(5) Summarized Financial Information of Equity Affiliates

In accordance with the Financial Accounting Standards Board’s (“FASB”) standards 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 33% to 95% non-controlling ownership interests, are recorded initially at our cost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.

At September 30, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. As of September 30, 2016, we accounted for these LLCs/LPs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities and we do not have a controlling voting interest. The majority of these entities are joint-ventures between us and non-related parties that manage and hold minority ownership interests in the entities. Each entity is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and service the third-party debt (if applicable) that is non-recourse to us. Although there is typically no ongoing financial support required from us to these entities since they are cash-flow sufficient, we may, from time to time, provide funding for certain purposes such as, but not limited to, significant capital expenditures, leasehold improvements and debt financing. Although we are not obligated to do so, if approved by us at our sole discretion, additional cash fundings are typically advanced as equity or member loans. These entities maintain property insurance on the properties.

Effective February 1, 2016, we purchased an additional 10% ownership interest in the Arlington Medical Properties, LLC from the third-party minority member, subject to certain agreed upon terms and conditions. Including this additional ownership interest, we currently own 85% of this LLC which is accounted for on an unconsolidated basis pursuant to the equity method.

The following property table represents the five LLCs in which we own a noncontrolling interest and were accounted for under the equity method as of September 30, 2016:


Name of LLC/LP	Ownership			Property Owned by LLC
Suburban Properties		33	%	St. Matthews Medical Plaza II
Brunswick Associates (a.)		74	%	Mid Coast Hospital MOB
Arlington Medical Properties (b.)		85	%	Saint Mary’s Professional Office Building
Grayson Properties (c.)		95	%	Texoma Medical Plaza
FTX MOB Phase II (d.)		95	%	Forney Medical Plaza II

(a.)	This LLC has a third-party term loan, which is non-recourse to us, of $8.7 million outstanding as of September 30, 2016.

(b.)

We have funded $5.2 million in equity as of September 30, 2016 and are committed to invest an additional $623,000. During the fourth quarter of 2015, we advanced this LLC a member loan, the funds of which were utilized to repay its $22.8 million outstanding third-party mortgage loan on its scheduled maturity date. The terms of the member loan are similar to those in place pursuant to the third-party mortgage loan that was repaid. Additionally, pursuant to the terms and conditions of an agreement executed in February, 2016, we purchased an additional 10% of the ownership interest in this LLC from the existing third-party member for approximately $4.8 million in cash, thereby increasing our ownership interest to 85%.

(c.)

We have funded $2.8 million in equity as of September 30, 2016, and are committed to fund an additional $100,000. This building is on the campus of a UHS hospital and has tenants that include subsidiaries of UHS. This LLC has a third-party term loan, which is non-recourse to us, of $14.5 million outstanding as of September 30, 2016.

(d.)	We have committed to invest up to $2.5 million in equity and debt financing, of which $2.1 million has been funded as of September 30, 2016. This LLC has a third-party term loan, which is non-recourse to us, of $5.3 million outstanding as of September 30, 2016.

Below are the condensed combined statements of income (unaudited) for the LLCs accounted for under the equity method at September 30, 2016 and 2015.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(amounts in thousands)				(amounts in thousands)
Revenues	$	3,776	$	3,638	$	11,437	$	10,799
Operating expenses		1,329		1,461		4,025		4,194
Depreciation and amortization		646		634		1,910		1,788
Interest, net		636		656		1,928		1,907
Net income	$	1,165	$	887	$	3,574	$	2,910
Our share of net income (a.)	$	1,110	$	561	$	3,396	$	1,826

(a.)

Our share of net income for the three and nine months ended September 30, 2016 includes approximately $291,000 and $880,000, respectively, of interest income earned by us on an advance made to Arlington Medical Properties, LLC (advance balance payable to us is approximately $21.8 million as of September 30, 2016). There were no advances outstanding during the first nine months of 2015, therefore there was no interest income earned by us for the three and nine months ended September 30, 2015. Also, as mentioned above, effective February 1, 2016, we purchased an additional 10% of the ownership interest in Arlington Medical Properties, LLC thereby increasing our ownership interest to 85%, from 75% previously.

Below are the condensed combined balance sheets (unaudited) for the five above-mentioned LLCs in which we hold noncontrolling ownership interests and that were accounted for under the equity method as of September 30, 2016 and December 31, 2015:

	September 30, 2016			December 31, 2015
	(amounts in thousands)
Net property, including CIP	$	61,317		$	61,668
Other assets		5,343			5,264
Total assets	$	66,660		$	66,932

Liabilities	$	2,832		$	2,538
Mortgage notes payable, non-recourse to us		28,497			28,895
Advances payable to us		21,855			22,489
Equity		13,476			13,010
Total liabilities and equity	$	66,660		$	66,932

Our share of equity in and advances to LLCs reflected as:
Investments in LLCs	$	14,910		$	9,108
Advances to LLCs		21,855			22,489
Investments in and advances to LLCs before
amounts included in accrued expenses and other liabilities		36,765			31,597
Amounts included in accrued expenses and other liabilities		(1,771	)		(1,105	)
Our share of equity in and advances to LLCs, net	$	34,994		$	30,492

As of September 30, 2016, and December 31, 2015, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs, 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	9/30/2016		12/31/2015		Maturity Date
FTX MOB Phase II	$	5,333	$	5,427	August, 2017
Grayson Properties		14,496		14,670	September, 2021
Brunswick Associates		8,668		8,798	December, 2024
	$	28,497	$	28,895

(a.)	All mortgage loans require monthly principal payments through maturity and include a balloon principal payment upon maturity.

Pursuant to the operating and/or partnership agreements of the five LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and/or 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 (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has 60 to 90 days to either: (i) purchase the entire ownership interest of the Offering Member at the Transfer Price, or; (ii) sell its entire ownership interest to the Offering Member at the equivalent proportionate Transfer Price. The closing of the transfer must occur within 60 to 90 days of the acceptance by the Non-Offering Member.