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OFFON

UNIVERSAL HEALTH REALTY INCOME TRUST

(UHT)
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UNIVERSAL HEALTH REALTY INCOME TRUST : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/06/2021 | 04:23pm EDT

Overview


We are a real estate investment trust ("REIT") that commenced operations in
1986. We invest in healthcare and human service related facilities currently
including acute care hospitals, behavioral health care hospitals, specialty
hospitals, free-standing emergency departments, childcare centers and
medical/office buildings. As of July 31, 2021, we have seventy-two real estate
investments or commitments located in twenty states consisting of:

• seven hospital facilities consisting of three acute care, one behavioral

health care, and three specialty hospitals (two of which are currently

        vacant);


  • four free-standing emergency departments ("FEDs");

• fifty-seven medical or general office buildings, including five owned by

unconsolidated limited liability companies ("LLCs")/limited liability

        partnerships ("LPs"), and;


  • four preschool and childcare centers.

Forward Looking Statements and Certain Risk Factors


You should carefully review all of the information contained in this Quarterly
Report, and should particularly consider any risk factors that we set forth in
our Annual Report on Form 10-K for the year ended December 31, 2020, this
Quarterly Report and in other reports or documents that we file from time to
time with the Securities and Exchange Commission (the "SEC"). In this Quarterly
Report, we state our beliefs of future events and of our future financial
performance. This Quarterly Report contains "forward-looking statements" that
reflect our current estimates, expectations and projections about our future
results, performance, prospects and opportunities. Words such as "may," "will,"
"should," "could," "would," "predicts," "potential," "continue," "expects,"
"anticipates," "future," "intends," "plans," "believes," "estimates," "appears,"
"projects" and similar expressions, as well as statements in future tense,
identify forward-looking statements. You should be aware that those statements
are only our predictions. Actual events or results may differ materially. In
evaluating those statements, you should specifically consider various factors,
including the risks described elsewhere herein and in our Annual Report on Form
10-K for the year ended December 31, 2020 in Item 1A Risk Factors and in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Forward Looking Statements and in Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Forward Looking
Statements and Risk Factors, as included herein. Those factors may cause our
actual results to differ materially from any of our forward-looking statements.

Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time and/or
our good faith belief with respect to future events, and is subject to risks and
uncertainties that could cause actual performance or results to differ
materially from those expressed in the statements. Such factors include, among
other things, the following:

• Future operations and financial results of our tenants, and in turn ours,

will likely be materially impacted by numerous factors and future

developments related to COVID-19. Such factors and developments include,

but are not limited to, the length of time and severity of the spread of the

pandemic; the volume of cancelled or rescheduled elective procedures and the

volume of COVID-19 patients treated by the operators of our hospitals and

other healthcare facilities; measures our tenants are taking to respond to

      the COVID-19 pandemic; the impact of government and administrative
      regulation, including travel bans and restrictions, shelter-in-place or
      stay-at-home orders, quarantines, the promotion of social distancing,

business shutdowns and limitations on business activity; changes in patient

volumes at our tenants' hospitals and other healthcare facilities due to

patients' general concerns related to the risk of contracting COVID-19 from

interacting with the healthcare system; the impact of stimulus on the health

      care industry and our tenants; changes in patient volumes and payer mix
      caused by deteriorating macroeconomic conditions (including increases in

uninsured and underinsured patients as the result of business closings and

      layoffs); potential disruptions to clinical staffing and shortages and
      disruptions related to supplies required for our tenants' employees and
      patients, including equipment, pharmaceuticals and medical supplies,

particularly personal protective equipment, or PPE; potential increases to

expenses incurred by our tenants related to staffing, supply chain or other

expenditures; the impact of our indebtedness and the ability to refinance

such indebtedness on acceptable terms; disruptions in the financial markets

and the business of financial institutions as the result of the COVID-19

pandemic which could impact our ability to access capital or increase

associated borrowing costs; and changes in general economic conditions

nationally and regionally in the markets our properties are located

resulting from the COVID-19 pandemic, including higher sustained rates of

unemployment and underemployment levels and reduced consumer spending and

confidence. There may be significant declines in future bonus rental revenue

      earned on our hospital properties leased to subsidiaries of UHS to the
      extent that each hospital continues to experience significant decline in
      patient volumes and revenues. These factors may


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result in the inability or unwillingness on the part of some of our tenants

to make timely payment of their rent to us at current levels or to seek to

amend or terminate their leases which, in turn, would have an adverse effect

on our occupancy levels and our revenue and cash flow and the value of our

properties, and potentially, our ability to maintain our dividend at current

      levels.




   •  Due to COVID-19 restrictions and its impact on the economy, we may

experience a decrease in prospective tenants which could unfavorably impact

the volume of new leases, as well as the renewal rate of existing leases.

The COVID-19 pandemic could also impact our indebtedness and the ability to

refinance such indebtedness on acceptable terms, as well as risks associated

with disruptions in the financial markets and the business of financial

institutions as the result of the COVID-19 pandemic which could impact us

from a financing perspective; and changes in general economic conditions

nationally and regionally in the markets our properties are located

resulting from the COVID-19 pandemic. We are not able to fully quantify the

impact that these factors will have on our financial results during 2021,

      but developments related to the COVID-19 pandemic are likely to have a
      material adverse impact on our future financial results.



• Recent legislation, including the Coronavirus Aid, Relief, and Economic

Security Act (the "CARES Act"), the Paycheck Protection Program and Health

Care Enhancement Act ("PPPHCE Act") and the American Rescue Plan Act of 2021

("ARPA"), has provided grant funding to hospitals and other healthcare

providers to assist them during the COVID-19 pandemic. There is a high

degree of uncertainty surrounding the implementation of the CARES Act, the

PPPHCE Act and ARPA, and the federal government may consider additional

stimulus and relief efforts, but we are unable to predict whether additional

stimulus measures will be enacted or their impact. There can be no assurance

as to the total amount of financial and other types of assistance our

tenants will receive under the CARES Act, the PPPHCE Act and the ARPA, and

it is difficult to predict the impact of such legislation on our tenants'

operations or how they will affect operations of our tenants'

competitors. Moreover, we are unable to assess the extent to which

anticipated negative impacts on our tenants (and, in turn, us) arising from

the COVID-19 pandemic will be offset by amounts or benefits received or to

be received under the CARES Act, the PPPHCE Act and the ARPA.

• A substantial portion of our revenues are dependent upon one operator, UHS,

which comprised approximately 36% and 32% of our consolidated revenues for

the three-month periods ended June 30, 2021 and 2020, respectively and

approximately 36% and 32% of our consolidated revenues for the six-month

periods ended June 30, 2021 and 2020, respectively. As previously disclosed,

a wholly-owned subsidiary of UHS has notified us that it is planning to

terminate the existing lease on Southwest Healthcare System, Inland Valley

Campus, upon the scheduled expiration of the current lease term on December

31, 2021. As permitted pursuant to the terms of the lease, UHS has the right

to purchase the leased property at its appraised fair market value at the

end of the existing lease term. However, UHS has proposed exchanging

potential substitution properties, with an aggregate fair market value

substantially equal to that of Southwest Healthcare System, Inland Valley

Campus, in return for the real estate assets of the Inland Valley

Campus. The proposed substitution properties consist of one acute care

hospital (including a behavioral health pavilion) and a newly constructed

      behavioral health hospital. The Independent Trustees of the Board, as well
      as the UHS Board of Directors, have approved the proposed property
      substitution subject to satisfactory due diligence and completion of

definitive agreements. The effective date of the property substitution is

expected to coincide with the scheduled lease maturity date of December 31,

2021. Pursuant to the terms of the lease on the Inland Valley Campus, we

earned $2.2 million of lease revenue during the six-month period ended June

30, 2021 ($1.3 million in base rental and $892,000 in bonus rental) and $4.4

million of lease revenue during the year ended December 31, 2020 ($2.6

million in base rental and $1.8 million in bonus rental).

• In addition, we cannot assure you that subsidiaries of UHS will renew the

leases on the McAllen Medical Center acute care hospital (scheduled to

expire in December, 2026), the Wellington Regional Medical Center acute care

hospital (scheduled to expire in December, 2021) and two FEDs at existing

lease rates or fair market value lease rates. In addition, if subsidiaries

of UHS exercise their options to purchase the respective leased hospital

facilities and FEDs and do not enter into the substitution arrangement upon

expiration of the lease terms or otherwise, our future revenues and results

of operations could decrease if we were unable to earn a favorable rate of

return on the sale proceeds received, as compared to the rental revenue

currently earned pursuant to these leases. Please see Note 7 to the

condensed consolidated financial statements - Lease Accounting, for

additional information related to a potential transaction with a

wholly-owned subsidiary of UHS in connection with Southwest Healthcare

      System, Inland Valley Campus.


   •  In certain of our markets, the general real estate market has been

unfavorably impacted by increased competition/capacity and decreases in

occupancy and rental rates which may adversely impact our operating results

and the underlying value of our properties.

• A number of legislative initiatives have recently been passed into law that

may result in major changes in the health care delivery system on a national

or state level to the operators of our facilities, including UHS. No

assurances can be given that the implementation of these new laws will not

      have a material adverse effect on the business, financial condition or
      results of operations of our operators.


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• The potential indirect impact of the Tax Cuts and Jobs Act of 2017, signed

into law on December 22, 2017, which makes significant changes to corporate

and individual tax rates and calculation of taxes, which could potentially

impact our tenants and jurisdictions, both positively and negatively, in

which we do business, as well as the overall investment thesis for REITs.

• A subsidiary of UHS is our Advisor and our officers are all employees of a

wholly-owned subsidiary of UHS, which may create the potential for conflicts

of interest.

• Lost revenues resulting from the exercise of purchase options, lease

expirations and renewals and other transactions (see Note 7 to the condensed

consolidated financial statements - Lease Accounting for additional

disclosure related to lease expirations and subsequent vacancies that

occurred during the second and third quarters of 2019 on two hospital

facilities and the notice provided by Kindred Healthcare, lessee of one of

our other specialty hospitals that they do not intend to renew the lease on

its facility which expires on December 31, 2021).

• Potential unfavorable tax consequences and reduced income resulting from an

inability to complete, within the statutory timeframes, our anticipated tax

deferred like-kind exchange transactions pursuant to Section 1031 of the

Internal Revenue Code, as described in Note 4 to the condensed consolidated

financial statements - Acquisitions and Divestitures.

• Our ability to continue to obtain capital on acceptable terms, including

      borrowed funds, to fund future growth of our business.


   •  The outcome and effects of known and unknown litigation, government

investigations, and liabilities and other claims asserted against us, UHS or

the other operators of our facilities. UHS and its subsidiaries are subject

to legal actions, purported shareholder class actions and shareholder

derivative cases, governmental investigations and regulatory actions and the

effects of adverse publicity relating to such matters. Since UHS comprised

approximately 36% and 32% of our consolidated revenues during the

three-month periods ended June 30, 2021 and 2020, respectively, and 36% and

32% of our consolidated revenues during the six-month period ended June 30,

2021 and 2020, respectively, and since a subsidiary of UHS is our Advisor,

      you are encouraged to obtain and review the disclosures contained in the
      Legal Proceedings section of Universal Health Services, Inc.'s Forms 10-Q

and 10-K, as publicly filed with the Securities and Exchange Commission.

Those filings are the sole responsibility of UHS and are not incorporated by

reference herein.

• Failure of UHS or the other operators of our hospital facilities to comply

with governmental regulations related to the Medicare and Medicaid licensing

and certification requirements could have a material adverse impact on our

future revenues and the underlying value of the property.

• The potential unfavorable impact on our business of the deterioration in

national, regional and local economic and business conditions, including a

worsening of credit and/or capital market conditions, which may adversely

      affect our ability to obtain capital which may be required to fund the
      future growth of our business and refinance existing debt with near term
      maturities.

• A continuation in the deterioration in general economic conditions which has

resulted in increases in the number of people unemployed and/or insured and

likely increase the number of individuals without health insurance; as a

result, the operators of our facilities may experience declines in patient

volumes which could result in decreased occupancy rates at our medical

office buildings.

• A worsening of the economic and employment conditions in the United States

would likely materially affect the business of our operators, including UHS,

which would likely unfavorably impact our future bonus rentals (on the UHS

      hospital facilities) and may potentially have a negative impact on the
      future lease renewal terms and the underlying value of the hospital
      properties.

• Real estate market factors, including without limitation, the supply and

demand of office space and market rental rates, changes in interest rates as

      well as an increase in the development of medical office condominiums in
      certain markets.

• The impact of property values and results of operations of severe weather

conditions, including the effects of hurricanes.

• Government regulations, including changes in the reimbursement levels under

the Medicare and Medicaid programs.

• The issues facing the health care industry that affect the operators of our

facilities, including UHS, such as: changes in, or the ability to comply

with, existing laws and government regulations; unfavorable changes in the

levels and terms of reimbursement by third party payors or government

programs, including Medicare (including, but not limited to, the potential

unfavorable impact of future reductions to Medicare reimbursements resulting

from the Budget Control Act of 2011, as discussed in the next bullet point

below) and Medicaid (most states have reported significant budget deficits

that have, in the past, resulted in the reduction of Medicaid funding to the

operators of our facilities, including UHS); demographic changes; the

ability to enter into managed care provider agreements on acceptable terms;

an increase in uninsured and self-pay patients which unfavorably impacts the

collectability of patient accounts; decreasing in-patient admission trends;

      technological and


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pharmaceutical improvements that may increase the cost of providing, or

reduce the demand for, health care, and; the ability to attract and retain

qualified medical personnel, including physicians.



   •  The Budget Control Act of 2011 imposed annual spending limits for most
      federal agencies and programs aimed at reducing budget deficits by $917
      billion between 2012 and 2021, according to a report released by the

Congressional Budget Office. Among its other provisions, the law established

a bipartisan Congressional committee, known as the Joint Select Committee on

Deficit Reduction (the "Joint Committee"), which was tasked with making

recommendations aimed at reducing future federal budget deficits by an

additional $1.5 trillion over 10 years. The Joint Committee was unable to

reach an agreement by the November 23, 2011 deadline and, as a result,

across-the-board cuts to discretionary, national defense and Medicare

spending were implemented on March 1, 2013 resulting in Medicare payment

reductions of up to 2% per fiscal year with a uniform percentage reduction

across all Medicare programs. The Bipartisan Budget Act of 2015, enacted on

November 2, 2015, continued the 2% reductions to Medicare reimbursement

      imposed under the Budget Control Act of 2011. Recent legislation has
      suspended payment reductions through December 31, 2021 in exchange for
      extended cuts through 2030. We cannot predict whether Congress will
      restructure the implemented Medicare payment reductions or what other

federal budget deficit reduction initiatives may be proposed by Congress

going forward. We also cannot predict the effect these enactments will have

on the operators of our properties (including UHS), and thus, our business.

• An increasing number of legislative initiatives have been passed into law

that may result in major changes in the health care delivery system on a

national or state level. Legislation has already been enacted that has

eliminated the penalty for failing to maintain health coverage that was part

of the original Patient Protection and Affordable Care Act (the "ACA").

President Biden is expected to undertake executive actions that will

strengthen the ACA and may reverse the policies of the prior administration.

To date, the Biden administration has issued executive orders implementing a

special enrollment period permitting individuals to enroll in health plans

outside of the annual open enrollment period and reexamining policies that

may undermine the ACA or the Medicaid program. The ARPA's expansion of

subsidies to purchase coverage through an exchange is anticipated to

increase exchange enrollment. The Trump Administration had directed the

issuance of final rules: (i) enabling the formation of association health

plans that would be exempt from certain ACA requirements such as the

provision of essential health benefits; (ii) expanding the availability of

short-term, limited duration health insurance, (iii) eliminating

cost-sharing reduction payments to insurers that would otherwise offset

deductibles and other out-of-pocket expenses for health plan enrollees at or

below 250 percent of the federal poverty level; (iv) relaxing requirements

for state innovation waivers that could reduce enrollment in the individual

and small group markets and lead to additional enrollment in short-term,

limited duration insurance and association health plans; and (v)

incentivizing the use of health reimbursement arrangements by employers to

permit employees to purchase health insurance in the individual market. The

uncertainty resulting from these Executive Branch policies had led to

reduced Exchange enrollment in 2018, 2019 and 2020, and is expected to

further worsen the individual and small group market risk pools in future

      years. It is also anticipated that these policies, to the extent that they
      remain as implemented, may create additional cost and reimbursement
      pressures on hospitals, including ours. In addition, while attempts to
      repeal the entirety of the ACA have not been successful to date, a key

provision of the ACA was eliminated as part of the Tax Cuts and Jobs Act and

on December 14, 2018, a federal U.S. District Court Judge in Texas ruled the

entire ACA is unconstitutional. That ruling was appealed and on December 18,

2019, the Fifth Circuit Court of Appeals voted 2-1 to strike down the ACA

individual mandate as unconstitutional. The case was ultimately appealed to

      the United States Supreme Court, which decided in California v. Texas that
      the plaintiffs in the matter lacked standing to bring their
      constitutionality claims. As a result, the Legislation will continue to
      remain law, in its entirety, likely for the foreseeable future.

• There can be no assurance that if any of the announced or proposed changes

described above are implemented there will not be negative financial impact

on the operators of our hospitals, which material effects may include a

potential decrease in the market for health care services or a decrease in

the ability of the operators of our hospitals to receive reimbursement for

health care services provided which could result in a material adverse

effect on the financial condition or results of operations of the operators

of our properties, and, thus, our business.

• Competition for properties include, but are not limited to, other REITs,

private investors and firms, banks and other companies, including UHS. In

addition, we may face competition from other REITs for our tenants.



   •  The operators of our facilities face competition from other health care
      providers, including physician owned facilities and other competing
      facilities, including certain facilities operated by UHS but the real
      property of which is not owned by us. Such competition is experienced in
      markets including, but not limited to, McAllen, Texas, the site of our

McAllen Medical Center, a 370-bed acute care hospital, and Riverside County,

      California, the site of our Southwest Healthcare System-Inland Valley
      Campus, a 130-bed acute care hospital.

• Changes in, or inadvertent violations of, tax laws and regulations and other

factors that can affect REITs and our status as a REIT, including possible

future changes to federal tax laws that could materially impact our ability

      to defer gains on divestitures through like-kind property exchanges.




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• The individual and collective impact of the changes made by the CARES Act on

REITs and their security holders are uncertain and may not become evident

for some period of time; it is also possible additional legislation could be

enacted in the future as a result of the COVID-19 pandemic which may affect

      the holders of our securities.


   •  Should we be unable to comply with the strict income distribution

requirements applicable to REITs, utilizing only cash generated by operating

activities, we would be required to generate cash from other sources which

could adversely affect our financial condition.

• Our ownership interest in five LLCs/LPs in which we hold non-controlling

equity interests. In addition, 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 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. Please see Note 5 to the condensed

      consolidated financial statements - Summarized Financial Information of
      Equity Affiliates for additional disclosure related to an agreement and

anticipated transaction between us and the minority partner in Grayson

      Properties, LP.


  • Fluctuations in the value of our common stock.

• Other factors referenced herein or in our other filings with the Securities

and Exchange Commission.



Given these uncertainties, risks and assumptions, you are cautioned not to place
undue reliance on such forward-looking statements. Our actual results and
financial condition, including the operating results of our lessees and the
facilities leased to subsidiaries of UHS, could differ materially from those
expressed in, or implied by, the forward-looking statements.

Forward-looking statements speak only as of the date the statements are made. We
assume no obligation to publicly update any forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting forward-looking information, except as may be required by law. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this cautionary statement.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions that affect the amounts reported in our consolidated financial
statements and accompanying notes.

We consider our critical accounting policies to be those that require us to make
significant judgments and estimates when we prepare our financial statements,
including the following:

Purchase Accounting for Acquisition of Investments in Real Estate: Purchase
accounting is applied to the assets and liabilities related to all real estate
investments acquired from third parties. In accordance with current accounting
guidance, we account for our property acquisitions as acquisitions of assets,
which requires the capitalization of acquisition costs to the underlying assets
and prohibits the recognition of goodwill or bargain purchase gains. The fair
value of the real estate acquired is allocated to the acquired tangible assets,
consisting primarily of land, building and tenant improvements, and identified
intangible assets and liabilities, consisting of the value of above-market and
below-market leases, and acquired ground leases, based in each case on their
fair values. Loan premiums, in the case of above market rate assumed loans, or
loan discounts, in the case of below market assumed loans, are recorded based on
the fair value of any loans assumed in connection with acquiring the real
estate.



The fair values of the tangible assets of an acquired property are determined
based on comparable land sales for land and replacement costs adjusted for
physical and market obsolescence for the improvements. The fair values of the
tangible assets of an acquired property are also determined by valuing the
property as if it were vacant, and the "as-if-vacant" value is then allocated to
land, building and tenant improvements based on management's determination of
the relative fair values of these assets. Management determines the as-if-vacant
fair value of a property based on assumptions that a market participant would
use, which is similar to methods used by independent appraisers. In addition,
there is intangible value related to having tenants leasing space in the
purchased property, which is referred to as in-place lease value. Such value
results primarily from the buyer of a leased property avoiding the costs
associated with leasing the property and also avoiding rent losses and
unreimbursed operating expenses during the hypothetical lease-up period. Factors
considered by management in performing these analyses include an estimate of
carrying costs during the

                                       26
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expected lease-up periods considering current market conditions and costs to
execute similar leases. In estimating carrying costs, management includes real
estate taxes, insurance and other operating expenses and estimates of lost
rental revenue during the expected lease-up periods based on current market
demand. Management also estimates costs to execute similar leases including
leasing commissions, tenant improvements, legal and other related costs. The
value of in-place leases are amortized to expense over the remaining initial
terms of the respective leases.



In allocating the fair value of the identified intangible assets and liabilities
of an acquired property, above-market and below-market in-place lease values are
recorded based on the present value (using an interest rate which reflects the
risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases and
(ii) estimated fair market lease rates from the perspective of a market
participant for the corresponding in-place leases, measured, for above-market
leases, over a period equal to the remaining non-cancelable term of the lease
and, for below-market leases, over a period equal to the initial term plus any
below market fixed rate renewal periods. The capitalized above-market lease
values are amortized as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values, also referred to as acquired lease obligations, are amortized as
an increase to rental income over the initial terms of the respective leases.

Asset Impairment:  Purchase accounting is applied to the assets and liabilities
related to all real estate investments acquired from third parties. In
accordance with current accounting guidance, we account for our property
acquisitions as acquisitions of assets, which requires the capitalization of
acquisition costs to the underlying assets and prohibits the recognition of
goodwill or bargain purchase gains. The fair value of the real estate acquired
is allocated to the acquired tangible assets, consisting primarily of land,
building and tenant improvements, and identified intangible assets and
liabilities, consisting of the value of above-market and below-market leases,
and acquired ground leases, based in each case on their fair values. Loan
premiums, in the case of above market rate assumed loans, or loan discounts, in
the case of below market assumed loans, are recorded based on the fair value of
any loans assumed in connection with acquiring the real estate.



The fair values of the tangible assets of an acquired property are determined
based on comparable land sales for land and replacement costs adjusted for
physical and market obsolescence for the improvements. The fair values of the
tangible assets of an acquired property are also determined by valuing the
property as if it were vacant, and the "as-if-vacant" value is then allocated to
land, building and tenant improvements based on management's determination of
the relative fair values of these assets. Management determines the as-if-vacant
fair value of a property based on assumptions that a market participant would
use, which is similar to methods used by independent appraisers. In addition,
there is intangible value related to having tenants leasing space in the
purchased property, which is referred to as in-place lease value. Such value
results primarily from the buyer of a leased property avoiding the costs
associated with leasing the property and also avoiding rent losses and
unreimbursed operating expenses during the hypothetical lease-up period. Factors
considered by management in performing these analyses include an estimate of
carrying costs during the expected lease-up periods considering current market
conditions and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and other operating expenses
and estimates of lost rental revenue during the expected lease-up periods based
on current market demand. Management also estimates costs to execute similar
leases including leasing commissions, tenant improvements, legal and other
related costs. The value of in-place leases are amortized to expense over the
remaining initial terms of the respective leases.



In allocating the fair value of the identified intangible assets and liabilities
of an acquired property, above-market and below-market in-place lease values are
recorded based on the present value (using an interest rate which reflects the
risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases and
(ii) estimated fair market lease rates from the perspective of a market
participant for the corresponding in-place leases, measured, for above-market
leases, over a period equal to the remaining non-cancelable term of the lease
and, for below-market leases, over a period equal to the initial term plus any
below market fixed rate renewal periods. The capitalized above-market lease
values are amortized as a reduction of rental income over the remaining
non-cancelable terms of the respective leases. The capitalized below-market
lease values, also referred to as acquired lease obligations, are amortized as
an increase to rental income over the initial terms of the respective leases.



Federal Income Taxes:  No provision has been made for federal income tax
purposes since we qualify as a REIT under Sections 856 to 860 of the Internal
Revenue Code of 1986, and intend to continue to remain so qualified. To qualify
as a REIT, we must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of our annual REIT taxable
income to shareholders. As a REIT, we generally will not be subject to federal,
state or local income tax on income that we distribute as dividends to our
shareholders.

We are subject to a federal excise tax computed on a calendar year basis. The
excise tax equals 4% of the amount by which 85% of our ordinary income plus 95%
of any capital gain income for the calendar year exceeds cash distributions
during the calendar year, as defined. No provision for excise tax has been
reflected in the financial statements as no tax was due.

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Earnings and profits, which determine the taxability of dividends to
shareholders, will differ from net income reported for financial reporting
purposes due to the differences for federal tax purposes in the cost basis of
assets and in the estimated useful lives used to compute depreciation and the
recording of provision for investment losses.

Results of Operations


During the three-month period ended June 30, 2021, net income was $6.6 million,
as compared to $4.7 million during the second quarter of 2020. The $1.9 million
increase was attributable to:

$1.3 million increase resulting from the gain recorded during the second

          quarter of 2021 related to the sale of the Children's Clinic at
          Springdale;


        • $554,000 of other combined net increases including an aggregate net
          increase in income generated at various properties, including the income

recorded in connection with the newly constructed and recently completed

          Clive Behavioral Health facility;


        • $230,000 increase in bonus rentals earned on the three hospital
          facilities leased to subsidiaries of UHS, and;

$167,000 decrease resulting from an increase in interest expense,

primarily due to an increase in our average outstanding borrowings,

          partially offset by a decrease in our average cost of borrowings under
          our revolving credit agreement.

During the six-month period ended June 30, 2021, net income was $12.2 million, as compared to $9.3 million during the six-month period of 2020. The $3.0 million increase was attributable to:

$1.3 million increase resulting from the gain recorded during the second

          quarter of 2021 related to the sale of the Children's Clinic at
          Springdale;


        • $1.1 million combined net increase resulting from an aggregate net
          increase in income generated at various properties, including the income

recorded in connection with the newly constructed Clive Behavioral

          Health facility, and;


        • $546,000 increase in bonus rentals earned on the three hospital
          facilities leased to subsidiaries of UHS;


Total revenues increased $1.6 million, or 8.3%, during the three-month period
ended June 30, 2021, as compared to the second quarter of 2020, and increased
$3.1 million, or 8.0%, during the six-month period ended June 30, 2021, as
compared to the comparable period of 2020. In addition to the increased revenues
generated at various properties, the increases in each period of 2021, as
compared to 2020, resulted primarily from the revenue recorded in connection
with the Clive Behavioral Health facility located in Clive, Iowa, which was
completed in December, 2020, and increased bonus rentals earned on the three
hospital facilities leased to subsidiaries of UHS.

Included in our other operating expenses are expenses related to the
consolidated medical office buildings and two vacant hospital facilities, which
totaled $5.0 million and $4.7 million for the three-month periods ended June 30,
2021 and 2020, respectively, and $9.8 million and $9.4 million for the six-month
periods ended June 30, 2021 and 2020, respectively. A large portion of the
expenses associated with our consolidated medical office buildings is passed on
directly to the tenants either directly as tenant reimbursements of common area
maintenance expenses or included in base rental amounts. Tenant reimbursements
for operating expenses are accrued as revenue in the same period the related
expenses are incurred and are included as lease revenue in our condensed
consolidated statements of income. Included in our operating expenses for the
three months ended June 30, 2021 and 2020, is $182,000 and $183,000,
respectively, and $346,000 and $381,000 for the six months ended June 30, 2021
and 2020, respectively, of aggregate operating expenses related to two vacant
hospital facilities located in Corpus Christi, Texas, and Evansville, Indiana.

Funds from operations ("FFO") is a widely recognized measure of performance for
Real Estate Investment Trusts ("REITs"). We believe that FFO and FFO per diluted
share, which are non-GAAP financial measures, are helpful to our investors as
measures of our operating performance. We compute FFO in accordance with
standards established by the National Association of Real Estate Investment
Trusts ("NAREIT"), which may not be comparable to FFO reported by other REITs
that do not compute FFO in accordance with the NAREIT definition, or that
interpret the NAREIT definition differently than we interpret the definition.
FFO adjusts for the effects of gains, such as gains on transactions during the
periods presented. To the extent a REIT recognizes a gain or loss with respect
to the sale of incidental assets, the REIT has the option to exclude or include
such gains and losses in the calculation of FFO. We have opted to exclude gains
and losses from sales of incidental assets in our calculation of FFO. FFO does
not represent cash generated from operating activities in accordance with GAAP
and should not be considered to be an alternative to net income determined in
accordance with GAAP. In addition, FFO should not be used as: (i) an indication
of our financial performance determined in accordance with GAAP; (ii) an
alternative to cash flow from operating activities determined in accordance with
GAAP; (iii) a measure of our liquidity, or; (iv) an indicator of funds available
for our cash needs, including our ability to make cash distributions to
shareholders.

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Below is a reconciliation of our reported net income to FFO for the three and six-month periods ended June 30, 2021 and 2020 (in thousands):

                                            Three Months Ended           Six Months Ended
                                                 June 30,                    June 30,
                                            2021          2020          2021          2020
Net income                               $    6,621$   4,700$  12,207$   9,254
Depreciation and amortization expense
on consolidated
  Investments                                 6,951         6,381        13,738        12,761
Depreciation and amortization expense
on unconsolidated
  Affiliates                                    374           293           736           579
Gain on sale of real estate assets           (1,304 )           -        (1,304 )           -
Funds From Operations                    $   12,642$  11,374$  25,377$  22,594
Weighted average number of shares
outstanding - Diluted                        13,776        13,761        13,773        13,759
Funds From Operations per diluted
share                                    $     0.92$    0.83     $    

1.84 $ 1.64



Our FFO increased $1.3 million, or $.09 per diluted share, during the second
quarter of 2021, as compared to the second quarter of 2020. The net increase was
primarily due to: (i) the increase in net income of $1.9 million, or $.14 per
diluted share, as discussed above; (ii) a $651,000, or $.04 per diluted share,
increase in depreciation and amortization expense on consolidated investments
and unconsolidated affiliates, due primarily to the depreciation expense
recorded on the Clive Behavioral Health facility which was completed in
December, 2020, partially offset by the reduction for; (iii) the $1.3 million,
or $.09 per diluted share, gain recorded during the second quarter of 2021
related to the sale of Children's Clinic at Springdale, since we have
historically excluded such gains on the sale of incidental assets from our
calculation of FFO.

Our FFO increased $2.8 million, or $.20 per diluted share, during the first six
months of 2021, as compared to the first six months of 2020. The net increase
was primarily due to: (i) the increase in net income of $3.0 million, or $.22
per diluted share, as discussed above; (ii) a $1.1 million, or $.08 per diluted
share, increase in depreciation and amortization expense on consolidated
investments and unconsolidated affiliates, due primarily to the depreciation
expense recorded on the Clive Behavioral Health facility which was completed in
December, 2020, partially offset by the reduction for; (iii) the $1.3 million,
or $.10 per diluted share, gain recorded during the first six months of 2021
related to the sale of Children's Clinic at Springdale, since we have
historically excluded such gains on the on sale of incidental assets from our
calculation of FFO.



Other Operating Results

Interest Expense:

As reflected in the schedule below, interest expense was $2.2 million and $2.0
million during the three-month periods ended June 30, 2021 and 2020,
respectively and $4.3 million during each of the six-month periods ended June
30, 2021 and 2020 (amounts in thousands):


                                     Three Months       Three Months        Six Months        Six Months
                                         Ended              Ended             Ended             Ended
                                       June 30,           June 30,           June 30,          June 30,
                                         2021               2020               2021              2020
Revolving credit agreement           $       1,029$       1,075$      1,996$      2,698
Mortgage interest                              629                654             1,264             1,312
Interest rate swaps
expense/(income), net (a.)                     320                182               629               131
Amortization of financing fees                 216                172               432               329
Amortization of fair value of
debt                                           (13 )              (13 )             (26 )             (26 )
Capitalized interest on major
projects                                         -                (61 )               -              (126 )
Other interest                                   2                  7                21                 7
Interest expense, net                $       2,183$       2,016$      4,316$      4,325

(a.) Represents net interest paid by us/(to us) by the counterparties pursuant

        to three interest rate SWAPs with a combined notional amount of $140
        million.


Interest expense increased by $167,000 during the three-month period ended June
30, 2021, as compared to the comparable period of 2020, due primarily to: (i) a
$46,000 decrease in the interest expense on our revolving credit agreement
resulting from a decrease in our average cost of borrowings pursuant to our
revolving credit agreement (1.3% during the three months ended June 30, 2021 as
compared to 1.7% in the comparable quarter of 2020), partially offset by an
increase in our average outstanding borrowings ($248.2 million during the three
months ended June 30, 2021 as compared to $215.5 million in the comparable 2020
quarter); (ii) a $138,000 net increase in interest rate swap expense during the
second quarter of 2021 as compared to the second quarter of 2020; (iii) a
$61,000

                                       29

--------------------------------------------------------------------------------


increase in interest expense due to a decrease in capitalized interest on major
projects (both newly constructed facilities were substantially completed in
December, 2020), and; (iv) $14,000 of other combined net increases in interest
expense.

Interest expense decreased slightly by $9,000 during the six-month period ended
June 30, 2021 as compared to the comparable period of 2020, due primarily to:
(i) a $702,000 decrease in the interest expense on our revolving credit
agreement resulting from a decrease in our average cost of borrowings pursuant
to our revolving credit agreement (1.3% during the six months ended June 30,
2021 as compared to 2.2% during the comparable six month period of 2020),
partially offset by an increase in our average outstanding borrowings ($243.7
million during the six-month period ended June 30, 2021 as compared to $214.4
million in the comparable 2020 six-month period); (ii) a $498,000 net increase
in interest rate swap expense during the six months ended June 30, 2021 as
compared to the comparable period in 2020; (iii) a $126,000 increase in interest
expense due to a decrease in capitalized interest on major projects (both newly
constructed facilities were substantially completed in December, 2020); (iv) a
$103,000 increase in interest expense resulting from increased amortization of
financing fees during the six months ended June 30, 2021 as compared to the six
months ended June 30, 2020, and; (v) $34,000 of other combined net decreases in
interest expense.


Disclosures Related to Certain Facilities


Please refer to Note 7 to the condensed consolidated financial statements -
Lease Accounting, for additional information regarding certain of our hospital
facilities including Southwest Healthcare System, Inland Valley Campus;
Evansville, Indiana; Corpus Christi, Texas; PeaceHealth Medical Clinic, and;
Kindred Hospital Chicago Central.



Liquidity and Capital Resources

Net cash provided by operating activities


Net cash provided by operating activities was $25.4 million during the six-month
period ended June 30, 2021 as compared to $23.2 million during the comparable
period of 2020. The $2.2 million net increase was attributable to:

• a favorable change of $2.8 million due to an increase in net income

plus/minus the adjustments to reconcile net income to net cash provided

by operating activities (depreciation and amortization, amortization

related to above/below market leases, amortization of debt premium,

amortization of deferred financing costs, stock-based compensation and

          gain on sale of real estate assets), as discussed above;


  • an unfavorable change of $827,000 in lease receivable;

       •  an unfavorable change of $201,000 in tenant reserves, deposits and
          deferred and prepaid rents;


  • an unfavorable change of $183,000 in leasing costs paid, and;

• other combined net favorable changes of $593,000, resulting primarily

from the timing of prepaid expense payments.

Net cash used in investing activities

Net cash used in investing activities was $23.2 million during the first six months of 2021 as compared to $11.3 million during the first six months of 2020.


During the six-month period ended June 30, 2021 we funded: (i) $13.0 million,
including transaction costs, on the acquisition of the Fire Mesa office building
in May, 2021, as discussed in Note 4 to the consolidated financial
statements-Acquisitions and Dispositions; (ii) $8.4 million in additions to real
estate investments including construction costs related to the 100-bed
behavioral health care hospital located in Clive, Iowa, that was substantially
completed in late December, 2020, as well as tenant improvements at various
MOBs; (iii) a $3.5 million member loan to an unconsolidated LP, and; (iv) $1.5
million in equity investments in unconsolidated LLCs. In addition, during the
six-months ended June 30, 2021, we received approximately $3.2 million of net
cash proceeds from the sale of the Children's Clinic of Springdale as discussed
in Note 4 to the consolidated financial statements-Acquisitions and
Dispositions.

During the six-month period ended June 30, 2020 we funded: (i) $13.3 million in
additions to real estate investments including $10.1 million of construction
costs related to Clive Behavioral Health facility, and tenant improvements at
various MOBs, and; (ii) $3.2 million in equity investments in unconsolidated
LLCs. In addition, during the six-months ended June 30, 2020, we received $5.2
million of cash distributions from our unconsolidated LLCs, consisting of
proceeds generated from a construction loan obtained by Grayson Properties II
during the second quarter of 2020.

Net cash provided by/(used in) financing activities

Net cash provided by financing activities was $1.8 million during the six months ended June 30, 2021, as compared to $11.7 million of cash used in financing activities during the six months ended June 30, 2020.

                                       30

--------------------------------------------------------------------------------


During the six-month period ended June 30, 2021, we paid: (i) $1.0 million on
mortgage notes payable that are non-recourse to us; (ii) $41,000 of financing
costs related to the revolving credit agreement, and; (iii) $19.2 million of
dividends. Additionally, during the six months ended June 30, 2021, we received:
(i) $22.0 million of net borrowings on our revolving credit agreement, and; (ii)
$105,000 of net cash from the issuance of shares of beneficial interest.

During the six-month period ended June 30, 2020, we paid: (i) $907,000 on
mortgage notes payable that are non-recourse to us; (ii) $362,000 of financing
costs related to the revolving credit agreement, including amendment fees
incurred during the second quarter of 2020, and; (iii) $18.9 million of
dividends. Additionally, during the six months ended June 30, 2020, we received:
(i) $8.3 million of net borrowings on our revolving credit agreement, and; (ii)
$223,000 of net cash from the issuance of shares of beneficial interest.

During the second quarter of 2020, we commenced an at-the-market ("ATM") equity
issuance program, pursuant to the terms of which we may sell, from time-to-time,
common shares of our beneficial interest up to an aggregate sales price of $100
million to or through our agent banks. No shares were issued pursuant to this
ATM equity program during the first six months of 2021. Since inception pursuant
to this ATM equity program, we have issued 2,704 shares at an average price of
$101.30 per share which generated approximately $270,000 of net cash proceeds
(net of compensation to BofA Securities, Inc. of approximately
$4,000). Additionally, we paid or incurred approximately $508,000 in various
fees and expenses related to the commencement of our ATM program.

Additional cash flow and dividends paid information for the six-month periods ended June 30, 2021 and 2020:


As indicated on our condensed consolidated statement of cash flows, we generated
net cash provided by operating activities of $25.4 million and $23.2 million
during the six-month periods ended June 30, 2021 and 2020, respectively. As also
indicated on our statement of cash flows, non-cash expenses including
depreciation and amortization expense, amortization related to above/below
market leases, amortization of debt premium, amortization of deferred financing
costs and stock-based compensation expense, as well as the gain on sale of real
estate assets are the primary differences between our net income and net cash
provided by operating activities during each period.

We declared and paid dividends of $19.2 million and $18.9 million during the
six-month periods ended June 30, 2021 and 2020, respectively. During the first
six months of 2021, the $25.4 million of net cash provided by operating
activities was approximately $6.2 million greater than the $19.2 million of
dividends paid during the first six months of 2021. During the first six months
of 2020, the $23.2 million of net cash provided by operating activities was $4.3
million greater than the $18.9 million of dividends paid during the first six
months of 2020.

As indicated in the cash flows from investing activities and cash flows from
financing activities sections of the statements of cash flows, there were
various other sources and uses of cash during the six months ended June 30, 2021
and 2020. From time to time, various other sources and uses of cash may include
items such as investments and advances made to/from LLCs, additions to real
estate investments, acquisitions/divestiture of properties, net
borrowings/repayments of debt, and proceeds generated from the issuance of
equity. Therefore, in any given period, the funding source for our dividend
payments is not wholly dependent on the operating cash flow generated by our
properties. Rather, our dividends as well as our capital reinvestments into our
existing properties, acquisitions of real property and other investments are
funded based upon the aggregate net cash inflows or outflows from all sources
and uses of cash from the properties we own either in whole or through LLCs, as
outlined above.

In determining and monitoring our dividend level on a quarterly basis, our
management and Board of Trustees consider many factors in determining the amount
of dividends to be paid each period. These considerations primarily include:
(i) the minimum required amount of dividends to be paid in order to maintain our
REIT status; (ii) the current and projected operating results of our properties,
including those owned in LLCs, and; (iii) our future capital commitments and
debt repayments, including those of our LLCs. Based upon the information
discussed above, as well as consideration of projections and forecasts of our
future operating cash flows, management and the Board of Trustees have
determined that our operating cash flows have been sufficient to fund our
dividend payments. Future dividend levels will be determined based upon the
factors outlined above with consideration given to our projected future results
of operations.

We expect to finance all capital expenditures and acquisitions and pay dividends
utilizing internally generated and additional funds. Additional funds may be
obtained through: (i) borrowings under our $350 million revolving credit
agreement in place at June 30, 2021 (which had $86.7 million of available
borrowing capacity, net of outstanding borrowings and letters of credit as of
June 30, 2021 prior to the July 2, 2021 amendment and restatement of the credit
agreement, which increased the borrowing capacity to $375 million from $350
million); (ii) borrowings under or refinancing of existing third-party debt
pursuant to mortgage loan agreements entered into by our consolidated and
unconsolidated LLCs/LPs; (iii) the issuance of equity pursuant to our ATM
program, and/or; (iv) the issuance of other long-term debt.

We believe that our operating cash flows, cash and cash equivalents, available borrowing capacity under our revolving credit agreement and access to the capital markets provide us with sufficient capital resources to fund our operating, investing and financing requirements for the next twelve months, including providing sufficient capital to allow us to make distributions necessary to enable

                                       31

--------------------------------------------------------------------------------


us to continue to qualify as a REIT under Sections 856 to 860 of the Internal
Revenue Code of 1986. In the event we need to access the capital markets or
other sources of financing, there can be no assurance that we will be able to
obtain financing on acceptable terms or within an acceptable time. Our inability
to obtain financing on terms acceptable to us could have a material unfavorable
impact on our results of operations, financial condition and liquidity.

Credit facilities and mortgage 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 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 pursuant to our ATM 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 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 July 2, 2021, we entered into an amended and restated revolving credit
agreement ("Credit Agreement") to amend and restate the previously existing $350
million credit agreement, as amended and dated June 5, 2020 ("Prior Credit
Agreement"). Among other things, under the Credit Agreement, our aggregate
revolving credit commitment was increased to $375 million from $350 million. The
Credit Agreement, which is scheduled to mature on July 2, 2025, provides for a
revolving credit facility in an aggregate principal amount of $375 million,
including a $40 million sublimit for letters of credit and a $30 million
sublimit for swingline/short-term loans. Under the terms of the Credit
Agreement, we may request that the revolving line of credit be increased by up
to an additional $50 million. 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 most of the Trust's wholly-owned subsidiaries.

Borrowings under the Credit Agreement will bear interest annually at a rate
equal to, at our option, at either LIBOR (for one, three, or six months) or the
Base Rate, plus in either case, a specified margin depending on our ratio of
debt to total capital, as determined by the formula set forth in the Credit
Agreement. The applicable margin ranges from 1.10% to 1.35% for LIBOR loans and
0.10% to 0.35% for Base Rate loans. The initial applicable margin is 1.25% for
LIBOR loans and 0.25% for Base Rate loans. 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%. The
Trust will also pay a quarterly commitment fee ranging from 0.15% to 0.35%
(depending on the Trust's ratio of debt to asset value) of the average daily
unused portion of the revolving credit commitments. The Credit Agreement also
provides for options to extend the maturity date and borrowing availability for
two additional six-month periods.

The margins over LIBOR, Base Rate and the facility fee are based upon our total
leverage ratio. At June 30, 2021, the applicable margin over the LIBOR rate was
1.25%, the margin over the Base Rate was 0.25% and the facility fee was 0.25%.

At June 30, 2021, we had $258.2 million of outstanding borrowings and $5.1
million of letters of credit outstanding under our Prior Credit Agreement that
was in effect at June 30, 2021. We had $86.7 million of available borrowing
capacity, net of the outstanding borrowings and letters of credit outstanding as
of June 30, 2021. There are no compensating balance requirements. At December
31, 2020, we had $236.2 million of outstanding borrowings outstanding against
our Prior Credit Agreement and $108.2 million of available borrowing capacity.

The Prior Credit Agreement contained and 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. In addition, the Prior
Credit Agreements contained and the Credit Agreement 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 then outstanding under both Credit
Agreements. We were in compliance with all of the covenants in the Prior Credit
Agreement at June 30, 2021 and December 31, 2020. We also believe that we would
remain in compliance if, based on the assumption that the majority of the
potential new borrowings will be used to fund investments, 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 Prior Credit Agreement (dollar amounts
in thousands):

                                       32
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                                      June 30,     December 31,
                         Covenant       2021           2020
Tangible net worth      > =$125,000$ 144,293$      147,263
Total leverage                < 60%        46.0 %           44.8 %
Secured leverage              < 30%         8.2 %            8.6 %
Unencumbered leverage         < 60%        43.2 %           41.4 %
Fixed charge coverage       > 1.50x        4.8x             4.7x




As indicated on the following table, we have various mortgages, all of which are
non-recourse to us, included on our condensed consolidated balance sheet as of
June 30, 2021 (amounts in thousands):



                                                Outstanding
                                                  Balance             Interest          Maturity
Facility Name                               (in thousands) (a.)         Rate              Date
700 Shadow Lane and Goldring MOBs fixed
rate
  mortgage loan (b.)                       $               5,325            4.54 %        June, 2022
BRB Medical Office Building fixed rate
mortgage loan                                              5,394            4.27 %    December, 2022
Desert Valley Medical Center fixed rate
mortgage loan                                              4,434            3.62 %     January, 2023
2704 North Tenaya Way fixed rate
mortgage loan                                              6,498            4.95 %    November, 2023
Summerlin Hospital Medical Office
Building III fixed
  rate mortgage loan                                      12,925            4.03 %       April, 2024
Tuscan Professional Building fixed rate
mortgage loan                                              2,642            5.56 %        June, 2025
Phoenix Children's East Valley Care
Center fixed rate
  mortgage loan                                            8,593            3.95 %     January, 2030
Rosenberg Children's Medical Plaza fixed
rate mortgage loan                                        12,392            4.42 %   September, 2033
Total, excluding net debt premium and
net financing fees                                        58,203
   Less net financing fees                                  (417 )
   Plus net debt premium                                     116
Total mortgages notes payable,
non-recourse to us, net                    $              57,902



(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 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.


The mortgages are secured by the real property of the buildings as well as
property leases and rents. The mortgages outstanding as of June 30, 2021 had a
combined fair value of approximately $61.1 million. At December 31, 2020, we had
various mortgages, all of which were non-recourse to us, included in our
condensed consolidated balance sheet. The combined outstanding balance of these
various mortgages at December 31, 2020 was $59.2 million and had a combined fair
value of approximately $62.0 million.

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.

Off Balance Sheet Arrangements


As of June 30, 2021, we are party to certain off balance sheet arrangements
consisting of standby letters of credit and equity and debt financing
commitments. Our outstanding letters of credit at June 30, 2021 totaled $5.1
million related to Grayson Properties II. As of December 31, 2020 we had off
balance sheet arrangements consisting of standby letters of credit and equity
and debt financing commitments. Our outstanding letters of credit at December
31, 2020 totaled $5.6 million related to Grayson Properties II.

Acquisition and Divestiture Activity

Please see Note 4 to the consolidated financial statements for completed transactions.

© Edgar Online, source Glimpses

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