(3) PROPERTY EXCHANGE TRANSACTION, ACQUISITIONS AND DISPOSITIONS

2015:

Property Exchange Transaction:

In May, 2015, in exchange for the real property of Sheffield Medical Building (“Sheffield”), a 73,446 square foot medical office building (“MOB”) located in Atlanta, Georgia, we received $2 million in cash and the real property of two MOBs located in Sandy Springs and Vinings, Georgia, from an unrelated third party. In connection with the two MOBs acquired in this transaction, triple net, master lease agreements applicable to 100% of the combined 36,700 rentable square feet of these properties have been executed with the counterparty. These master lease agreements have initial terms of 15 years and provide for 3% annual rent increases. In connection with this transaction, we recorded an $8.7 million gain which is included in our Consolidated Statements of Income for the year ended December 31, 2015. This gain represented the difference between the aggregate fair value of the consideration exchanged ($2 million in cash and the real property of two MOBs) and the net book value of Sheffield.

Acquisitions:

In February, 2015, we purchased the Haas Medical Office Park, two single story buildings having an aggregate of approximately 16,000 rentable square feet, located in Ottumwa, Iowa, for approximately $4.1 million.

In January and February of 2015, we purchased from wholly-owned subsidiaries of UHS, the real property of two newly-constructed and recently opened FEDs located in Weslaco and Mission, Texas, for an aggregate acquisition cost of approximately $12.8 million. Each FED consists of approximately 13,600 square feet and is operated by wholly-owned subsidiaries of UHS. In connection with these acquisitions, ten-year lease agreements with six 5-year renewal terms were executed with UHS for each FED. In connection with the lease agreements, the lessee shall have the option to purchase the leased property upon the expiration of the fixed term and each five-year extended term at the fair market value at that time.

The aggregate purchase price for these three MOBs and two FEDs was allocated to the assets acquired and liabilities assumed consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at the MOBs at the time of acquisition which will be amortized over the average remaining lease term of approximately 15.0 years at the time of acquisition (aggregate weighted average of 14.4 years at December 31, 2015) for each of the MOBs located in Sandy Springs and Vinings, Georgia and approximately 10.4 years at the time of acquisition (aggregate weighted average of 9.6 years at December 31, 2015) for the Haas Medical Office Park.



Land	$7,050
Buildings and improvements	17,518
Intangible assets	2,182
Cash received- exchange transaction	2,000
Other liabilities	(116)
Deposit paid in 2014	(100)
Net book value of property divested in exchange transaction	(3,027)
Gain on exchange transaction	(8,742)

Net cash paid	$16,765

2014:

Acquisitions:

In August, 2014, we purchased the Hanover Emergency Center, a 22,000 rentable square feet, free-standing, full service emergency and imaging center, located in Mechanicsville, VA, for approximately $8.6 million. The single-tenant property is occupied pursuant to the terms of a 10-year lease with HCA Health Services of Virginia, Inc.

In January, 2014, we paid an aggregate of $7.2 million, (including a $150,000 deposit made in 2013), to purchase the following in a single transaction: (i) The Children’s Clinic at Springdale – a 9,800 square foot, single-tenant medical office building located in Springdale, Arkansas, and; (ii) The Northwest Medical Center at Sugar Creek – a 13,700 square foot, multi-tenant medical office building located in Bentonville, Arkansas.

The aggregate purchase price for these clinics and MOB was allocated to the assets and liabilities acquired consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at the clinics and MOB at the time of acquisition which will be amortized over the average remaining lease term of approximately 9.8 years at the time of acquisition (aggregate weighted average of 8.5 years at December 31, 2015) for the Hanover Emergency Center and approximately 9.7 years at the time of acquisition (aggregate weighted average of 7.7 years at December 31, 2015) for the Arkansas facilities.



Land	$3,010
Buildings and improvements	10,664
Intangible assets	2,076
Deposit paid in 2013	(150)

Net cash paid	$15,600

Additionally, during January and August, 2014, we spent an aggregate of $7.0 million, including $4.7 million in cash plus an additional $2.3 million in the form of a note payable to the previous third-party member (which was fully repaid in January, 2015 and is reflected in “Accrued expenses and other liabilities” on our Consolidated Balance Sheet at December 31, 2014) to purchase the minority ownership interests held by third party members in eight LLCs (as noted in the table below) in which we previously held various non-controlling majority ownership interests ranging from 85% to 95%.

Name of LLC/LP	Ownership prior to minority interest purchase		Property Owned by LLC	Effective Date
Palmdale Medical Properties		95%	Palmdale Medical Plaza	January 1, 2014
Sparks Medical Properties		95%	Vista Medical Terrace & Sparks MOB	January 1, 2014
DVMC Properties		90%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95%	Phoenix Children’s East Valley Care Center	August 1, 2014
3811 Bell Medical Properties		95%	3811 E. Bell	August 1, 2014

As a result of these minority ownership purchases, we now own 100% of each of these LLCs, which own medical office buildings, and began accounting for each on a consolidated basis at the effective date as noted in the table above. Pursuant to current accounting standards, at the effective date, we were required to record each property’s assets and liabilities at their fair values which resulted in the recording of a $25.4 million non-cash gain, which is included in our Consolidated Statement of Income for the twelve months ended December 31, 2014, representing the difference between the fair values and the equity method carrying value of each investment. The calculated fair value, categorized in level 3 of the fair value hierarchy and utilizing the income capitalization approach, is based upon the basis of capitalization of the net estimated earnings expectancy of the property, assuming continued use similar to the existing use of the acquired property. Each property’s continued cash flow analysis were also utilized in estimating the fair value of the property, whereby cash flows from the various tenants are calculated based upon lease commencement and termination dates. The capitalization rate and discount rate ranged from 7%-8.75% and 8%-9.75%, respectively.

The aggregate purchase price for these MOBs was allocated to net tangible property ($84.0 million), identified intangible assets ($6.5 million), and long term debt ($29.8 million). Substantially all of the intangible assets include the value of the in-place leases at these MOBs at the time of acquisition which will be amortized over the combined average remaining lease term of approximately 4.7 years at the time of acquisition (aggregate weighted average of 4.1 years at December 31, 2015) for the August, 2014 transactions and 5.3 years at the time of acquisition (aggregate weighted average of 4.7 years at December 31, 2015) for the January, 2014 transactions. Other than the increased depreciation and amortization expense resulting from the amortization of the intangible assets recorded in connection with these transactions, there was no material impact on our net income as a result of the consolidation of these LLCs.

Divestitures:

In December, 2014, upon expiration of The Bridgeway’s lease term, a wholly-owned subsidiary of UHS exercised its option to purchase the real property of the facility. The sale of The Bridgeway, a 103-bed behavioral health facility located in North Little Rock, Arkansas, generated $17.3 million of sale proceeds. Pursuant to the terms of the lease, we and the wholly-owned subsidiary of UHS were both required to obtain independent appraisals of the property to determine its fair market value of $17.3 million. A $13.0 gain is included in our Consolidated Statement of Income for the twelve months ended December 31, 2014, representing the difference between the fair market value and the book value of this property.

2013:

Acquisition:

In August, 2013, we purchased the Ward Eagle Office Village located in Farmington Hills, Michigan. This multi-tenant MOB, which was purchased for approximately $4.1 million, consists of approximately 16,300 rentable square feet.

In June, 2013, we purchased the 5004 Poole Road MOB, located in Denison, Texas, on the campus of Texoma Medical Center, a wholly-owned subsidiary of UHS. This single-tenant MOB, which was purchased for approximately $625,000, consists of approximately 4,400 rentable square feet and is located adjacent to our Texoma Medical Plaza MOB.

The aggregate purchase price of approximately $4.7 million for these MOBs was allocated to the assets and liabilities acquired consisting of tangible property and identifiable intangible assets, based on their respective fair values at acquisition, as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at Ward Eagle Office Village at the time of acquisition which are being amortized over the then average remaining lease term of approximately 9.8 years (aggregate weighted average of 7.4 years at December 31, 2015).

Land	$	316
Buildings and improvements		3,749
Intangible assets		610
Other assets		21
Liabilities (real property and operating)		(11	)
Net cash paid	$	4,685

The Ward Eagle Office Village acquisition was valued utilizing the income capitalization approach. The calculated fair value, utilizing the income capitalization approach, is based upon the basis of capitalization of the net estimated earnings expectancy of the property, assuming continued use similar to the existing use of the acquired property’s continued cash flow analysis were also utilized in estimating the fair value of the property, whereby cash flows from the various tenants are calculated based upon lease commencement and termination dates.

New Construction:

The newly constructed Forney Medical Plaza II located in Forney, Texas was completed and opened in April, 2013. This multi-tenant medical office building, consisting of 30,000 rentable square feet, is owned by a limited partnership (“LP”) in which we hold a 95% non-controlling ownership interest. As this LP is not considered to be a variable interest entity, it is accounted for pursuant to the equity method.

Divestitures:

There were no divestitures during 2013.

As of December 31, 2015, our net intangible assets total $19.8 million (net of $25.1 million accumulated amortization) and substantially all of the amount is related to acquired, in-place leases which have a weighted average remaining amortization period of 4.1 years.