Universal Health Realty me Trust(UHT) - 2024 Q2 - Quarterly Results

Executive Summary Universal Health Realty Income Trust achieved significant Q2 2024 financial improvements, with net income up $1.8 million to $5.3 million and FFO increasing by $1.8 million to $12.4 million 2024 Second Quarter Financial Highlights The company reported strong Q2 2024 financial performance, with net income rising to $5.3 million and FFO increasing to $12.4 million 2024 Second Quarter Financial Highlights | Metric | Q2 2024 | Q2 2023 | Change | | :------------------- | :------ | :------ | :----- | | Net Income | $5.3M | $3.5M | +$1.8M | | Diluted EPS | $0.38 | $0.25 | +$0.13 | | FFO | $12.4M | $10.6M | +$1.8M | | Diluted FFO per Share | $0.90 | $0.77 | +$0.13 | Consolidated Results of Operations This section details the company's financial performance for the three and six-month periods ended June 30, 2024 and 2023 Three-Month Periods Ended June 30, 2024 and 2023 For the second quarter of 2024, the company experienced a substantial increase in net income and FFO, driven by reduced Chicago property expenses and increased property income Net Income Analysis This analysis details the drivers behind the increase in net income for the three-month period ended June 30, 2024 Net Income and EPS (Three Months Ended June 30) | Metric | Q2 2024 | Q2 2023 | Change | | :------------------- | :------ | :------ | :----- | | Net Income | $5.276M | $3.476M | +$1.8M | | Diluted EPS | $0.38 | $0.25 | +$0.13 | - Drivers of Net Income Increase (Q2 2024 vs. Q2 2023): * Reduction in Chicago property expenses: $1.5 million, including $862,000 from demolition expenses incurred in Q2 2023 and $563,000 from a property tax reduction recorded in Q2 2024 primarily related to prior periods[3] * Aggregate net increase in income generated at various properties: $706,000[3] * Partially offset by an increase in interest expense: $404,000, due primarily to increases in average borrowing rate and outstanding borrowings[3] Funds From Operations (FFO) Analysis This analysis focuses on the factors contributing to the increase in FFO for the three-month period ended June 30, 2024 FFO and FFO per Diluted Share (Three Months Ended June 30) | Metric | Q2 2024 | Q2 2023 | Change | | :------------------- | :------ | :------ | :----- | | FFO | $12.4M | $10.6M | +$1.8M | | Diluted FFO per Share | $0.90 | $0.77 | +$0.13 | - Driver of FFO Increase (Q2 2024 vs. Q2 2023): * Primarily due to the above-mentioned increase in net income[4] Six-Month Periods Ended June 30, 2024 and 2023 For the first six months of 2024, the company reported a solid increase in net income and FFO, driven by increased property income and reduced Chicago property expenses Net Income Analysis This analysis details the drivers behind the increase in net income for the six-month period ended June 30, 2024 Net Income and EPS (Six Months Ended June 30) | Metric | H1 2024 | H1 2023 | Change | | :------------------- | :------ | :------ | :----- | | Net Income | $10.6M | $7.9M | +$2.6M | | Diluted EPS | $0.76 | $0.57 | +$0.19 | - Drivers of Net Income Increase (H1 2024 vs. H1 2023): * Aggregate net increase in income generated at various properties: $2.1 million[6][7] * Reduction in Chicago property expenses: $1.8 million, including $1.1 million from demolition expenses incurred in H1 2023 and $563,000 from a property tax reduction recorded in H1 2024 primarily related to prior periods[6][7] * Partially offset by an increase in interest expense: $1.3 million, due primarily to increases in average borrowing rate and outstanding borrowings[6][7] Funds From Operations (FFO) Analysis This analysis focuses on the factors contributing to the increase in FFO for the six-month period ended June 30, 2024 FFO and FFO per Diluted Share (Six Months Ended June 30) | Metric | H1 2024 | H1 2023 | Change | | :------------------- | :------ | :------ | :----- | | FFO | $24.8M | $22.0M | +$2.8M | | Diluted FFO per Share | $1.79 | $1.59 | +$0.20 | - Drivers of FFO Increase (H1 2024 vs. H1 2023): * Primarily due to the above-mentioned increase in net income[8] * Increase in depreciation and amortization expense[8] Key Financial and Operational Updates This section provides essential updates on the company's dividends, capital resources, and property portfolio developments Dividend Information The company declared and paid a second-quarter dividend of $0.73 per share, totaling $10.1 million Q2 2024 Dividend | Metric | Value | | :---------------- | :------ | | Dividend per Share | $0.73 | | Aggregate Dividend | $10.1M | | Declaration Date | June 5, 2024 | | Payment Date | June 28, 2024 | Capital Resources Information As of June 30, 2024, the company had $342.9 million in outstanding borrowings against its $375 million revolving credit agreement, leaving $32.1 million in available borrowing capacity Borrowing Capacity (as of June 30, 2024) | Metric | Value | | :-------------------------------- | :-------- | | Revolving Credit Agreement Limit | $375M | | Borrowings Outstanding | $342.9M | | Available Borrowing Capacity (net) | $32.1M | Property Updates The company provided updates on its property portfolio, including the substantial completion and leasing of Sierra Medical Plaza I and the status of its vacant properties in Chicago and Corpus Christi Sierra Medical Plaza I This section details the construction, leasing, and aggregate cost of the Sierra Medical Plaza I development - Construction and Lease Details: * Construction was substantially completed in March 2023 for an 86,000 square foot Medical Office Building (MOB) in Reno, Nevada[11] * A master flex lease agreement commenced in March 2023 with a ten-year term, covering approximately 68% of the rentable square feet at an initial minimum rent of $1.3 million annually, plus common area maintenance expenses, subject to reduction based on third-party leases[11] Aggregate Cost of Sierra Medical Plaza I | Metric | Value | | :---------------- | :------ | | Estimated Total Cost | ~$35M | | Incurred as of June 30, 2024 | ~$30M | Vacant Land/Specialty Facility This section provides updates on the demolition of the Chicago facility, the sale of the Corpus Christi facility, and future operating expenses for vacant properties - Demolition and Sale Status: * Demolition of the former specialty hospital in Chicago, Illinois, was completed during 2023, with aggregate demolition expenses of approximately $1.5 million[12] * The vacant specialty facility in Corpus Christi, Texas, was sold in December 2023[12] - Future Operating Expenses: * The company continues to market vacant properties in Chicago, Illinois, and Evansville, Indiana, and will incur future operating expenses for these properties until they are owned and unleased[13] Company Overview and Disclosures This section provides general company information, forward-looking statements, risk factors, and details on non-GAAP financial measures General Information Universal Health Realty Income Trust is a real estate investment trust (REIT) specializing in healthcare and human-service related facilities, with investments in 76 properties across 21 states - Company Profile: * Universal Health Realty Income Trust is a real estate investment trust (REIT)[14] * Invests in healthcare and human-service related facilities, including acute care hospitals, behavioral health care hospitals, specialty facilities, medical/office buildings, free-standing emergency departments, and childcare centers[14] * Has investments or commitments in seventy-six properties located in twenty-one states[14] Forward-Looking Statements and Risk Factors The report contains forward-looking statements subject to various risks, including staffing shortages, regulatory changes, declining patient volumes due to macroeconomic conditions, supply disruptions, and increased interest rates, which could materially impact future financial results - Forward-Looking Statements Disclaimer: * This press release contains forward-looking statements based on current management expectations[15][16] * Numerous factors, including those disclosed in SEC filings (Form 10-K, Form 10-Q), may cause actual results to differ materially from those anticipated[15][16] * Readers should not place undue reliance on such statements, which reflect management's view only as of the date hereof, and the company undertakes no obligation to revise or update them[15][16] - Key Risk Factors: * Staffing Availability & Wage Expense: Decreases in staffing and related increases to wage expense experienced by tenants due to nationwide shortages of nurses and other clinical/support staff[17][18] * Government & Administrative Regulation: Impact of government and administrative regulation of the health care industry[17][18] * Macroeconomic Conditions: Declining patient volumes and unfavorable changes in payer mix caused by deteriorating macroeconomic conditions (e.g., increases in uninsured/underinsured patients)[17][18] * Supply Disruptions: Potential disruptions related to supplies required for tenants' employees and patients[17][18] * Interest Rate Increases: Substantially increased borrowing costs and reduced ability to access capital markets on favorable terms; additional increases could have a significant unfavorable impact on future results and strategy[17][18] Non-GAAP Financial Measures The company utilizes non-GAAP financial measures like Adjusted Net Income and Funds From Operations (FFO) to provide investors with insights into operating performance, emphasizing that these measures are not substitutes for GAAP results and should be considered with caution - Purpose of Non-GAAP Measures: * Adjusted net income and adjusted net income per diluted share are considered helpful to investors as measures of operating performance[19] * These measures help neutralize the effect of material non-recurring or non-operational items[19] - FFO Definition and Limitations: * Funds from operations (FFO) is a widely recognized measure for Real Estate Investment Trusts (REITs), computed in accordance with NAREIT standards[20][21][22] * Limitations: FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered an alternative to net income, cash flow from operating activities, a measure of liquidity, or an indicator of funds available for cash needs (including distributions)[20][21][22] * Investors are encouraged to use GAAP measures when evaluating financial performance, as non-GAAP measures are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies[20][21][22] Financial Statements This section presents the company's consolidated financial statements, including income statements, balance sheets, and non-GAAP reconciliations Consolidated Statements of Income This section presents the detailed consolidated income statements for the three and six months ended June 30, 2024 and 2023, outlining revenues, expenses, and net income Consolidated Statements of Income (For the Three and Six Months Ended June 30, 2024 and 2023) | | Three Months Ended | | | Six Months Ended | | | :------------------------------------------------- | :--- | :--- | :--- | :--- | :--- | | | June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | | Revenues: | | | | | | Lease revenue - UHS facilities | $ 8,454 | $ 8,236 | $ 17,118 | $ 16,023 | | Lease revenue - Non-related parties | 14,359 | 13,668 | 28,846 | 27,029 | | Other revenue - UHS facilities | 220 | 245 | 440 | 476 | | Other revenue - Non-related parties | 342 | 292 | 751 | 773 | | Interest income on financing leases - UHS facilities | 1,359 | 1,365 | 2,720 | 2,731 | | Total Revenues | 24,734 | 23,806 | 49,875 | 47,032 | | Expenses: | | | | | | Depreciation and amortization | 6,806 | 6,849 | 13,615 | 13,467 | | Advisory fees to UHS | 1,369 | 1,323 | 2,707 | 2,625 | | Other operating expenses | 6,975 | 8,250 | 14,506 | 15,771 | | Total Expenses | 15,150 | 16,422 | 30,828 | 31,863 | | Income before equity in income of unconsolidated LLCs and interest expense | 9,584 | 7,384 | 19,047 | 15,169 | | Equity in income of unconsolidated LLCs | 272 | 268 | 656 | 639 | | Interest expense, net | (4,580) | (4,176) | (9,127) | (7,873) | | Net income | $ 5,276 | $ 3,476 | $ 10,576 | $ 7,935 | | Basic earnings per share | $ 0.38 | $ 0.25 | $ 0.77 | $ 0.58 | | Diluted earnings per share | $ 0.38 | $ 0.25 | $ 0.76 | $ 0.57 | | Weighted average number of shares outstanding - Diluted | 13,832 | 13,809 | 13,828 | 13,806 | Schedule of Non-GAAP Supplemental Information - Three Months This schedule provides the reconciliation of net income to Adjusted Net Income and Funds From Operations (FFO) for the three-month periods ended June 30, 2024 and 2023, in accordance with NAREIT standards Calculation of Adjusted Net Income (Three Months Ended June 30) | | June 30, 2024 | | | June 30, 2023 | | | :------------------------ | :--- | :--- | :--- | :--- | :--- | | | Amount | Per Diluted Share | Amount | Per Diluted Share | | Net income | $ 5,276 | $ 0.38 | $ 3,476 | $ 0.25 | | Adjustments | - | - | - | - | | Subtotal adjustments to net income | - | - | - | - | | Adjusted net income | $ 5,276 | $ 0.38 | $ 3,476 | $ 0.25 | Calculation of Funds From Operations ("FFO") (Three Months Ended June 30) | | June 30, 2024 | | | June 30, 2023 | | | :------------------------------------ | :--- | :--- | :--- | :--- | :--- | | | Amount | Per Diluted Share | Amount | Per Diluted Share | | Net income | $ 5,276 | $ 0.38 | $ 3,476 | $ 0.25 | | Plus: Depreciation and amortization expense: | | | | | | Consolidated investments | 6,806 | 0.50 | 6,849 | 0.50 | | Unconsolidated affiliates | 303 | 0.02 | 298 | 0.02 | | FFO | $ 12,385 | $ 0.90 | $ 10,623 | $ 0.77 | | Dividend paid per share | | $ 0.730 | | $ 0.720 | Schedule of Non-GAAP Supplemental Information - Six Months This schedule details the reconciliation of net income to Adjusted Net Income and Funds From Operations (FFO) for the six-month periods ended June 30, 2024 and 2023, adhering to NAREIT guidelines Calculation of Adjusted Net Income (Six Months Ended June 30) | | June 30, 2024 | | | June 30, 2023 | | | :------------------------ | :--- | :--- | :--- | :--- | :--- | | | Amount | Per Diluted Share | Amount | Per Diluted Share | | Net income | $ 10,576 | $ 0.76 | $ 7,935 | $ 0.57 | | Adjustments | - | - | - | - | | Subtotal adjustments to net income | - | - | - | - | | Adjusted net income | $ 10,576 | $ 0.76 | $ 7,935 | $ 0.57 | Calculation of Funds From Operations ("FFO") (Six Months Ended June 30) | | June 30, 2024 | | | June 30, 2023 | | | :------------------------------------ | :--- | :--- | :--- | :--- | :--- | | | Amount | Per Diluted Share | Amount | Per Diluted Share | | Net income | $ 10,576 | $ 0.76 | $ 7,935 | $ 0.57 | | Plus: Depreciation and amortization expense: | | | | | | Consolidated investments | 13,615 | 0.99 | 13,467 | 0.98 | | Unconsolidated affiliates | 607 | 0.04 | 591 | 0.04 | | FFO | $ 24,798 | $ 1.79 | $ 21,993 | $ 1.59 | | Dividend paid per share | | $ 1.455 | | $ 1.435 | Consolidated Balance Sheets This section presents the consolidated balance sheets as of June 30, 2024, and December 31, 2023, providing a snapshot of the company's assets, liabilities, and equity Consolidated Balance Sheets (As of June 30, 2024 and December 31, 2023) | | June 30, 2024 | December 31, 2023 | | :-------------------------------------------------------------------------------- | :--- | :--- | | Assets: | | | | Real Estate Investments: | | | | Buildings and improvements and construction in progress | $ 651,638 | $ 649,374 | | Accumulated depreciation | (274,622) | (262,449) | | Net Real Estate Investments (subtotal) | 377,016 | 386,925 | | Land | 56,870 | 56,870 | | Net Real Estate Investments | 433,886 | 443,795 | | Financing receivable from UHS | 83,043 | 83,279 | | Net Real Estate Investments and Financing receivable | 516,929 | 527,074 | | Investments in limited liability companies ("LLCs") | 14,328 | 9,102 | | Other Assets: | | | | Cash and cash equivalents | 5,577 | 8,212 | | Lease and other receivables from UHS | 6,816 | 6,180 | | Lease receivable - other | 7,905 | 8,166 | | Intangible assets (net) | 8,193 | 9,110 | | Right-of-use land assets, net | 10,932 | 10,946 | | Deferred charges, notes receivable and other assets, net | 15,871 | 17,579 | | Total Assets | $ 586,551 | $ 596,369 | | Liabilities: | | | | Line of credit borrowings | $ 342,900 | $ 326,600 | | Mortgage notes payable, non-recourse to us, net | 19,970 | 32,863 | | Accrued interest | 1,024 | 490 | | Accrued expenses and other liabilities | 10,145 | 13,500 | | Ground lease liabilities, net | 10,932 | 10,946 | | Tenant reserves, deposits and deferred and prepaid rents | 10,879 | 11,036 | | Total Liabilities | 395,850 | 395,435 | | Equity: | | | | Common shares | 138 | 138 | | Capital in excess of par value | 270,592 | 270,398 | | Cumulative net income | 836,637 | 826,061 | | Cumulative dividends | (923,107) | (902,975) | | Accumulated other comprehensive income | 6,441 | 7,312 | | Total Equity | 190,701 | 200,934 | | Total Liabilities and Equity | $ 586,551 | $ 596,369 |