
|
|
13,885 |
|
|
|
13,860 |
|
Funds From Operations per diluted share |
|
$ |
0.88 |
|
|
$ |
0.88 |
|
|
$ |
2.67 |
|
|
$ |
2.59 |
|
Our FFO increased by $53,000 to $12.3 million during the third quarter of 2026, as compared to $12.2 million during the third quarter of 2025. The increase was due to the above-mentioned $913,000 increase in our net income during the third quarter of 2026, as compared to the third quarter of 2025, less an $860,000 decrease in the aggregate depreciation and amortization expense incurred by us and our unconsolidated affiliates. The decrease in the aggregate depreciation and amortization expense incurred during the third quarter of 2026, as compared to the third quarter of 2025, was due primarily to the approximately $900,000 of nonrecurring depreciation expense recorded during the third quarter of 2025.
Our FFO increased by approximately $1.1 million to $37.1 million during the first nine months of 2026, as compared to $35.9 million during the first nine months of 2025. The increase was due to: (i) the above-mentioned $2.6 million increase in our net income during the first nine months of 2026, as compared to the comparable period of 2025, partially offset by; (ii) the $724,000 gain on sale of land recorded during the first nine months of 2026, and; (iii) a $743,000 decrease in aggregate depreciation and amortization expense incurred by us and our unconsolidated affiliates due primarily to the approximately $900,000 of nonrecurring depreciation expense recorded during the third quarter of 2025.
25
Other Operating Results
Interest Expense:
As reflected in the schedule below, interest expense was $4.5 million and $4.8 million during the three-month periods ended September 30, 2026 and 2025, respectively and $13.4 million and $14.2 million during the nine-month periods ended September 30, 2026 and 2025, respectively, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
|
Nine Months |
|
|
Nine Months |
|
||||
Credit agreement |
|
$ |
4,796 |
|
|
$ |
5,227 |
|
|
$ |
14,005 |
|
|
$ |
15,378 |
|
Mortgage interest |
|
|
193 |
|
|
|
199 |
|
|
|
583 |
|
|
|
605 |
|
Interest rate swaps income, net (a.) |
|
|
(521 |
) |
|
|
(797 |
) |
|
|
(1,528 |
) |
|
|
(2,350 |
) |
Amortization of financing fees |
|
|
229 |
|
|
|
188 |
|
|
|
630 |
|
|
|
569 |
|
Other interest |
|
|
(168 |
) |
|
|
(1 |
) |
|
|
(261 |
) |
|
|
- |
|
Interest expense, net |
|
$ |
4,529 |
|
|
$ |
4,816 |
|
|
$ |
13,429 |
|
|
$ |
14,202 |
|
(a.) Includes: (i) a $55 million interest rate swap with a fixed interest rate of 0.5050% that is scheduled to mature in March, 2027; (ii) a $25 million interest rate swap with a fixed interest rate of 3.9495% that is scheduled to mature in December, 2027, and; (iii) an $85 million interest rate swap with a fixed interest rate of 3.2725% that is scheduled to mature in September, 2028. During the three and nine-month periods ended September 30, 2026 and 2025, net interest was paid to us from the counterparties pursuant to the interest rate swaps that were active during each period. Market interest rates have increased significantly since March of 2020 when we entered into the above-mentioned $55 million interest rate swap with a fixed interest rate of 0.5050%. We therefore expect that our interest expense will increase significantly upon the maturity of the interest rate swap on March 25, 2027.
Interest expense decreased by $287,000 during the three-month period ended September 30, 2026, as compared to the comparable period of 2025, due primarily to: (i) a $431,000 decrease in the interest expense pursuant to our credit agreement resulting primarily from a decrease in our average cost of borrowings (to 5.189% during the third quarter of 2026 as compared to 5.927% during the comparable quarter of 2025), partially offset by an increase in our average outstanding borrowings (to $366.7 million during the third quarter of 2026 as compared to $349.9 million during the comparable quarter of 2025); (ii) a $276,000 increase due to a net decrease in interest rate swap income pursuant to our various interest rate swap agreements, as discussed in (a.) above, and; (iii) a $132,000 other combined net decrease.
Interest expense decreased by $773,000 during the nine-month period ended September 30, 2026, as compared to the comparable period of 2025, due primarily to: (i) a $1.4 million decrease in the interest expense pursuant to our credit agreement resulting primarily from a decrease in our average cost of borrowings (to 5.221% during the first nine months of 2026 as compared to 5.932% during the comparable period of 2025), partially offset by an increase in our average outstanding borrowings (to $358.7 million during the first nine months of 2026 as compared to $346.6 million during the comparable period of 2025); (ii) an $822,000 increase due to a net decrease in interest rate swap income pursuant to our various interest rate swap agreements, as discussed in (a) above, and; (iii) a $222,000 other combined net decrease.
Liquidity and Capital Resources
Net cash provided by operating activities
Net cash provided by operating activities was $33.5 million during the nine-month period ended September 30, 2026 as compared to $35.5 million during the comparable period of 2025. The $2.0 million net decrease was attributable to:
26
Net cash used in investing activities
Net cash used in investing activities was $23.5 million during the first nine months of 2026 as compared to $12.4 million during the first nine months of 2025.
During the nine-month period ended September 30, 2026, we funded: (i) $24.6 million in additions to real estate investments, including tenant improvements at various MOBs, as well as the construction costs related to the Miller Medical Plaza in Palm Beach Gardens, FL, and; (ii) $191,000 in equity investments in unconsolidated LLCs. In addition, during the nine months ended September 30, 2026, we received: (i) $746,000 in net cash proceeds from the sale of land, and; (ii) $582,000 of cash in excess of income from unconsolidated LLCs.
During the nine-month period ended September 30, 2025, we funded: (i) $6.8 million in equity investments in unconsolidated LLCs (consisting primarily of our $6.5 million pro rata share of a $6.8 million third-party construction loan that was fully repaid in May, 2025); (ii) $5.6 million in additions to real estate investments, including tenant improvements at various MOBs, and; (iii) a $327,000 net advance made to a third-party partner of an unconsolidated LLC that was be repaid to us, with interest, during the fourth quarter of 2025. In addition, during the nine months ended September 30, 2025, we received $303,000 of cash in excess of income from unconsolidated LLCs.
Net cash used in financing activities
Net cash used in financing activities was $10.2 million during the nine months ended September 30, 2026, as compared to $23.2 million during the nine months ended September 30, 2025.
During the nine-month period ended September 30, 2026, we paid: (i) $31.2 million of dividends; (ii) $447,000 on mortgage notes payable that are non-recourse to us, and; (iii) $172,000 of financing costs related to our Credit Agreement. Additionally, during the nine months ended September 30, 2026, we received: (i) $21.5 million of net borrowings pursuant to our Credit Agreement, and; (ii) $117,000 of net cash from the issuance of shares of beneficial interest.
During the nine-month period ended September 30, 2025, we paid: (i) $30.7 million of dividends, and; (ii) $794,000 on mortgage notes payable that are non-recourse to us. Additionally, during the nine months ended September 30, 2025, we received: (i) $8.2 million of net borrowings pursuant to our Credit Agreement, and; (ii) $116,000 of net cash from the issuance of shares of beneficial interest.
Equity Issuance Program:
During the second quarter of 2024, we filed a shelf registration statement on Form S-3 (File No. 333-278730) (the "Form S-3"), registering the offer and sale, from time-to-time, of an indeterminate amount of the common shares of beneficial interest, preferred shares and debt securities up to an aggregate initial offering price of $100 million to or through one or more underwriters, dealers or agents, or directly to purchasers. The Form S-3 became effective on April 30, 2024.
No shares were issued under the Form S-3 since the effective date of April 30, 2024 through September 30, 2026. As of September 30, 2026, we have paid or incurred approximately $291,000 in various fees and expenses related to the Form S-3. The availability of the potential liquidity under this shelf registration statement depends on investor demand, market conditions and other factors. We make no assurance regarding when, or if, we will issue any securities under this registration statement.
Additional cash flow and dividends paid information for the nine-month periods ended September 30, 2026 and 2025:
As indicated on our condensed consolidated statement of cash flows, we generated net cash provided by operating activities of $33.5 million and $35.5 million during the nine-month periods ended September 30, 2026 and 2025, respectively. As also indicated on our statement of cash flows, non-cash expenses including depreciation and amortization expense, amortization related to above/below market leases, amortization of deferred financing costs and stock-based compensation expense, gain on the sale of land, as well as changes in certain assets and liabilities, are the primary differences between our net income and net cash provided by operating activities during each period.
We declared and paid dividends of $31.2 million and $30.7 million during the nine-month periods ended September 30, 2026 and 2025, respectively. During the first nine months of 2026, the $33.5 million of net cash provided by operating activities was approximately $2.3 million greater than the $31.2 million of dividends paid. During the first nine months of 2025, the $35.5 million of net cash provided by operating activities was approximately $4.8 million greater than the $30.7 million of dividends paid.
As indicated in the cash flows from investing activities and cash flows from financing activities sections of the statements of cash flows, there were various other sources and uses of cash during the nine months ended September 30, 2026 and 2025. From time to time, various other sources and uses of cash may include items such as investments and advances made to/from LLCs, additions to real estate investments, acquisitions/divestiture of properties, net borrowings/repayments of debt, and proceeds generated from the issuance of equity. Therefore, in any given period, the funding source for our dividend payments is not wholly dependent on the operating cash flow generated by our properties. Rather, our dividends as well as our capital reinvestments into our existing properties, acquisitions of real
27
property and other investments are funded based upon the aggregate net cash inflows or outflows from all sources and uses of cash from the properties we own either in whole or through LLCs, as outlined above.
In determining and monitoring our dividend level on a quarterly basis, our management and Board of Trustees consider many factors in determining the amount of dividends to be paid each period. These considerations primarily include: (i) the minimum required amount of dividends to be paid in order to maintain our REIT status; (ii) the current and projected operating results of our properties, including those owned in LLCs, and; (iii) our future capital commitments and debt repayments, including those of our LLCs. Based upon the information discussed above, as well as consideration of projections and forecasts of our future operating cash flows, management and the Board of Trustees have determined that our operating cash flows have been sufficient to fund our dividend payments. Future dividend levels will be determined based upon the factors outlined above with consideration given to our projected future results of operations.
We expect to finance all capital expenditures and acquisitions and pay dividends utilizing internally generated and additional funds. Additional funds may be obtained through: (i) borrowings under our $475 million Credit Agreement, which had $97.3 million of available borrowing capacity as of September 30, 2026, net of $377.7 million of outstanding borrowings as of that date; (ii) borrowings under or refinancing of existing third-party debt pursuant to mortgage loan agreements entered into by our consolidated and unconsolidated LLCs/LPs; (iii) the issuance of other long-term debt, and/or; (iv) the issuance of equity. In April, 2024 we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission pursuant to which we may offer up to $100 million of securities pursuant to supplemental prospectuses which we may file from time to time.
We believe that our operating cash flows, cash and cash equivalents, available borrowing capacity under our Credit Agreement and access to the capital markets provide us with sufficient capital resources to fund our operating, investing and financing requirements for the next twelve months, including providing sufficient capital to allow us to make distributions necessary to enable us to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on terms acceptable to us could have a material unfavorable impact on our results of operations, financial condition and liquidity.
Credit facilities and mortgage debt
Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of equity issuances. This ongoing analysis considers factors such as the current debt market and interest rate environment, the current/projected occupancy and financial performance of our properties, the current loan-to-value ratio of our properties, the Trust’s current stock price, the capital resources required for anticipated acquisitions and the expected capital to be generated by anticipated divestitures. This analysis, together with consideration of the Trust’s current borrowings outstanding under the credit agreement, non-recourse mortgage borrowings and equity, assists management in deciding which capital resource to utilize when events such as refinancing of specific debt components occur or additional funds are required to finance the Trust’s growth.
On April 21, 2026, we entered into the First Amendment ("First Amendment") to the Second Amended and Restated Credit Agreement, among the Trust as borrower, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent ("Credit Agreement"). Pursuant to the terms of the First Amendment, among other things, the borrowing capacity was increased to $475 million (from $425 million previously) and the minimum tangible net worth requirement was changed to $100 million (from $125 million previously). The maturity date, which was unchanged, is September 30, 2028, and we have the option to extend the maturity date for two additional six-month periods.
The Credit Agreement, as amended by the First Amendment, is comprised of $175 million of non-amortizing term loans and a $300 million revolving loan commitment which includes a $40 million sublimit for letters of credit, and a $30 million sublimit for swingline/short-term loans. Under the terms of the Credit Agreement, we may request that the revolving line of credit and/or the Term Loan be increased by up to an additional aggregate amount of $50 million. Borrowings under the Credit Agreement are guaranteed by certain subsidiaries of the Trust. In addition, borrowings are secured by first priority security interests in and liens on all equity interests in most of the Trust’s wholly-owned subsidiaries.
Borrowings under the Credit Agreement will bear interest at a rate equal to, at our option, term SOFR for either one, three, or six months or the Base Rate, plus in either case, a specified margin depending on our total leverage ratio, as determined by the formula set forth in the Credit Agreement. The applicable margin on revolving loans range from 1.10% to 1.35% for Adjusted Term SOFR loans and 0.10% to 0.35% for Base Rate loans. The applicable margin on term loans range from 1.20% to 1.65% for Adjusted Term SOFR loans and 0.20% to 0.65% for Base Rate loans. The Credit Agreement defines “Base Rate” as the greatest of (a) the Administrative Agent’s prime rate, (b) the federal funds effective rate plus 1/2 of 1%, and (c) one month Adjusted Term SOFR plus 1%. The Trust will also pay a quarterly facility fee on the $300 million revolving loan commitment ranging from 0.15% to 0.35% (depending on the Trust’s total leverage ratio).
28
The margins over Adjusted Term SOFR, Base Rate and the facility fee are based upon our total leverage ratio. At September 30, 2026, the applicable margin over the Adjusted Term SOFR rate for revolving loans was 1.20%, the margin over the Base Rate was 0.20% and the facility fee was 0.20%. At September 30, 2025, the applicable margin over the Adjusted Term SOFR rate for term loans was 1.20%, the margin over the Base Rate was 0.20% and the facility fee was 0.20%.
At September 30, 2026, we had $377.7 million of outstanding borrowings pursuant to the terms of our Credit Agreement, and $97.3 million of available borrowing capacity. At December 31, 2025 (prior to the First Amendment), we had $356.2 million of outstanding borrowings pursuant to the terms of our Credit Agreement, and $68.8 million of available borrowing capacity. There are no compensating balance requirements.
The Credit Agreement is structured to allow the Trust to select a one, three or six-month borrowing term for all borrowings on the Term Loan and revolving line of credit, which can be renewed through the commitment period that matures on September 30, 2028. In our consolidated statements of cash flows, we report cash flows pursuant to our Credit Agreement on a net basis, as all borrowings under the Credit Agreement have a term of less than three months as of September 30, 2026 and 2025. Aggregate borrowings under our Credit Agreement were $21.6 million and $14.9 million during the quarters ended September 30, 2026 and 2025, respectively, and aggregate repayments were $9.4 million and $12.7 million during the quarters ended September 30, 2026 and 2025, respectively. Aggregate borrowings under our Credit Agreement were $55.5 million and $47.5 million during the nine-months ended September 30, 2026 and 2025, respectively, and aggregate repayments were $34.0 million and $39.4 million during the nine-months ended September 30, 2026 and 2025, respectively.
The Credit Agreement contains customary affirmative and negative covenants, including limitations on certain indebtedness, liens, acquisitions and other investments, fundamental changes, asset dispositions and dividends and other distributions. The Credit Agreement also contains restrictive covenants regarding the Trust’s ratio of total debt to total assets, the fixed charge coverage ratio, the ratio of total secured debt to total asset value, the ratio of total unsecured debt to total unencumbered asset value, and minimum tangible net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts then outstanding under the Credit Agreement. We were in compliance with all of the covenants in the Credit Agreement at each of September 30, 2026 and December 31, 2025. We also believe that we would remain in compliance if, based on the assumption that the majority of the potential new borrowings will be used to fund investments, the full amount of our commitment was borrowed.
The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):
|
|
Covenant |
|
September 30, |
|
December 31, |
|
||
Tangible net worth (a.) |
|
>= $100,000 |
|
$ |
134,997 |
|
$ |
146,744 |
|
Total leverage |
|
< =60% |
|
|
44.7 |
% |
|
43.6 |
% |
Secured leverage |
|
< =30% |
|
|
2.1 |
% |
|
2.3 |
% |
Unencumbered leverage |
|
< =60% |
|
|
46.7 |
% |
|
45.4 |
% |
Fixed charge coverage |
|
>=1.50x |
|
3.5x |
|
3.3x |
|
||
(a.) As discussed above, in April, 2026, the minimum tangible net worth requirement was changed to $100 million pursuant to the terms of the First Amendment.
As indicated on the following table, we have various mortgages, all of which are non-recourse to us, included on our condensed consolidated balance sheet as of September 30, 2026 (amounts in thousands):
Facility Name |
|
Outstanding |
|
|
Interest |
|
|
Maturity |
||
Phoenix Children’s East Valley Care Center fixed rate |
|
$ |
7,121 |
|
|
|
3.95 |
% |
|
January, 2030 |
Rosenberg Children's Medical Plaza fixed rate mortgage loan |
|
|
11,004 |
|
|
|
4.42 |
% |
|
September, 2033 |
Total, excluding net debt premium and net financing fees |
|
|
18,125 |
|
|
|
|
|
|
|
Less net financing fees |
|
|
(119 |
) |
|
|
|
|
|
|
Total mortgages notes payable, non-recourse to us, net |
|
$ |
18,006 |
|
|
|
|
|
|
|
In May, 2025, a fixed rate mortgage loan on Tuscan Professional Building, with a remaining balance of $122,000 as of that date, was fully repaid upon its schedule maturity date.
At September 30, 2026 and December 31, 2025, we had various mortgages, all of which were non-recourse to us, included in our condensed consolidated balance sheet. The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages outstanding as of September 30, 2026, had a combined carrying value of approximately $18.1 million and a
29
combined fair value of approximately $16.4 million. The mortgages outstanding as of December 31, 2025, had a combined carrying value of approximately $18.6 million and a combined fair value of approximately $17.5 million. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosure in connection with debt instruments. Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.
Off Balance Sheet Arrangements
At each of September 30, 2026 and December 31, 2025, we had no off balance sheet arrangements.
Acquisition and Divestiture Activity
Please see Note 4 to the condensed consolidated financial statements- Acquisitions, Divestitures and New Construction.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Financial Instruments
In October, 2024, we entered into an interest rate swap agreement on a total notional amount of $85 million with a fixed interest rate of 3.2725% that we designated as a cash flow hedge. The interest rate swap became effective on October 2, 2024 and is scheduled to mature on September 30, 2028. If one-month term SOFR is above 3.2725%, the counterparty pays us, and if one-month term SOFR is less than 3.2725%, we pay the counterparty, the difference between the fixed rate of 3.2725% and one-month term SOFR. This interest rate swap was entered into in replacement of two interest rate swap agreements, on an aggregate total notional amount of $85 million, that expired on September 16, 2024.
In December, 2023, we entered into an interest rate swap agreement on a total notional amount of $25 million with a fixed interest rate of 3.9495% that we designated as a cash flow hedge. The interest rate swap became effective on December 1, 2023 and is scheduled to mature on December 1, 2027. If one-month term SOFR is above 3.9495%, the counterparty pays us, and if one-month term SOFR is less than 3.9495%, we pay the counterparty, the difference between the fixed rate of 3.9495% and one-month term SOFR.
In March, 2020, we entered into an interest rate swap agreement on a total notional amount of $55 million with a fixed interest rate of 0.565% that we designated as a cash flow hedge. The interest rate swap became effective on March 25, 2020 and is scheduled to mature on March 25, 2027. On May 15, 2023, this interest rate swap agreement was modified to replace the benchmark rate from LIBOR to term SOFR. If one-month term SOFR is above 0.505%, the counterparty pays us, and if one-month term SOFR is less than 0.505%, we pay the counterparty, the difference between the fixed rate of 0.505% and one-month term SOFR. Market interest rates have increased significantly since this interest swap agreement was entered into and we expect that our interest expense will increase significantly upon the maturity of this interest rate swap agreement on March 25, 2027.
We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from third parties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At September 30, 2026, the fair value of our interest rate swaps was a net asset of $3.4 million which is included in deferred charges and other assets on the accompanying condensed consolidated balance sheet. During the first nine months of 2026, we received approximately $1.5 million, net, from the counterparties, adjusted for the previous quarter accrual, pursuant to the terms of the swaps (consisting of $1.5 million due to us from the counterparties, partially offset by $53,000 due to the counterparties from us). During the third quarter of 2026, we received approximately $521,000, net, from the counterparties, adjusted for the previous quarter accrual, pursuant to the terms of the swaps (consisting of $538,000 due to us from the counterparties, partially offset by $17,000 due to the counterparties from us). During the first nine months of 2025, we received approximately $2.4 million from the counterparties, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. During the third quarter of 2025, we received approximately $797,000 from the counterparties, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or a liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. We do not expect any gains or losses on our interest rate swaps to be reclassified to earnings in the next twelve months.
The sensitivity analysis related to our fixed and variable rate debt assumes current market rates with all other variables held constant. As of September 30, 2026, the fair value and carrying value of our debt is approximately $394.1 million and $395.8 million, respectively. As of that date, the carrying value exceeds the fair value by approximately $1.7 million.
30
The table below presents information regarding our financial instruments that are sensitive to changes in interest rates. For debt obligations, the amounts of which are as of September 30, 2026, the table presents principal cash flows and related weighted average interest rates by contractual maturity dates.
|
|
Maturity Date, Year Ending December 31 |
|
|||||||||||||||||||||||||
(Dollars in thousands) |
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
Thereafter |
|
|
Total |
|
|||||||
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Debt(a) |
|
$ |
153 |
|
|
$ |
626 |
|
|
$ |
653 |
|
|
$ |
680 |
|
|
$ |
6,393 |
|
|
$ |
9,620 |
|
|
$ |
18,125 |
|
Average interest rates |
|
|
4.20 |
% |
|
|
4.20 |
% |
|
|
4.30 |
% |
|
|
4.30 |
% |
|
|
4.40 |
% |
|
|
4.40 |
% |
|
|
4.39 |
% |
Variable rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Debt(b) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
377,700 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
377,700 |
|
Average interest rates |
|
|
— |
|
|
|
— |
|
|
|
5.02 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5.02 |
% |
Interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Notional amount(c) |
|
$ |
— |
|
|
$ |
80,000 |
|
|
$ |
85,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
165,000 |
|
Interest rates |
|
|
— |
|
|
|
1.58 |
% |
|
|
3.27 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.45 |
% |
As calculated based upon our variable rate debt outstanding as of September 30, 2026 that is subject to interest rate fluctuations, and giving effect to the three interest rate swaps as reflected on the table above, each 1% change in interest rates would impact our net income by approximately $2.1 million.
Item 4. Controls and Procedures
As of September 30, 2026, under the supervision and with the participation of our management, including the Trust’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”).
Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the 1934 Act and the SEC rules thereunder.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting or in other factors during the third quarter of 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
31
PART II. OTHER INFORMATION
UNIVERSAL HEALTH REALTY INCOME TRUST
Item 1A. Risk Factors
Our Annual Report on Form 10-K for the year ended December 31, 2025 includes a listing of risk factors to be considered by investors in our securities. There have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2025.
.
Item 5. Other Information
Item 6. Exhibits
|
|
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|
|
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended. |
|
|
|
32.1 |
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because iXBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
104 |
|
Cover Page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101) |
32
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 6, 2026 |
|
UNIVERSAL HEALTH REALTY INCOME TRUST (Registrant) |
|
|
|
|
|
/s/ Alan B. Miller |
|
|
Alan B. Miller, |
|
|
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
/s/ Charles F. Boyle |
|
|
Charles F. Boyle, Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
33