(5) 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 $250 million revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of additional equity issuances. 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 agreement 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 May 24, 2016, we amended our revolving credit agreement (“Credit Agreement”) to, among other things, increase the borrowing capacity to $250 million from $185 million previously. The amended Credit Agreement, which is scheduled to mature in March, 2019, includes a $40 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 Credit Agreement are guaranteed by certain subsidiaries of the Trust. In addition, borrowings under the Credit Agreement 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 December 31, 2017, 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 December 31, 2017, we had $181.1 million of outstanding borrowings and $1.5 million of letters of credit outstanding against our revolving credit agreement. The carrying amount and fair value of borrowings outstanding pursuant to the Credit Agreement was $181.1 million at December 31, 2017. We had $67.4 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2017. There are no compensating balance requirements. The average amount outstanding under our Credit Agreement during the years ended December 31, 2017, 2016 and 2015 was $182.4 million, $164.2 million and $114.3 million, respectively, with corresponding effective interest rates of 2.8%, 2.3% and 2.1%, respectively, including commitment fees.

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 tangible 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 December 31, 2017. 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			2017
Tangible net worth		$	136,170		$	190,002
Total leverage		< 60		%		41.2	%
Secured leverage		< 30		%		11.7	%
Unencumbered leverage		< 60		%		37.7	%
Fixed charge coverage	> 1.50x			3.8x

As indicated on the following table, we have eleven mortgages, all of which are non-recourse to us, included on our consolidated balance sheet as of December 31, 2017 (amounts in thousands):

Facility Name	Outstanding Balance (in thousands)(a.)			Interest Rate			Maturity Date
Sparks Medical Building/Vista Medical Terrace floating rate mortgage loan (b.)	$	4,130			4.63	%	February, 2018
Centennial Hills Medical Office Building floating rate mortgage loan (c.)		9,764			4.63	%	April, 2018
Rosenberg Children’s Medical Plaza fixed rate mortgage loan (c.)		7,968			4.85	%	May, 2018
Vibra Hospital-Corpus Christi fixed rate mortgage loan		2,624			6.50	%	July, 2019
700 Shadow Lane and Goldring MOBs fixed rate mortgage loan		6,059			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		6,126			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		4,946			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		7,007			4.95	%	November, 2023
Summerlin Hospital Medical Office Building III floating rate mortgage loan		13,199			4.03	%	April, 2024
Tuscan Professional Building fixed rate mortgage loan		4,519			5.56	%	June, 2025
Phoenix Children’s East Valley Care Center fixed rate mortgage loan		9,400			3.95	%	January, 2030
Total, excluding net debt premium and net financing fees		75,742
Less net financing fees		(680	)
Plus net debt premium		297
Total mortgage notes payable, non-recourse to us, net	$	75,359

(a)

All mortgage loans require monthly principal payments through maturity and either fully amortize or include a balloon principal payment upon maturity.

(b)

This loan was fully repaid upon its maturity, utilizing borrowings under our Credit Agreement.

(c)

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 Credit Agreement.

On December, 1, 2017, upon its maturity, the $6.1 million fixed rate mortgage loan on the Phoenix Children’s East Valley Care Center was refinanced with a new $9.4 million fixed rate mortgage, with a maturity date of January, 2030.

On October 2, 2017, upon its maturity, the$10.8 million fixed rate mortgage loan on the Summerlin Hospital Medical Office Building II was fully repaid utilizing borrowings under our Credit Agreement.

On July 3, 2017, upon its maturity, the $6.6 million floating rate mortgage loan on the Auburn Medical Office Building II was fully repaid utilizing borrowings under our Credit Agreement.

On June 1, 2017, upon its maturity, the $4.5 million fixed rate mortgage loan on the Medical Center of Western Connecticut was fully repaid utilizing borrowings under our Credit Agreement.

On April 3, 2017, upon its maturity, the $20.2 million fixed rate mortgage loan on the Peace Health Medical Clinic was fully repaid utilizing borrowings under our Credit Agreement.

On March 31, 2017, upon its maturity, a $10.3 million floating rate mortgage loan on Summerlin Hospital Medical Office Building III was fully repaid. In April, 2017, we refinanced this property with a $13.2 million fixed rate mortgage, as shown above.

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 $76.3 million as of December 31, 2017. We consider these to be “Level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments. 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, 2016, we had fifteen mortgages, all of which were non-recourse to us, included in our consolidated balance sheet. The combined outstanding balance of these fifteen mortgages was $114.2 million (excluding net debt premium of $436,000 and net of net financing fees of $381,000 at December 31, 2016), and had a combined fair value of approximately $115.7 million at December 31, 2016. We consider these to be “Level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.

As of December 31, 2017, our aggregate consolidated scheduled debt repayments (including mortgages) are as follows (amounts in thousands):

2018	$	23,347
2019 (a.)		185,035
2020		1,688
2021		1,846
2022		11,950
Later		32,926
Total	$	256,792

(a)

Includes repayment of $181.1 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

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 the January, 2017 expirations, no payments were made to us by the counterparties pursuant to the terms of these caps.

During the second quarter of 2016, we entered into an interest rate cap on the total notional amount of $30 million whereby we paid a premium of $115,000. In exchange for the premium payment, 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. This interest rate cap became effective in January, 2017, coinciding with the expiration of the above-mentioned interest rate caps and expires in March, 2019. From inception through December 31, 2017, there were no payments made to us by the counterparty pursuant to the terms of this cap.

During the third quarter of 2016, we entered into an additional interest rate cap agreement on a total notional amount of $30 million whereby we paid a premium of $55,000. In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.5% and one-month LIBOR if one-month LIBOR rises above 1.5% during the term of the cap. This interest rate cap became effective in October, 2016 and expires in March, 2019. From inception through December 31, 2017, there were no payments made to us by the counterparty pursuant to the terms of this cap.