Summarized Financial Information of Equity Affiliates

3 Months Ended

Mar. 31, 2024

Equity Method Investments and Joint Ventures [Abstract]

Summarized Financial Information of Equity Affiliates

(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 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.

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 March 31, 2024, we have non-controlling equity investments or commitments in four jointly-owned LLCs/LPs which own MOBs. As of March 31, 2024 we accounted for these LLCs/LPs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities which we are the primary beneficiary nor do we have a controlling voting interest. The majority of these entities are joint-ventures between us and non-related parties that 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 funding is typically advanced as equity or member loans. These entities maintain property insurance on the properties.

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 March 31, 2024:

Name of LLC/LP	Ownership			Property Owned by LLC/LP
Suburban Properties		33	%	St. Matthews Medical Plaza II
Brunswick Associates (a.)(b.)		74	%	Mid Coast Hospital MOB
FTX MOB Phase II (c.)		95	%	Forney Medical Plaza II
Grayson Properties II (d.)(e.)		95	%	Texoma Medical Plaza II

(a.)This LLC has a third-party term loan of $8.4 million, which is non-recourse to us, outstanding as of March 31, 2024.

(b.)We are the lessee with a third party on a ground lease for land.

(c.)During the first quarter of 2021, this LP paid off its $4.7 million mortgage loan upon maturity, utilizing pro rata equity contributions from the limited partners as well as a $3.5 million member loan from us to the LP which was funded utilizing borrowings from our revolving credit agreement. During the first quarter of 2023, the LP repaid $175,000 of the member loan and the remaining $3.3 million member loan balance was converted to an equity investment in the LP.

(d.)This LP constructed, owns and operates the Texoma Medical Plaza II, on which construction substantially completed in December 2020. The MOB is located in Denison, Texas, on the campus of a hospital owned and operated by a wholly-owned subsidiary of UHS. We have committed to invest up to $10.2 million in equity and debt financing, $7.6 million of which has been funded as of March 31, 2024. This LP entered into a third-party construction loan commitment, which is non-recourse to us, which had an outstanding balance of $7.0 million as of March 31, 2024. Monthly principal and interest payments on this loan commenced on January 1, 2023. During the first quarter of 2024, $5.7 million of the third-party construction loan was repaid utilizing pro rata equity contributions from the partners. The third-party partner's share of the pro rata equity contributions was partially funded with a six-month, $128,000 partner loan from us. Our share of the pro rata equity contributions, as well as the third-party partner loan, were funded utilizing borrowings from our revolving credit agreement. As a result of the repayment of a portion of the construction loan, an associated $3.1 million letter of credit was terminated.

(e.)We are the lessee with a UHS-related party for the land related to this property.

Below are the condensed combined statements of income (unaudited) for the four LLCs/LPs accounted for under the equity method at March 31, 2024 and 2023:

	Three Months Ended March 31,
	2024		2023
	(amounts in thousands)
Revenues	$	2,250	$	2,226
Operating expenses		898		905
Depreciation and amortization		474		455
Interest, net		159		241
Net income	$	719	$	625
Our share of net income	$	384	$	371

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 March 31, 2024 and December 31, 2023:

	March 31, 2024			December 31, 2023
	(amounts in thousands)
Net property, including construction in progress	$	28,096		$	28,488
Other assets (a.)		4,556			4,667
Total assets	$	32,652		$	33,155
Other liabilities (a.)	$	2,115		$	2,074
Mortgage notes payable, non-recourse to us		15,395			21,206
Equity		15,142			9,875
Total liabilities and equity	$	32,652		$	33,155
Investments in and advances to LLCs before amounts included in
accrued expenses and other liabilities	$	14,632		$	9,102
Amounts included in accrued expenses and other liabilities		(1,738	)		(1,729	)
Our share of equity in LLCs, net	$	12,894		$	7,373

(a.)Other assets and other liabilities as of March 31, 2024 and December 31, 2023 include approximately $652,000 and $651,000, respectively, of right-of-use land assets and right-of-use land liabilities related to ground leases whereby the LLC/LP is the lessee, with third party lessors, including subsidiaries of UHS.

As of March 31, 2024, and December 31, 2023, 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	3/31/2024		12/31/2023		Maturity Date
Brunswick Associates (2.80% fixed rate mortgage loan)	$	8,384	$	8,453	December, 2030
Grayson Properties II (3.70% fixed rate construction loan) (b.)		7,011		12,753	March, 2026
	$	15,395	$	21,206

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

(b.)This construction loan required interest on the outstanding principal balance to be paid on a monthly basis through December 1, 2022. On January 1, 2023, monthly principal and interest payments on this loan commenced. During the first quarter of 2024, $5.7 million of the third-party construction loan was repaid utilizing pro-rate equity contributions from the partners, as discussed above. As a result of the repayment of a portion of the construction loan, an associated $3.1 million letter of credit was terminated.

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 (“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.