UNIVERSAL HEALTH REALTY INCOME TRUST (UHT) stock intrinsic value fair value estimate & owner earnings analysis

Universal Health Realty Income Trust owns six hospitals leased to Universal Health Services (UHS) subsidiaries, plus medical office buildings and freestanding emergency departments. It is advised by a UHS subsidiary, and UHS-related tenants supply about 40% of revenue. Revenue was $99.2 million in 2025 against $99.0 million in 2024 and $95.6 million in 2023, and the first half of 2026 was flat at $49.5 million. HOW WE MEASURE EARNINGS. After removing working-capital swings, stock compensation and recurring building and tenant-improvement spending, owner earnings per share were $2.86 (2021), $3.10 (2022), $2.64 (2023), $2.74 (2024) and $2.65 (2025). We exclude 2022 because spending that year was concentrated in the Sierra Medical Plaza development and recurring upkeep was unusually low. Cash interest, which has grown from $8.1 million in 2021 to $17.9 million in 2025 as the credit facility's floating rate rose, is added back to measure the cash the properties produce before lenders. That cash was about $3.94 per share in 2025, $4.03 in 2024 and $3.82 in 2023. We use $3.90 per share, the median of 2022 to 2025. 2025 operating cash flow rose 4.6%, but $2.6 million of that was a timing swing in accrued expenses and tenant deposits, which we removed. Owner earnings per share fell 3% in 2025 and the pre-interest figure fell about 2%. THE DEBT. Borrowings under the $425 million credit facility were $365.6 million at June 30, 2026 (up from $356.2 million at December 2025), plus a $7.9 million non-recourse loan inside a consolidated joint venture. After about $6.8 million of cash kept for operations, that is about $373 million, or roughly $26.90 per share, ahead of shareholders. The facility matures September 30, 2028 (two six-month extensions available) and floats over SOFR. Interest-rate swaps on $165 million (fixed at 0.505%, 3.95% and 3.27%) expire between March 2027 and September 2028, so interest costs should rise toward market levels. The effective rate was about 5.0% in 2025. Dividends of about $2.96 per share exceed owner earnings of $2.65, and the shortfall is funded with borrowing. THE LEASES. The McAllen Medical Center ($5.5 million of annual rent) and Wellington Regional Medical Center ($7.0 million) leases both end in December 2026, together about 12.6% of revenue. UHS holds a five-year renewal option on each, exercisable on 90 days' notice. McAllen renews at the existing rate through 2031. Wellington renews at fair market rent. UHS may instead acquire either hospital at appraised value. We could not confirm from the filings available whether UHS has exercised either option. The Aiken and Canyon Creek hospitals (2033) and Clive Behavioral Health (2040) have long fixed terms with 2.25% to 2.5% escalators. BASE CASE, $31.00 PER SHARE. The business generates $3.90 per share before lenders. The trailing 2025 decline was about 2%, so we start year one at a 2% decline: Wellington resets to fair market rent, and revenue has been flat for six quarters despite contractual escalators. Years two through ten grow 1% per year, below the roughly 2% annual growth in funds from operations over the past decade, because escalators have largely been consumed by rising upkeep. After year ten, cash flow declines 2% per year. Forty-year-old buildings need more upkeep than the $9 million per year the company now spends, against $29 million of book depreciation. Business value is about $58 per share. Less $26.90 of net debt, shares are worth about $31. BEAR CASE, $16.30 PER SHARE. Wellington resets sharply lower or UHS acquires it, and McAllen's bonus rent is hurt by cuts to Medicaid funding (the July 2025 federal legislation adds work requirements). Cash flow falls 8% in year one. In years three and four a healthcare real-estate downturn like 2008 to 2010 or 2020 costs about 6% more through lower occupancy and rent concessions on the non-UHS buildings, with no recovery afterward. After year ten, cash flow declines 3% per year. The facility comes due in 2028 in a tight credit market, so we add about $2.25 per share for refinancing at roughly 2 percentage points above normal for five years. Business value is about $45.50 per share. Less $26.90 of net debt and $2.25 of extra financing cost, the shares are worth about $16.30. Cash flow stays above the interest bill throughout. BULL CASE, $40.40 PER SHARE. Both hospital leases renew on visible terms, with McAllen already fixed at the current rent. Cash flow dips 1% in year one, then grows 2% per year through year ten, using the full 2.25% to 2.5% escalators less ongoing upkeep. After that it declines 1% per year. Business value is about $67 per share. Less $26.90 of net debt, shares are worth about $40. WHAT IS LEFT OUT. The 80,000 square foot Palm Beach Gardens Medical Plaza I, on a UHS-affiliated ground lease with construction that began in February 2026, is excluded from every case. Its cost and rent are not yet disclosed, and a new building is not growth already in hand. We also leave out acquisitions, share-count growth and market-wide rate relief. WHAT WOULD MAKE THIS WRONG. If maintenance spending must rise toward depreciation, the base value falls quickly. If UHS renews both hospitals and the media-estimated rent resets prove smaller, the base moves toward the bull case. Roughly $13 of the $26.90 per-share debt sits on floating-rate borrowing with no fixed-rate cover after 2028. Figures from before this analysis were built on a different basis and are not comparable. MARGIN-OF-SAFETY PRICE, $13.50. We are fairly sure of the earnings level, because rent comes from long contracts and the 2023 to 2025 results fall in a narrow range ($2.64 to $2.74 per share). The worst plausible outcome is a poorly timed 2028 refinancing combined with losing the hospital rents, which could force a dividend cut or share issuance at low prices. A single related party sits on both sides of the business, and its hospitals' rent depends on Medicaid funding. The buildings are hard assets that would survive such a shock. Our two likeliest mistakes are the upkeep needed on older buildings and the Wellington reset. A bad miss on both would put the shares near the bear value of about $16. The price assumes a three-to-four-year holding period. During that period, the business produces about $2.65 of owner earnings per share each year, which pays the dividend only with help from borrowing. At $13.50 that cash generation alone would approximate the 20% hurdle even if the shares never rose. That cushion is the basis for the margin-of-safety price.