(8) 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.

In the Consolidated Statements of Cash Flows, distributions and equity in net income are presented net as cash flows from operating activities. Cumulative distributions received exceeding cumulative equity in earnings represent returns of investments and are classified as cash flows from investing activities in the Consolidated Statements of Cash Flows.

At December 31, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. As of December 31, 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 for approximately $4.8 million in cash, 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.

Effective August 1, 2014, we purchased the minority ownership interests, ranging from 5% to 15%, held by third-party members in six LLCs in which we previously held noncontrolling majority ownership interests, as noted in the table below. As a result of these minority ownership purchases, we now own 100% of each of these LLCs and began to account for them on a consolidated basis effective August 1, 2014. Prior to August 1, 2014, these LLCs were accounted for on an unconsolidated basis pursuant to the equity method.

Name of LLC/LP	Ownership prior to minority interest purchase			Property Owned by LLC	Effective Date
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	%	North Valley Medical Plaza	August 1, 2014

The following property table represents the five LLCs or LPs in which we own a noncontrolling interest and were accounted for under the equity method as of December 31, 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 of $8.6 million, which is non-recourse to us, outstanding as of December 31, 2016.

(b.)

We have funded $5.2 million in equity as of December 31, 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 member loan has an interest rate of 5.29% and is scheduled to mature in January, 2018. 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 December 31, 2016, and are committed to fund an additional $149,000. This building is on the campus of a UHS hospital and has tenants that include subsidiaries of UHS. This LP has a third-party term loan of $14.4 million, which is non-recourse to us, outstanding as of December 31, 2016

(d.)	We have committed to invest up to $2.5 million in equity and debt financing and are committed to invest an additional $369,000. This LP has a third-party term loan of $5.3 million, which is non-recourse to us, outstanding as of December 31, 2016.

Below are the combined statements of income for the LLCs/LPs accounted for under the equity method at December 31, 2016, 2015 and 2014. The data for the year ended December 31, 2014 includes the financial results for the six above-mentioned LLCs in which we purchased the minority ownership interests in August, 2014 for the period of January through July of 2014 (during which they were accounted for under the equity method).

	For the Year Ended December 31,
	2016		2015		2014(b.)
	(amounts in thousands)
Revenues	$	15,252	$	14,347	$	17,292
Operating expenses		5,439		5,605		6,769
Depreciation and amortization		2,554		2,398		2,968
Interest, net		2,565		2,578		4,261
Net income	$	4,694	$	3,766	$	3,294
Our share of net income (a.)	$	4,456	$	2,536	$	2,428

(a.)	Our share of net income during 2016, 2015 and 2014, includes interest income earned by us on various advances made to LLCs of approximately $1.2 million, $200,000 and $834,000, respectively.

(b.)

As mentioned above, we began to account for six LLCs (Desert Valley Medical Center, Santa Fe Professional Plaza, Rosenberg Children’s Medical Plaza, Sierra San Antonio Medical Plaza, Phoenix Children’s East Valley Care Center and North Valley Medical Plaza) on a consolidated basis as of August 1, 2014. Prior to August 1, 2014, the financial results of these entities were accounted for under the equity method on an unconsolidated basis. The year ended December 31, 2014 includes the financial results of the six mentioned LLCs for seven months ended July 31, 2014.

Below are the combined balance sheets for the five LLCs that were accounted for under the equity method as of December 31, 2016 and 2015:

	December 31,
	2016			2015
	(amounts in thousands)
Net property, including CIP	$	60,970		$	61,668
Other assets		4,598			5,264
Total assets	$	65,568		$	66,932
Other liabilities	$	3,334		$	2,538
Mortgage notes payable, non-recourse to us		28,367			28,895
Advances payable to us (a.)		21,638			22,489
Equity		12,229			13,010
Total liabilities and equity	$	65,568		$	66,932

Our share of equity in and advances to LLCs reflected as:
Investments in LLCs	$	13,955		$	9,108
Advances to LLCs		21,638			22,489
Investments in and advances to LLCs before amounts included in accrued expenses and other liabilities		35,593			31,597
Amounts included in accrued expenses and other liabilities		(1,862	)		(1,105	)
Our share of equity in and advances to LLCs, net	$	33,731		$	30,492

(a)

Consists of a 5.29% member loan which is scheduled to mature in January, 2018.

As of December 31, 2016, 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):

2017	$	5,727
2018		445
2019		466
2020		484
2021		13,582
2022 and thereafter		7,663
Total	$	28,367

	Mortgage Loan Balance (a.)
Name of LLC/LP	12/31/2016		12/31/2015		Maturity Date
FTX MOB Phase II (4.75% fixed rate mortgage loan)	$	5,301	$	5,427	August, 2017 (b.)
Grayson Properties (5.034% fixed rate mortgage loan)		14,438		14,670	September, 2021
Brunswick Associates (3.64% fixed rate mortgage loan)		8,628		8,798	December, 2024
	$	28,367	$	28,895

(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 it will be refinanced pursuant to: (i) a new third-party mortgage loan; (ii) a member loan extended from us to the LLC, or; (iii) equity contributions to the LLC by us and the third-party member. Funds required from us to the LLC for either the member loan or our share of an equity contribution would likely be borrowed under our Credit Agreement.

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 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.