(7) Debt and Financial Instruments

Debt:

Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our $185 million revolving credit facility, the level of borrowings pursuant to non-course mortgage debt secured by the real property of our properties and our level of equity including consideration of additional equity issuances pursuant to our at-the-market equity issuance program. This ongoing analysis considers factors such as the current debt market and interest rate environment, the current/projected occupancy and financial performance of our properties, the current loan-to-value ratio of our properties, the Trust’s current stock price, the capital resources required for anticipated acquisitions and the expected capital to be generated by anticipated divestitures. This analysis, together with consideration of the Trust’s current balance of revolving credit facility borrowings, non-recourse mortgage borrowings and equity, assists management in deciding which capital resource to utilize when events such as refinancing of specific debt components occur or additional funds are required to finance the Trust’s growth.

On March 27, 2015, we entered into a new $185 million revolving credit agreement (“Credit Agreement”). The Credit Agreement, which will mature in March, 2019, replaced our previous revolving credit facility which was scheduled to mature in July, 2015. The Credit Agreement includes a $50 million sub limit for letters of credit and a $20 million sub limit for swingline/short-term loans. The Credit Agreement also provides a one-time option to extend the maturity date for an additional one year period, and an option to increase the total facility borrowing capacity up to an additional $50 million, subject to lender agreement. Borrowings under the new facility are guaranteed by certain subsidiaries of the Trust. In addition, borrowings under the new facility are secured by first priority security interests in and liens on all equity interests in the Trust’s wholly-owned subsidiaries. Borrowings made pursuant to the Credit Agreement will bear interest, at our option, at one, two, three, or six month LIBOR plus an applicable margin ranging from 1.50% to 2.00% or at the Base Rate plus an applicable margin ranging from 0.50% to 1.00%. The Credit Agreement defines “Base Rate” as the greatest of: (a) the administrative agent’s prime rate; (b) the federal funds effective rate plus 1/2 of 1%, and; (c) one month LIBOR plus 1%. A commitment fee of 0.20% to 0.40% (depending on our total leverage ratio) will be charged on the average unused portion of the revolving credit commitments. The margins over LIBOR, Base Rate and the commitment fee are based upon our ratio of debt to total capital. At March 31, 2016, the applicable margin over the LIBOR rate was 1.625%, the margin over the Base Rate was 0.625%, and the commitment fee was 0.25%.

At March 31, 2016, we had $159.7 million of outstanding borrowings and $3.0 million of letters of credit outstanding against our revolving credit agreement. We had $22.3 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of March 31, 2016. At December 31, 2015, we had $142.2 million of outstanding borrowings and $3.5 million of letters of credit outstanding against our revolving credit agreement. We had $39.3 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2015. There are no compensating balance requirements.

The Credit Agreement contains customary affirmative and negative covenants, including limitations on certain indebtedness, liens, acquisitions and other investments, fundamental changes, asset dispositions and dividends and other distributions. The Credit Agreement also contains restrictive covenants regarding the Trust’s ratio of total debt to total assets, the fixed charge coverage ratio, the ratio of total secured debt to total asset value, the ratio of total unsecured debt to total unencumbered asset value, and minimum net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts outstanding under the Credit Agreement. We are in compliance with all of the covenants at March 31, 2016. We also believe that we would remain in compliance if the full amount of our commitment was borrowed.

The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):

	Covenant		March 31, 2016
Tangible net worth	$	125,000	$	171,326
Total leverage	< 60%			46.6	%
Secured leverage	< 30%			19.4	%
Unencumbered leverage	< 60%			46.2	%
Fixed charge coverage	> 1.50x		3.5x

As indicated on the following table, we have fourteen mortgages, all of which are non-recourse to us, included on our condensed consolidated balance sheet as of March 31, 2016, with a combined outstanding balance of $109.5 million, excluding net debt premium of $242,000 and net of net financing fees of $376,000 (amounts in thousands):

Facility Name	Outstanding Balance (in thousands)(a)		Interest Rate			Maturity Date
Summerlin Hospital Medical Office Building III floating rate mortgage loan (b.)	$	10,616		3.69	%	December, 2016
Peace Health fixed rate mortgage loan (b.)		20,671		5.64	%	April, 2017
Auburn Medical II floating rate mortgage loan (b.)		6,897		3.19	%	April, 2017
Medical Center of Western Connecticut fixed rate mortgage loan		4,631		6.00	%	June, 2017
Summerlin Hospital Medical Office Building II fixed rate mortgage loan		11,339		5.50	%	October, 2017
Phoenix Children’s East Valley Care Center fixed rate mortgage loan		6,312		5.88	%	December, 2017
Centennial Hills Medical Office Building floating rate mortgage loan		10,266		3.69	%	January, 2018
Sparks Medical Building/Vista Medical Terrace floating rate mortgage loan		4,320		3.69	%	February, 2018
Rosenberg Children’s Medical Plaza fixed rate mortgage loan		8,275		4.85	%	May, 2018
Vibra Hospital-Corpus Christi fixed rate mortgage loan		2,793		6.50	%	July, 2019
700 Shadow Lane and Goldring MOBs fixed rate mortgage loan		6,384		4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		6,453		4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		5,179		3.62	%	January, 2023
Tuscan Professional Building fixed rate mortgage loan		5,330		5.56	%	June, 2025
Total	$	109,466

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

(b.)	This loan is scheduled to mature within the next twelve months, at which time we will decide whether to refinance pursuant to a new mortgage loan or by utilizing borrowings under our revolving credit facility.

The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages have a combined fair value of approximately $112 million as of March 31, 2016. Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.

At December 31, 2015, we had fourteen mortgages, all of which were non-recourse to us, included in our consolidated balance sheet. The combined outstanding balance of these fourteen mortgages was $110.3 million (excluding net debt premium of $298,000 and net of net financing fees of $398,000), and had a combined fair value of approximately $112.4 million.

Financial Instruments:

During the third quarter of 2013, we entered into an interest rate cap on a total notional amount of $10 million whereby we paid a premium of $136,000. During the first quarter of 2014, we entered into two additional interest rate cap agreements on a total notional amount of $20 million whereby we paid premiums of $134,500. In exchange for the premium payments, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap. From inception through March 31, 2016, no payments have been made to us by the counterparties pursuant to the terms of these caps which expire in January, 2017.