Universal Health Realty Stock Gains Despite Earnings and FFO Dip

Shares of Universal Health Realty Income Trust UHT have gained 0.2% since the company reported its earnings for the quarter ended March 31, 2025. This compares to the S&P 500 Index’s 0.6% gain over the same time frame. Over the past month, the stock lost 6.7%, underperforming the broader market’s 0.6% decline.

For the first quarter of 2025, Universal Health Realty reported a net income of $4.8 million, compared with $5.3 million in the prior-year period. This 9.9% decline in net income was primarily attributed to a $401,000 drop in property-level income and a $122,000 increase in interest expenses. Diluted earnings per share came in at $0.34 compared with $0.38 a year ago. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Revenues fell to $24.5 million from $25.1 million, a 2.4% year-over-year decrease. The company’s funds from operations (FFO) — a key metric for real estate investment trusts — also declined to $11.9 million, or $0.86 per diluted share, from $12.4 million, or $0.90 per diluted share, a 3.9% drop. Lease revenue from Universal Health Services (UHS) facilities decreased 3.9% to $8.3 million from $8.7 million, while non-related party lease revenue declined 1.1% to $14.3 million from $14.5 million.

Other Key Business Metrics

Operating expenses for the quarter decreased 1% to $15.5 million from $15.7 million a year ago. Depreciation and amortization remained flat at $6.8 million, while advisory fees to UHS rose 1.9% to $1.4 million from $1.3 million. Interest expense increased 2.7% to $4.7 million from $4.5 million, reflecting higher average borrowings and interest rates under the company’s credit facility. Income before interest expense and equity in income of unconsolidated LLCs totaled $9 million, down 4.5% from $9.5 million in the first quarter of 2024. Equity income from LLCs rose 7.3% to $412,000 from $384,000.

The weighted average number of diluted shares outstanding rose marginally to 13.85 million from 13.82 million.

FFO, calculated per NAREIT standards, included $6.8 million in depreciation for consolidated investments and $0.3 million from unconsolidated affiliates. Despite the decrease in FFO, UHT maintained its quarterly dividend at $0.735 per share, up slightly from $0.725 in the year-ago quarter. This represented a total payout of $10.2 million in March 2025.

Universal Health Realty Income Trust Price, Consensus and EPS Surprise

Universal Health Realty Income Trust price-consensus-eps-surprise-chart | Universal Health Realty Income Trust Quote

Management Commentary

Universal Health Realty acknowledged headwinds from higher interest expenses and declining income from several properties. Management emphasized UHT’s adherence to its strategy of investing in healthcare-related real estate, including hospitals and medical office buildings. The Trust expressed concern over macroeconomic pressures, particularly those affecting its tenants, such as wage inflation, staff shortages, and changes in Medicaid funding.

Moreover, Universal Health Realty highlighted the role of interest rates in shaping its financial outlook, noting that recent rate increases have heightened borrowing costs and made capital market access less favorable. The company warned that further rate hikes could intensify these challenges.

Factors Influencing Headline Numbers

The primary contributors to the earnings decline were reduced property-level income and rising interest expenses. Specifically, a $401,000 decrease in aggregate net property income and a $122,000 rise in borrowing costs were the main drivers of the earnings drop. While total lease revenues declined 2.2%, bonus rental income from the McAllen Medical Center increased 4.3% to $817,000 from $783,000, reflecting some resilience in specific assets.

Universal Health Realty’s tenant base — largely healthcare operators — continues to grapple with systemic pressures such as patient volume variability and increased labor costs. These tenant-specific challenges directly impact UHT's rental revenues and long-term lease stability.

Guidance

The company did not provide formal forward guidance in its earnings release. However, it included cautionary statements regarding potential risks, including interest rate sensitivity, regulatory shifts in healthcare, and labor market constraints affecting tenant operations. The lack of quantitative guidance indicates ongoing uncertainty in the operating environment.

Other Developments

There were no acquisitions, divestitures, or major strategic restructuring efforts announced during the first quarter of 2025. As of March 31, the Trust reported $349.5 million in borrowings under its $425 million credit facility, with $75.5 million in available capacity. This facility, which expires in September 2028 and includes two optional six-month extensions, continues to serve as UHT's primary liquidity source.

As of quarter-end, Universal Health Realty held investments in 76 properties across 21 states, continuing its strategic focus on healthcare and human-service-related real estate.

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This article originally published on Zacks Investment Research (zacks.com).

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