(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.

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 March 31, 2017, we have non-controlling equity investments or commitments in four jointly-owned LLCs/LPs which own MOBs. As of March 31, 2017, 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.

During March, 2017, Arlington Medical Properties, LLC, a formerly jointly-owned limited liability company in which we held an 85% noncontrolling ownership interest, sold the real estate assets of St. Mary’s Professional Office Building (“St. Mary’s”) as part of a series of planned tax deferred like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code. A third party member owned the remaining 15% of Arlington Medical Properties LLC, which we acquired prior to the divestiture of St. Mary’s.

The following property table represents the four LLCs in which we own a noncontrolling interest and were accounted for under the equity method as of March 31, 2017:


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
Grayson Properties (b.)		95	%	Texoma Medical Plaza
FTX MOB Phase II (c.)		95	%	Forney Medical Plaza II

(a.)	This LLC has a third-party term loan, which is non-recourse to us, of $8.6 million outstanding as of March 31, 2017.

(b.)	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 $14.4 million outstanding as of March 31, 2017.

(c.)	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 March 31, 2017. This LLC has a third-party term loan, which is non-recourse to us, of $5.3 million outstanding as of March 31, 2017.

Below are the condensed combined statements of income (unaudited) for the LLCs accounted for under the equity method during the three months ended March 31, 2017 and 2016. The three months ended March 31, 2017 include the financial results of Arlington Medical Properties, LLC, through the March 13, 2017 divestiture date. The three months ended March 31, 2016, include the financial results of Arlington Medical Properties, LLC for the entire three months ended March 31, 2016.

	Three Months Ended March 31,
	2017		2016
	(amounts in thousands)
Revenues	$	3,583	$	3,736
Operating expenses		1,250		1,353
Depreciation and amortization		643		613
Interest, net		562		657
Net income	$	1,128	$	1,113
Our share of net income (a.)	$	1,077	$	1,059

(a.)

Our share of net income for the three months ended March 31, 2017 and 2016 includes approximately $284,000 and $296,000, respectively, of interest income earned by us on an advance made to Arlington Medical Properties, LLC. This advance was repaid to us effective with the previously mentioned Arlington Medical Properties, LLC transaction during March, 2017.

Below are the condensed combined balance sheets (unaudited) for the four above-mentioned LLCs that were accounted for under the equity method as of March 31, 2017 and the five LLCs (including Arlington Medical Properties, LLC, which was divested during the first quarter of 2017) that were accounted for under the equity method as of December 31, 2016:

	March 31, 2017			December 31, 2016
	(amounts in thousands)
Net property, including CIP	$	33,816		$	60,970
Other assets		3,685			4,598
Total assets	$	37,501		$	65,568

Liabilities	$	2,726		$	3,334
Mortgage notes payable, non-recourse to us		28,222			28,367
Advances payable to us		-			21,638
Equity		6,553			12,229
Total liabilities and equity	$	37,501		$	65,568

Our share of equity in and advances to LLCs reflected as:
Investments in LLCs	$	4,722		$	13,955
Advances to LLCs		-			21,638
Investments in and advances to LLCs before
amounts included in accrued expenses and other liabilities		4,722			35,593
Amounts included in accrued expenses and other liabilities		(1,476	)		(1,862	)
Our share of equity in and advances to LLCs, net	$	3,246		$	33,731

As of March 31, 2017, and 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):

	Mortgage Loan Balance (a.)
Name of LLC/LP	3/31/2017		12/31/2016		Maturity Date
FTX MOB Phase II	$	5,267	$	5,301	August, 2017 (b.)
Grayson Properties		14,375		14,438	September, 2021
Brunswick Associates		8,580		8,628	December, 2024
	$	28,222	$	28,367

(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 four 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.