UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-9321

UNIVERSAL HEALTH REALTY INCOME TRUST

(Exact name of registrant as specified in its charter)

Maryland		23-6858580
(State or other jurisdiction of incorporation or organization)		(I. R. S. Employer Identification No.)

UNIVERSAL CORPORATE CENTER 367 SOUTH GULPH ROAD KING OF PRUSSIA, Pennsylvania		~~19406~~19406-0958
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (610) 265-0688

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Shares of beneficial interest, $0.01 par value

UHT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated Filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of common shares of beneficial interest outstanding at ~~October 31, 2021—13,784,412.~~April 30, 2022—13,786,283.

UNIVERSAL HEALTH REALTY INCOME TRUST

INDEX

		PAGE NO.
PART I. FINANCIAL INFORMATION (unaudited)
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	4
	Condensed Consolidated Statements of Comprehensive Income—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	5
	Condensed Consolidated Balance Sheets—~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	6
	Condensed Consolidated Statements of Changes in Equity—Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	7 ~~through 8~~
	Condensed Consolidated Statements of Cash Flows—~~Nine~~Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~	98
	Notes to Condensed Consolidated Financial Statements	109 through 21
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 through 3334
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34 through 35
Item 4.	Controls and Procedures	35
PART II. OTHER INFORMATION		36
Item 1A.	Risk Factors	36
Item 6.	Exhibits	36

SIGNATURES		37

This Quarterly Report on Form 10-Q is for the quarter ended ~~September 30, 2021.~~March 31, 2022. In this Quarterly Report, “we,” “us,” “our” and the “Trust” refer to Universal Health Realty Income Trust and its subsidiaries.

As disclosed in this Quarterly Report, including in Note 2 to the condensed consolidated financial ~~statements~~—statements—Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions, a wholly-owned subsidiary of UHS (UHS of Delaware, Inc.) serves as our Advisor pursuant to the terms of an annually renewable Advisory Agreement dated December 24, 1986, and as amended and restated as of January 1, 2019. The Advisory Agreement expires on December 31 of each year, however, it is renewable by us, subject to a determination by our Trustees who are unaffiliated with UHS, that the Advisor’s performance has been satisfactory. The Advisory Agreement was renewed for 2022 with the same terms as the Advisory Agreement in place during 2021 and 2020. Our officers are all employees of UHS through its wholly-owned subsidiary, UHS of Delaware, Inc. In addition, ~~three~~five of our hospital facilities are leased to wholly-owned subsidiaries of UHS, one of our hospital facilities is leased to a joint venture between a wholly-owned subsidiary of UHS and a third party, and subsidiaries of UHS are tenants of ~~nineteen~~twenty medical office or general office buildings (one of which is currently under construction) or free-standing emergency departments, that are either wholly or jointly-owned by us. Any reference to “UHS” or “UHS facilities” in this report is referring to Universal Health Services, Inc.’s subsidiaries, including UHS of Delaware, Inc.

In this Quarterly Report, the term “revenues” does not include the revenues of the unconsolidated limited liability companies (“LLCs”) in which we have various non-controlling equity interests ranging from 33% to 95%. As of ~~September 30, 2021,~~March 31, 2022, we had investments in ~~five~~four jointly-owned LLCs/LPs. We currently account for our share of the income/loss from these investments by the equity method (see Note 5 to the condensed consolidated financial statements included herein).

Part I. Financial Information

Item I. Financial Statements

Universal Health Realty Income Trust

Condensed Consolidated Statements of Income

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

(amounts in thousands, except per share information)

(unaudited)

	Three Months Ended						Nine Months Ended							Three Months Ended
	September 30,						September 30,							March 31,
	2021			2020			2021			2020				2022			2021
Revenues:
Lease revenue - UHS facilities (a.)	$	7,574		$	6,381		$	21,971		$	18,243			$	7,426		$	7,132
Lease revenue - Non-related parties		13,115			12,841			39,324			38,526				12,895			13,092
Other revenue - UHS facilities		236			232			669			667				229			226
Other revenue - Non-related parties		280			238			816			744				255			249
Interest income on financing leases - UHS facilities															1,370			-
		21,205			19,692			62,780			58,180				22,175			20,699
Expenses:
Depreciation and amortization		6,813			6,399			20,551			19,160				6,709			6,787
Advisory fees to UHS		1,121			1,039			3,272			3,082				1,224			1,062
Other operating expenses		5,980			5,614			17,485			16,573				6,867			5,602
		13,914			13,052			41,308			38,815				14,800			13,451
Income before equity in income of unconsolidated limited liability companies ("LLCs"), gain on sale and interest expense		7,291			6,640			21,472			19,365
Income before equity in income of unconsolidated limited liability companies ("LLCs") and interest expense															7,375			7,248
Equity in income of unconsolidated LLCs		303			517			1,341			1,371				252			471
Gain on sale of real estate assets		-			-			1,304			-
Interest expense, net		(2,250	)		(1,964	)		(6,566	)		(6,289	)			(2,222	)		(2,133	)
Net income	$	5,344		$	5,193		$	17,551		$	14,447			$	5,405		$	5,586
Basic earnings per share	$	0.39		$	0.38		$	1.28		$	1.05			$	0.39		$	0.41
Diluted earnings per share	$	0.39		$	0.38		$	1.27		$	1.05			$	0.39		$	0.41

Weighted average number of shares outstanding - Basic		13,762			13,748			13,755			13,741				13,764			13,750
Weighted average number of shares outstanding - Diluted		13,783			13,770			13,777			13,763				13,785			13,771

(a.) Includes bonus rental on UHS acute-care hospital facilities of $1,828 and $1,680 for the three-month periods ended September 30, 2021 and 2020, respectively, and $5,171 and $4,477 for the nine-month periods ended September 30, 2021 and 2020, respectively.
(a.) Includes bonus rental on McAllen Medical Center, a UHS acute care hospital facility of $678 for the three-month period ended March 31, 2022 and includes bonus rental on three UHS acute care hospital facilities of $1,695 for the three-month period ended March 31, 2021.													(a.) Includes bonus rental on McAllen Medical Center, a UHS acute care hospital facility of $678 for the three-month period ended March 31, 2022 and includes bonus rental on three UHS acute care hospital facilities of $1,695 for the three-month period ended March 31, 2021.

See accompanying notes to these condensed consolidated financial statements.

Universal Health Realty Income Trust

Condensed Consolidated Statements of Comprehensive Income

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~

(amounts in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net income

$
5,344

$
5,193

$
17,551

$
14,447

Other comprehensive (loss)/gain:

Unrealized derivative gains/(loss) on cash flow hedges

471

234

3,259

(5,709
)
Total other comprehensive gains/(loss):

471

234

3,259

(5,709
)
Total comprehensive income

$
5,815

$
5,427

$
20,810

$
8,738

	Three Months Ended
	March 31,
	2022		2021
Net income	$	5,405	$	5,586
Other comprehensive gain:
Unrealized derivative gains on cash flow hedges		5,684		3,348
Total other comprehensive gains:		5,684		3,348
Total comprehensive income	$	11,089	$	8,934

See accompanying notes to these condensed consolidated financial statements.

Universal Health Realty Income Trust

Condensed Consolidated Balance Sheets

(amounts in thousands, except share information)

(unaudited)

	September 30,			December 31,			March 31,			December 31,
	2021			2020			2022			2021
Assets:
Real Estate Investments:
Buildings and improvements and construction in progress	$	610,338		$	605,292		$	622,757		$	608,836
Accumulated depreciation		(230,827	)		(216,648	)		(231,459	)		(225,584	)
		379,511			388,644			391,298			383,252
Land		56,947			55,157			56,631			54,897
Net Real Estate Investments		436,458			443,801			447,929			438,149
Financing receivable from UHS								83,741			82,439
Net Real Estate Investments and Financing receivable								531,670			520,588
Investments in and advances to limited liability companies ("LLCs")		23,123			4,278			9,960			10,139
Other Assets:
Cash and cash equivalents		9,347			5,742			8,879			22,504
Lease and other receivables from UHS		4,246			3,199			4,397			4,641
Lease receivable - other		6,841			7,504			7,763			7,109
Intangible assets (net of accumulated amortization of $17.7 million and $19.5 million, respectively)		10,392			11,742
Intangible assets (net of accumulated amortization of $14.8 million and $14.2 million, respectively)								11,175			9,972
Right-of-use land assets, net		8,891			8,914			11,486			11,495
Deferred charges and other assets, net		11,012			8,829			17,119			11,971
Assets of property held for sale		7,371			-
Total Assets	$	517,681		$	494,009		$	602,449		$	598,419
Liabilities:
Line of credit borrowings	$	276,800		$	236,200		$	275,100		$	271,900
Mortgage notes payable, non-recourse to us, net		57,397			58,895			56,346			56,866
Accrued interest		352			351			343			346
Accrued expenses and other liabilities		11,261			19,802			11,779			12,157
Ground lease liabilities, net		8,891			8,914			11,486			11,495
Tenant reserves, deposits and deferred and prepaid rents		11,092			10,842			10,421			10,328
Liabilities of property held for sale		77			-
Total Liabilities		365,870			335,004			365,475			363,092
Equity:
Preferred shares of beneficial interest, $.01 par value; 5,000,000 shares authorized; NaN issued and outstanding		-			-			-			-
Common shares, $.01 par value; 95,000,000 shares authorized; issued and outstanding: 2021 - 13,784,401; 2020 - 13,771,287		138			138
Common shares, $.01 par value; 95,000,000 shares authorized; issued and outstanding: 2022 - 13,786,277; 2021 - 13,785,345								138			138
Capital in excess of par value		268,232			267,368			268,792			268,515
Cumulative net income		698,278			680,727			794,964			789,559
Cumulative dividends		(814,281	)		(785,413	)		(833,717	)		(823,998	)
Accumulated other comprehensive loss		(556	)		(3,815	)
Accumulated other comprehensive income								6,797			1,113
Total Equity		151,811			159,005			236,974			235,327
Total Liabilities and Equity	$	517,681		$	494,009		$	602,449		$	598,419

See accompanying notes to these condensed consolidated financial statements.

Universal Health Realty Income Trust

Condensed Consolidated Statements of Changes in Equity

For the ~~Nine~~Three Months Ended ~~September 30, 2021~~March 31, 2022

(amounts in thousands)

(unaudited)

	Common Shares																		Common Shares
					Capital in								Accumulated other										Capital in							Accumulated other
	Number				excess of			Cumulative		Cumulative			comprehensive			Total			Number				excess of		Cumulative		Cumulative			comprehensive		Total
	of Shares		Amount		par value			net income		dividends			income/(loss)			Equity			of Shares		Amount		par value		net income		dividends			income/(loss)		Equity

January 1, 2021		13,771	$	138	$	267,368		$	680,727	$	(785,413	)	$	(3,815	)	$	159,005
January 1, 2022																				13,785	$	138	$	268,515	$	789,559	$	(823,998	)	$	1,113	$	235,327
Shares of Beneficial Interest:
Issued, net		13		—		161			—		—			—			161
Repurchased		—		—		(16	)		—		—			—			(16	)
Issued																				1		—		54		—		—			—		54
Restricted stock-based compensation expense		—		—		719			—		—			—			719			—		—		223		—		—			—		223
Dividends ($2.095/share)		—		—		—			—		(28,868	)		—			(28,868	)
Dividends ($.705/share)																				—		—		—		—		(9,719	)		—		(9,719	)
Comprehensive income:
Net income		—		—		—			17,551		—			—			17,551			—		—		—		5,405		—			—		5,405
Unrealized net gain on cash flow hedges		—		—		—			—		—			3,259			3,259			—		—		—		—		—			5,684		5,684
Subtotal - comprehensive income									17,551					3,259			20,810									5,405					5,684		11,089
September 30, 2021		13,784	$	138	$	268,232		$	698,278	$	(814,281	)	$	(556	)	$	151,811
March 31, 2022																				13,786	$	138	$	268,792	$	794,964	$	(833,717	)	$	6,797	$	236,974

Universal Health Realty Income Trust

Condensed Consolidated Statements of Changes in Equity

For the Three Months Ended ~~September 30,~~March 31, 2021

(amounts in thousands)

(unaudited)

	Common Shares																	Common Shares
					Capital in							Accumulated other										Capital in							Accumulated other
	Number				excess of		Cumulative		Cumulative			comprehensive			Total			Number				excess of		Cumulative		Cumulative			comprehensive			Total
	of Shares		Amount		par value		net income		dividends			income/(loss)			Equity			of Shares		Amount		par value		net income		dividends			income/(loss)			Equity

July 1, 2021		13,783	$	138	$	267,951	$	692,934	$	(804,632	)	$	(1,027	)	$	155,364
January 1, 2021																			13,771	$	138	$	267,368	$	680,727	$	(785,413	)	$	(3,815	)	$	159,005
Shares of Beneficial Interest:
Issued		1		—		55		—		—			—			55			1		—		57		—		—			—			57
Repurchased		—		—		—		—		—			—			—
Restricted stock-based compensation expense		—		—		226		—		—			—			226			—		—		242		—		—			—			242
Dividends ($.70/share)		—		—		—		—		(9,649	)		—			(9,649	)
Dividends ($.695/share)																			—		—		—		—		(9,571	)		—			(9,571	)
Comprehensive income:
Net income		—		—		—		5,344		—			—			5,344			—		—		—		5,586		—			—			5,586
Unrealized net gain on cash flow hedges		—		—		—		—		—			471			471			—		—		—		—		—			3,348			3,348
Subtotal - comprehensive income								5,344					471			5,815									5,586					3,348			8,934
September 30, 2021		13,784	$	138	$	268,232	$	698,278	$	(814,281	)	$	(556	)	$	151,811
March 31, 2021																			13,772	$	138	$	267,667	$	686,313	$	(794,984	)	$	(467	)	$	158,667

See accompanying notes to these condensed consolidated financial statements.

~~Universal Health Realty Income Trust~~

~~Condensed Consolidated Statements of Changes in Equity~~

~~For the Nine Months Ended September 30, 2020~~

~~(amounts in thousands)~~

~~(unaudited)~~

Common Shares

Capital in

Accumulated other

Number

excess of

Cumulative

Cumulative

comprehensive

Total

of Shares

Amount

par value

net income

dividends

income/(loss)

Equity

January 1, 2020

13,757

$
138

$
266,723

$
661,280

$
(747,417
)

$
1,010

$
181,734

Shares of Beneficial Interest:

Issued, net

14

—

(317
)

—

—

—

(317
)
Restricted stock-based compensation expense

—

—

665

—

—

—

665

Dividends ($2.065/share)

—

—

—

—

(28,426
)

—

(28,426
)
Comprehensive income:

Net income

—

—

—

14,447

—

—

14,447

Unrealized loss on cash flow hedges

—

—

—

—

—

(5,709
)

(5,709
)
Subtotal - comprehensive income

14,447

(5,709
)

8,738

September 30, 2020

13,771

$
138

$
267,071

$
675,727

$
(775,843
)

$
(4,699
)

$
162,394

~~Universal Health Realty Income Trust~~

~~Condensed Consolidated Statements of Changes in Equity~~

~~For the Three Months Ended September 30, 2020~~

~~(amounts in thousands)~~

~~(unaudited)~~

Common Shares

Capital in

Accumulated other

Number

excess of

Cumulative

Cumulative

comprehensive

Total

of Shares

Amount

par value

net income

dividends

income/(loss)

Equity

July 1, 2020

13,770

$
138

$
266,843

$
670,534

$
(766,342
)

$
(4,933
)

$
166,240

Shares of Beneficial Interest:

Issued

1

—

(20
)

—

—

—

(20
)
Restricted stock-based compensation expense

—

—

248

—

—

—

248

Dividends ($.69/share)

—

—

—

—

(9,501
)

—

(9,501
)
Comprehensive income:

Net income

—

—

—

5,193

—

—

5,193

Unrealized gain on cash flow hedges

—

—

—

—

—

234

234

Subtotal - comprehensive income

5,193

234

5,427

September 30, 2020

13,771

$
138

$
267,071

$
675,727

$
(775,843
)

$
(4,699
)

$
162,394

~~See accompanying notes to these condensed consolidated financial statements.~~

Universal Health Realty Income Trust

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

	Nine months ended September 30,						Three months ended March 31,
	2021			2020			2022			2021
Cash flows from operating activities:
Net income	$	17,551		$	14,447		$	5,405		$	5,586
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,551			19,160			6,709			6,787
Amortization related to above/below market leases, net		(139	)		(140	)		(39	)		(45	)
Amortization of debt premium		(38	)		(39	)		(12	)		(12	)
Amortization of deferred financing costs		609			549			176			216
Stock-based compensation expense		719			665			223			242
Gain on sale of real estate assets		(1,304	)		-
Changes in assets and liabilities:
Lease receivable		(457	)		27			(410	)		(329	)
Accrued expenses and other liabilities		201			49			(613	)		(633	)
Tenant reserves, deposits and deferred and prepaid rents		272			(186	)		93			(396	)
Accrued interest		1			159			(3	)		(5	)
Leasing costs paid		(1,250	)		(745	)		(482	)		(365	)
Other, net		(522	)		(1,171	)		657			204
Net cash provided by operating activities		36,194			32,775			11,704			11,250
Cash flows from investing activities:
Investments in LLCs		(16,138	)		(3,204	)		-			(1,544	)
Cash distributions from LLCs		-			5,196			160			-
Advance made to LLC		(3,500	)		-			-			(3,500	)
Additions to real estate investments, net		(11,537	)		(18,784	)		(3,527	)		(6,974	)
Deposit on real estate assets		(200	)		-			-			(200	)
Net cash paid for acquisition of property		(12,989	)		-
Cash proceeds received from sale of property, net		3,209			-
Cash paid for acquisition of properties								(13,605	)		-
Net cash paid as part of asset exchange transaction								(1,346	)		-
Net cash used in investing activities		(41,155	)		(16,792	)		(18,318	)		(12,218	)
Cash flows from financing activities:
Net borrowings on line of credit		40,600			14,150
Net borrowings on the line of credit								3,200			11,450
Repayments of mortgage notes payable		(1,550	)		(1,406	)		(536	)		(510	)
Financing costs paid		(1,813	)		(372	)		(26	)		(35	)
Dividends paid		(28,830	)		(28,411	)		(9,704	)		(9,564	)
Issuance of shares of beneficial interest, net		159			266			55			56
Net cash provided by/(used in) financing activities		8,566			(15,773	)
Increase in cash and cash equivalents		3,605			210
Net cash (used in)/provided by financing activities								(7,011	)		1,397
(Decrease)/increase in cash and cash equivalents								(13,625	)		429
Cash and cash equivalents, beginning of period		5,742			6,110			22,504			5,742
Cash and cash equivalents, end of period	$	9,347		$	6,320		$	8,879		$	6,171
Supplemental disclosures of cash flow information:
Interest paid	$	5,995		$	5,620		$	2,080		$	1,935
Invoices accrued for construction and improvements	$	151		$	5,660		$	1,932		$	468

See accompanying notes to these condensed consolidated financial statements.

UNIVERSAL HEALTH REALTY INCOME TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2021~~March 31, 2022

(unaudited)

(1) General

In this Quarterly Report on Form 10-Q, the term “revenues” does not include the revenues of the unconsolidated LLCs in which we have various non-controlling equity interests ranging from 33% to 95%. As of ~~September 30, 2021,~~March 31, 2022, we had investments in 54 jointly-owned LLCs/~~LPs (subsequent to September 30, 2021, we purchased the 5% third-party minority ownership interest in one of the jointly-owned LPs, as discussed in Note 5).~~LPs. We currently account for our share of the income/loss from these investments by the equity method (see Note 5). These LLCs are included in our consolidated financial statements for all periods presented on an unconsolidated basis since they are not variable interest entities for which we are the primary beneficiary, nor do we hold a controlling voting interest.

The condensed consolidated financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the SEC and reflect all normal and recurring adjustments which, in our opinion, are necessary to fairly present results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although we believe that the accompanying disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements, the notes thereto and accounting policies included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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.

(2) Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions

Leases: We commenced operations in 1986 by purchasing properties from certain subsidiaries of UHS and immediately leasing the properties back to the respective subsidiaries. ~~Most of the leases were entered into at the time we commenced operations and provided for initial terms of 13 to 15 years with up to 6 additional 5-year renewal terms.~~ The ~~current~~ base rentals and lease and renewal terms for each of the ~~3 hospital facilities~~hospitals leased to ~~wholly-owned~~ subsidiaries of UHS as of March 31, 2022 are provided below. The base rents are paid ~~monthly and each~~monthly. The lease on McAllen Medical Center also provides for ~~additional or~~ bonus ~~rents~~rent which ~~are computed and~~is paid ~~on a~~ quarterly ~~basis~~ based upon a computation that compares the hospital’s current quarter revenue to a corresponding quarter in the base year. The ~~three~~ hospital leases with ~~wholly-owned~~ subsidiaries of UHS, with the exception of the lease on Clive Behavioral Health Hospital (which is operated by UHS in a joint venture with an unrelated third party), are unconditionally guaranteed by UHS and are cross-defaulted with one another.

The combined revenues generated from the leases on the ~~three~~3 acute care and 3 behavioral health care hospital facilities leased to ~~wholly-owned~~ subsidiaries of UHS at March 31, 2022, accounted for approximately ~~22% and 23%~~27% of our consolidated revenues for the three months ended ~~September 30,~~March 31, 2022. The combined revenues generated from the leases on the 3 acute care and 1 behavioral health care hospital facilities leased to subsidiaries of UHS at March 31, 2021 ~~and 2020, respectively, and~~accounted for approximately ~~22%~~26% of our consolidated revenues for ~~each of~~ the ~~nine~~three months ended ~~September 30, 2021 and 2020.~~March 31, 2021. In addition to ~~these three~~the 6 UHS hospital facilities, ~~one of our hospital facilities is leased to a joint venture between a subsidiary of UHS and a third party, and~~ we have ~~19 medical office buildings (“MOBs”), general office buildings or free-standing emergency departments (“FEDs”),~~20 properties consisting of MOBs (including one under construction) and FEDs that are either wholly or jointly-owned by us that include, or will include, tenants which are subsidiaries ~~or joint ventures~~ of UHS. The aggregate revenues generated from UHS-related tenants comprised approximately ~~37%~~41% and ~~34%~~36% of our consolidated revenues during the three-month periods ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and approximately 36% and 33% of our consolidated revenues during the nine-month periods ended September 30, 2021 and 2020,~~ respectively.

Pursuant to the ~~Master Lease Document~~terms of the two master leases by and among us and certain subsidiaries of UHS, dated December 24, 1986 and December 31, 2021 (the “Master ~~Lease”~~Leases”), which ~~governs~~govern the leases of McAllen Medical Center, Wellington Regional Medical Center (governed by the ~~three hospitals with~~Master Lease dated December 24, 1986), Aiken Regional Medical Center and Canyon Creek Behavioral Health (governed by the Master Lease dated December 31, 2021), all of which are hospital properties that are wholly-owned subsidiaries of UHS, ~~as reflected below,~~ UHS has the option, among other things, to renew the leases at the lease terms described below by providing notice to us at least 90 days prior to the termination of the then current term. UHS also has the right to purchase the respective leased facilities from us at their appraised fair market value upon any of the following: (i) at the end of the lease terms or any renewal terms; (ii) upon one month’s notice should a change of control of the Trust occur, or; (iii) within the time period as specified in the ~~lease~~leases in the event that UHS provides notice to us of their intent to offer a substitution property/properties in exchange for one (or more) of the ~~three~~four wholly-owned UHS hospital facilities leased from us, should we be unable to reach an agreement with UHS on the properties to be substituted. Additionally, UHS has rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and

conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer.

In addition, a wholly-owned subsidiary of UHS is the managing, majority member in a joint-venture with an unrelated third-party that operates, and leases from us, Clive Behavioral Health. This 100-bed behavioral health care facility is located in Clive, Iowa and was completed and opened in late December, 2020 and the hospital lease commenced on December 31, 2020. The lease on this facility is a triple net lease and has an initial term of 20 years with 5 10-year renewal options. Beginning on January 1, 2022, and thereafter on each January 1^st through 2040 (and potentially through 2070 if the first 3 of five, 10-year renewal options are exercised), the annual rental will increase by 2.75% on a cumulative and compounded basis. The first three of the five 10-year renewal options will provide for annual rental as stipulated in the lease (2041 through 2070) and the 2 additional 10-year lease renewal options will be at fair market value lease rates (2071 through 2090). Pursuant to the terms of the lease on this facility, the joint venture has the option to, among other things, renew the lease at the terms specified in the lease agreement by providing notice to us at least 270 days prior to the termination of the then current term. The joint venture also has the right to purchase the leased facility from us at its appraised fair market value upon either of the following: (i) by providing notice at least 270 days prior to the end of the lease terms or any renewal terms, or; (ii) upon 30 days’ notice anytime within 12 months of a change of control of the Trust (UHS also has this right should the joint venture decline to exercise its purchase right). Additionally, the joint venture has rights of first offer to purchase the facility prior to any third-party sale.

The table below details the existing lease terms and renewal options for ~~our~~ ~~three~~each of the hospital leases that are related to UHS as of March 31, 2022, consisting of 3 acute care hospitals ~~operated by wholly-owned subsidiaries of UHS:~~and 3 behavioral health hospitals:

Hospital Name	Annual Minimum Rent		End of Lease Term	Renewal Term (years)			Annual Minimum Rent		End of Lease Term	Renewal Term (years)
McAllen Medical Center	$	5,485,000	December, 2026		5	(a.)	$	5,485,000	December, 2026		5	(a.)
Wellington Regional Medical Center	$	3,030,000	December, 2021		10	(b.)	$	6,319,000	December, 2026		5	(b)
Southwest Healthcare System, Inland Valley Campus	$	2,648,000	December, 2021		10	(c.)
Aiken Regional Medical Center/Aurora Pavilion Behavioral Health Services							$	3,895,000	December, 2033		35	(c)
Canyon Creek Behavioral Health							$	1,670,000	December, 2033		35	(c)
Clive Behavioral Health Hospital							$	2,628,000	December, 2040		50	(d)

~~(a.)~~(a)

UHS has one 5-year renewal option at ~~the~~ existing lease ~~rate~~rates (through 2031).

~~(b.)~~(b)

UHS has ~~two~~one 5-year renewal option at fair market value lease rates (through 2031; see additional disclosure below).

(c)

UHS has seven 5-year renewal options at fair market value lease rates ~~(2022~~(2034 through ~~2031)~~2068). Since UHS’s lease renewal option for Wellington Regional Medical Center is fair market value (effective January 1, 2022), the lease rate valuation process is currently in progress and expected to be completed during the fourth quarter of 2021. Subject to completion of a lease agreement at acceptable rates and terms, UHS has indicated its intent to renew the lease on this facility.

~~(c.)~~(d)

~~UHS~~The UHS-related joint venture has ~~notified us of their intent to terminate~~five 10-year renewal options; the ~~existing lease on Southwest Healthcare System, Inland Valley Campus, upon the scheduled termination~~first three of the ~~current~~five 10-year renewal options will be at computed lease ~~term on December 31, 2021. UHS has agreed to exchange,~~rates as stipulated in the lease (2041 through 2070) and ~~lease back from us, substitution properties with an aggregate~~the last two 10-year renewal options will be at 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. See below for additional disclosure.~~lease rates (2071 through 2090).

~~UHS has~~ ~~two~~ ~~5-year renewal options at fair market value~~Upon the December 31, 2021 expiration of the lease ~~rates (2022 through 2031) related to the Southwest Healthcare System, Inland Valley Campus property.~~ ~~As previously disclosed,~~on Wellington Regional Medical Center located in West Palm Beach, Florida, a wholly-owned subsidiary of UHS ~~has notified us that it is planning~~exercised its fair market value renewal option and renewed the lease for a 5-year term scheduled to ~~terminate the existing lease on Southwest Healthcare System, Inland Valley Campus, upon the scheduled expiration of the current lease term~~expire on December 31, ~~2021. As permitted pursuant~~2026. Effective January 1, 2022, the annual fair market value lease rate for this hospital, which is payable to ~~the terms~~us monthly, is $6.3 million (there is no longer a bonus rental component of the lease ~~UHS has~~payment). Beginning on January 1, 2023, and thereafter on each January 1^st through 2026, the ~~right~~ ~~to purchase the leased property at its appraised fair market value at the end of the existing lease term. However, UHS has agreed to exchange,~~annual rent will increase by 2.50% on a cumulative and lease back from us, 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 substitution properties consist of one acute care hospital (including a behavioral health pavilion) and a newly constructed behavioral health hospital. The Independent Trustees of our Board, as well as the UHS Board of Directors, have approved these transactions subject to satisfactory completion of definitive agreements, which are in progress. The effective date of the transactions is expected to coincide with the scheduled lease maturity date of December 31, 2021.compounded basis. Pursuant to the terms of the hospital’s previous lease, on ~~the Inland Valley Campus,~~ we earned ~~$3.4 million of~~aggregate lease revenue ~~during the nine-month period ended September 30, 2021 ($2.0~~of $5.5 million ~~in base rental and $1.4 million in bonus rental) and $4.4 million of lease revenue~~ during the year ended December 31, ~~2020 ($2.6~~2021, (consisting of $3.0 million inof base rental and ~~$1.8~~$2.5 million inof bonus rental).

Management cannot predict whether the leases with wholly-owned subsidiaries of UHS, which have renewal options at existing lease rates or fair market value lease rates, or any of our other leases, will be renewed at the end of their lease term. If the leases are not renewed at their current rates or the fair market value lease rates, we would be required to find other operators for those facilities and/or enter into leases on terms potentially less favorable to us than the current leases. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital or FED facilities upon expiration of the lease terms, our future revenues 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.

In January, 2022, we entered into a ground lease and master flex-lease agreement with a wholly-owned subsidiary of UHS with the intent to develop, construct and own the real property of Sierra Medical Plaza I, an MOB located in Reno, Nevada, consisting of approximately 86,000 rentable square feet. This MOB will be located on the campus of the Northern Nevada Sierra Medical Center, a newly constructed hospital that is owned and operated by a wholly-owned subsidiary of UHS, which was completed and opened during April of 2022. Construction of this MOB, for which we have engaged a non-related third party to act as construction manager, commenced in January, 2022 and is anticipated to be completed and opened during the first quarter of 2023. The cost of the MOB is estimated to be approximately $34 million. The master flex lease agreement, which is subject to reduction based upon the execution of third-party leases, is for approximately 68% of the rentable square feet of the MOB.

~~Subsequent to September 30,~~During the fourth quarter of 2021, we purchased the 5% minority ownership interest held by a third-party member in Grayson Properties, LP which owns the Texoma Medical Plaza, an MOB located in Denison, Texas for approximately $3.1 million. The MOB is located on the campus of Texoma Medical Center, a hospital that is owned and operated by a wholly-owned subsidiary of UHS. A third-party appraisal was completed to determine the fair value of the property. As a result of this minority ownership purchase during the fourth quarter of 2021, we ~~subsequently~~ own 100% of the LP and ~~we will~~are therefore ~~begin~~ consolidating this LP effective with the purchase date. We do not expect a material impact on our net income as a result of the consolidation of this LP subsequent to the transaction. Please see Note 5 for additional disclosure surrounding this transaction.

In May, 2021, we acquired the Fire Mesa office building located in Las Vegas, Nevada for a purchase price of approximately $12.9 million. The building is 100% leased under the terms of a triple net lease by a wholly-owned subsidiary of UHS. The initial lease is scheduled to expire on August 31, 2027 and has two five-year renewal options. As discussed in Note 4, the acquisition of this office building is part of ~~an anticipated~~a series of planned tax deferred like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue ~~Code.~~Code, as amended.

In September 2019, we entered into an agreement whereby we own a 95% non-controlling ownership interest in Grayson Properties II L.P., which developed, constructed, owns and operates the Texoma Medical Plaza II, an MOB located in Denison, Texas. This MOB, which was substantially completed in December 2020, is located on the campus of Texoma Medical Center, a hospital that is owned and operated by a wholly-owned subsidiary of UHS. A 10-year master flex lease was executed with the wholly-owned subsidiary of UHS for over 50% of the rentable square feet of the MOB and commenced in December 2020 upon the issuance of the certificate of occupancy. We account for this LP on an unconsolidated basis pursuant to the equity method since it is not a variable interest entity and we do not have a controlling voting interest.

In late July 2019, Des Moines Medical Properties, LLC, a wholly-owned subsidiary of ours, entered into an agreement to build and lease a newly constructed UHS-related behavioral health care hospital located in Clive, Iowa. The lease on this facility, which is triple net and has an initial term of 20 years with 5 10-year renewal options, was executed with Clive Behavioral Health, LLC, a joint venture between a wholly-owned subsidiary of UHS and Catholic Health Initiatives - Iowa, Corp (“JV”). Construction of this hospital, for which we engaged a wholly-owned subsidiary of UHS to act as project manager for an aggregate fee of approximately $750,000, was substantially completed in December 2020 and the property received a temporary certificate of occupancy on December 31, 2020, at which time the hospital lease commenced. Pursuant to the lease on this facility, the JV has the option to, among other things, renew the lease at the terms specified in the lease agreement by providing notice to us at least 270 days prior to the termination of the then current term. The JV also has the right to purchase the leased facility from us at its appraised fair market value upon either of the following: (i) by providing notice at least 270 days prior to the end of the lease terms or any renewal terms, or; (ii) upon 30 days’ notice anytime within 12 months of a change of control of the Trust (UHS also has this right should the JV decline to exercise its purchase right). Additionally, the JV has rights of first offer to purchase the facility prior to any third-party sale.

Management cannot predict whether the leases with subsidiaries of UHS, which have renewal options at existing lease rates or fair market value lease rates, or any of our other leases, will be renewed at the end of their lease term. If the leases are not renewed at their current rates or the fair market value lease rates, we would be required to find other operators for those facilities and/or enter into leases on terms potentially less favorable to us than the current leases. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital or FED facilities upon expiration of the lease terms, our future revenues could decrease if we were unable to earn a favorable rate of return on the sale proceeds received, as compared to the lease revenue currently earned pursuant to these leases.

We are the lessee on 12 ground leases with subsidiaries of UHS (for consolidated and unconsolidated investments). The remaining lease terms on the ground leases with subsidiaries of UHS range from approximately 2827 years to approximately 7876 years. The annual aggregate lease payments on these properties are ~~estimated to be~~ approximately $508,000 during each of the years ended ~~2021~~2022 through ~~2025,~~2026, and an aggregate of ~~$29.0~~$28.0 million thereafter. See Note 7 for additional lease accounting disclosure.

Officers and Employees: Our officers are all employees of a wholly-owned subsidiary of UHS and although as of ~~September 30, 2021~~March 31, 2022 we had no salaried employees, our officers do typically receive annual stock-based compensation awards in the form of restricted stock. In special circumstances, if warranted and deemed appropriate by the Compensation Committee of the Board of Trustees, our officers may also receive one-time special compensation awards in the form of restricted stock and/or cash bonuses.

Advisory Agreement: UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an advisory agreement dated December 24, 1986, and as amended and restated as of January 1, 2019 (the “Advisory Agreement”). Pursuant to the Advisory Agreement, the Advisor is obligated to present an investment program to us, to use its best efforts to obtain investments suitable for such program (although it is not obligated to present any particular investment opportunity to us), to provide administrative services to us and to conduct our day-to-day affairs. All transactions between us and UHS must be approved by the Trustees who are unaffiliated with UHS (the “Independent Trustees”). In performing its services under the Advisory Agreement, the Advisor may utilize independent professional services, including accounting, legal, tax and other services, for which the Advisor is reimbursed directly by us. The Advisory Agreement may be terminated for any reason upon sixty days written notice by us or the Advisor. The Advisory Agreement expires on December 31 of each year; however, it is renewable by us, subject to a determination by the Independent Trustees, that the Advisor’s performance has been satisfactory. The Advisory Agreement was renewed for 2022 with the same terms as the Advisory Agreement in place during 2021 and 2020.

Our advisory fee for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ was computed at 0.70% of our average invested real estate assets, as derived from our condensed consolidated balance sheets. Based upon a review of our advisory fee and other general and administrative expenses, as compared to an industry peer group, the advisory fee computation remained unchanged for ~~2021,~~2022, as compared to the last three years. The average real estate assets for advisory fee calculation purposes exclude certain items from our condensed consolidated balance sheet such as, among other things, accumulated depreciation, cash and cash equivalents, lease receivables, deferred charges and other assets. The advisory fee is payable quarterly, subject to adjustment at year-end based upon our audited financial statements. Advisory fees incurred and paid (or payable) to UHS amounted to approximately ~~$1.1~~$1.2 million and ~~$1.0~~$1.1 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and were based upon average invested real estate assets of ~~$641~~$699 million and ~~$594~~$607 million, respectively. Advisory fees incurred and paid (or payable) to UHS were approximately $3.3 million and $3.1 million for the nine months ended September 30, 2021 and 2020, and were based upon average invested real estate assets of $623 million and $587 million, respectively.

Share Ownership: As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, UHS owned 5.7% of our outstanding shares of beneficial interest.

SEC reporting requirements of UHS: UHS is subject to the reporting requirements of the SEC and is required to file annual reports containing audited financial information and quarterly reports containing unaudited financial information. Since the aggregate revenues generated from the UHS-related tenants comprised ~~37%~~approximately 41% and ~~34%~~36% of our consolidated revenues during the three-month periods ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and 36% and 33% of our consolidated revenues during the nine-month periods ended September 30, 2021 and 2020,~~ respectively, and since a subsidiary of UHS is our Advisor, you are encouraged to obtain the publicly available filings for Universal Health Services, Inc. from the SEC’s website. These filings are the sole responsibility of UHS and are not incorporated by reference herein.

(3) Dividends and Equity Issuance Program

Dividends and dividend equivalents:

During the ~~third~~first quarter of ~~2021,~~2022, we declared and paid dividends of approximately ~~$9.6~~$9.7 million, or $.70 per share. We declared and paid dividends of approximately ~~$9.5~~$9.6 million, or ~~$.69~~$.695 per share, during the ~~third~~first quarter of 2020. During the nine-month period ended September 30, 2021 we declared and paid dividends of approximately $28.8 million, or $2.095 per share. During the nine-month period ended September 30, 2020, we declared and paid dividends of approximately $28.4 million, or $2.065 per share.2021. Dividend equivalents, which are applicable to shares of unvested restricted stock, were accrued during the first ~~nine months~~quarter of ~~2021~~2022 and will be paid upon vesting of the restricted stock.

Equity Issuance Program:

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. The common shares will be offered pursuant to the Registration Statement filed with the Securities and Exchange Commission, which became effective in June 2020.

NaN shares were issued pursuant to this ATM equity program during the first ~~nine months~~quarter of ~~2021.~~2022. Pursuant to this ATM program, since the program commenced in the second quarter of 2020, we have issued 2,704 shares at an average price of $101.30 per share, which generated approximately $270,000 of net proceeds (net of approximately $4,000, consisting of compensation to BofA Securities, Inc.). Additionally, as of ~~September 30, 2021,~~March 31, 2022, we have paid or incurred approximately $508,000 in various fees and expenses related to the commencement of our ATM program.

(4) Acquisitions and Divestitures

During the ~~second~~first quarter of ~~2021 and during the fourth quarter of 2021,~~2022, we completed ~~three~~two transactions as described below utilizing qualified third-party intermediaries as part of a series of ~~anticipated~~planned tax-deferred like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue ~~Code.~~Code, as amended.

~~Subsequent to September 30, 2021:~~

Three Months Ended March 31, 2022:

Acquisitions:

In ~~July, 2021,~~March, 2022, as a part of the series of planned tax-deferred like-kind exchange transactions, ~~mentioned above,~~ we ~~entered into an agreement to sell~~acquired the ~~Auburn Medical Office Building II. On November 1, 2021 we settled on the sale of the Auburn Medical Office Building II,~~Beaumont Heart and Vascular Center, a ~~multi-tenant MOB~~medical office building located in ~~Auburn, Washington to a non-related party~~Dearborn, Michigan for a ~~sale~~purchase price of approximately ~~$25.1~~$5.4 million. The ~~gain~~building, which has approximately 17,621 rentable square feet, is 100% leased to a single tenant under the terms of a triple-net lease that is scheduled to expire on ~~this divestiture will be included in our consolidated statement~~November 30, 2026 and has lease escalations of ~~income for the three and twelve-month periods ended~~2.5% per year commencing on December 31, 2021. The assets and liabilities related to this property are included in “Assets of property held for sale” or “Liabilities of property held for sale” on our consolidated balance sheet as of September 30, 2021.

~~Nine Months Ended September 30, 2021:~~

~~Acquisition:~~1, 2022.

In ~~May, 2021,~~January, 2022, as a part of the series of planned tax-deferred like-kind exchange transactions, ~~mentioned above,~~ we acquired the ~~Fire Mesa~~140 Thomas Johnson Drive medical office building located in ~~Las Vegas, Nevada~~Frederick, Maryland for a purchase price of approximately ~~$12.9~~$8.0 million. The building, which has approximately ~~44,000~~20,146 rentable square feet, is 100% leased to 3 tenants under the terms of triple-net leases. Approximately 72% of the rentable square feet of this MOB is leased pursuant to a ~~triple net~~15-year lease, with a ~~wholly-owned subsidiary~~remaining lease term of ~~UHS. The lease on this building is scheduled to expire on August 31, 2027 and has 2~~approximately 14 years at the time of purchase, with 3, five-year renewal options.

~~Divestiture:~~Divestitures:

~~In June, 2021, as a part~~There were 0 divestitures during the first three months of the series of tax-deferred like-kind exchange transactions mentioned above, we sold the Children’s Clinic at Springdale, a medical office building located in Springdale, AR for a sale price of approximately $3.2 million, net of closing costs. This divestiture resulted in a gain of approximately $1.3 million which is included in our consolidated statement of income for the nine-month period ended September 30, 2021.2022.

~~Nine~~Three Months Ended ~~September 30, 2020:~~March 31, 2021:

Acquisitions:

There were 0 acquisitions during the first ~~nine~~three months of ~~2020.~~2021.

Divestitures:

There were 0 ~~dispositions~~divestitures during the first ~~nine~~three months of ~~2020.~~2021.

(5) Summarized Financial Information of Equity Affiliates

In accordance with U.S. GAAP 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.

Distributions received from equity method investees in the consolidated statements of cash flows are classified based upon the nature of the distribution. Returns on investments are presented net of equity in income from unconsolidated investments as cash flows from operating activities. Returns of investments are classified as cash flows from investing activities.

At ~~September 30, 2021,~~March 31, 2022, we have non-controlling equity investments or commitments in 54 jointly-owned LLCs/LPs which own MOBs. ~~We account~~As of March 31, 2022 we accounted for these LLCs/LPs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities which we are the primary beneficiary nor do we have a controlling voting interest. The majority of these entities are joint-ventures between us and non-related parties that 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 funding is typically advanced as equity or member loans. These entities maintain property insurance on the properties.

~~Subsequent to September 30,~~During the fourth quarter of 2021, we purchased the ~~third-party~~ 5% minority ownership interest, held by the third-party member in Grayson Properties, LP which owns the Texoma Medical Plaza, ~~an MOB located~~ in ~~Denison, Texas for a purchase price of approximately $3.1 million. We formerly~~which we previously held a ~~non-controlling~~noncontrolling majority ownership ~~interest in this LP.~~interest. As a result of ~~our purchase of the~~this minority ownership ~~interest,~~purchase, we now ~~hold~~own 100% of the ~~ownership interest in this~~ LP and ~~we will begin accounting~~began to account for ~~this LP~~it on a consolidated basis effective ~~with~~November 1, 2021. Prior to November 1, 2021, the minority ownership interest purchase date. The property’s assets and liabilities will be recorded at the carrying amount of its previously held interest, plus the incremental cost which will be allocated based upon relative fair values. A third-party appraisalLP was ~~completed to determine the fair value of the property. We do not expect a material impact~~accounted for on ~~our net income as a result of the consolidation of this LP subsequent~~an unconsolidated basis pursuant to the ~~transaction.~~equity method.

The following property table represents the ~~five~~four LLCs/LPs in which we owned a non-controlling interest and were accounted for under the equity method as of ~~September 30, 2021:~~March 31, 2022:


Name of LLC/LP	Ownership			Property Owned by LLC/LP
Suburban Properties		33	%	St. Matthews Medical Plaza II
Brunswick Associates (a.)~~(e.~~(b.)		74	%	Mid Coast Hospital MOB
~~Grayson Properties (b.)(f.)~~		95	%	~~Texoma Medical Plaza~~
FTX MOB Phase II (c.)		95	%	Forney Medical Plaza II
Grayson Properties II (d.)~~(f.~~(e.)		95	%	Texoma Medical Plaza II

(a.)

This LLC has a third-party term loan of ~~$9.1~~$8.9 million, which is non-recourse to us, outstanding as of ~~September 30, 2021.~~March 31, 2022.

(b.)

~~This building is~~We are the lessee with a third party on ~~the campus of~~ a UHS hospital and has tenants that include subsidiaries of UHS. During the third quarter of 2021, this LP paid off its $13.2 million mortgage loan upon maturity utilizing an equity contribution from us which was funded utilizing borrowings from our revolving credit agreement. Subsequent to the third quarter of 2021, we purchased the 5% minority ownership interest in this LP from the third-party minority ownership partnerground lease for ~~approximately $3.1 million and subsequently own 100% of this LP.~~land.

(c.)

During the first quarter of 2021, this LP paid off its $4.7 million mortgage loan, upon maturity, utilizing pro rata equity contributions from the limited partners as well as a $3.5 million member loan from us to the LP which was funded utilizing borrowings from our revolving credit agreement.

(d.)

Construction of this MOB ~~which~~was substantially completed in December, 2020. This MOB is located in Denison, Texas on the campus of a hospital owned and operated by a wholly-owned subsidiary of ~~UHS, was substantially completed in December 2020.~~UHS. We have committed to invest up to $4.8 million in equity and debt financing, ~~$1.4~~$1.8 million of which has been funded as of ~~September 30, 2021.~~March 31, 2022. This LP entered into a $13.1 million third-party construction loan commitment, which is non-recourse to us, which has an outstanding balance of $13.1 million as of ~~September 30, 2021.~~March 31, 2022. The LP developed, constructed, owns and operates the Texoma II Medical Plaza.

(e.)

~~The LLC is~~We are the lessee with a ~~third-party lessor under a ground lease for land.~~

~~(f.)~~

~~These LPs are the lessees with~~ UHS-related ~~parties~~party for the land related to ~~these properties.~~this property.

Below are the condensed combined statements of income (unaudited) for the four LLCs/LPs accounted for under the equity method at March 31, 2022 and the five LLCs/LPs accounted for under the equity method at ~~September 30,~~March 31, 2021. The data for the three months ended March 31, 2021 ~~and~~includes financial results for the ~~four LLCs/LPs accounted for under the equity method as September 30, 2020 (the 2020 periods do not include the newly constructed~~above-mentioned Texoma Medical Plaza ~~II that was substantially completed~~ in ~~December, 2020).~~which we purchased the minority ownership interest during the fourth quarter of 2021.

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2021		2020		2021		2020		2022		2021
	(amounts in thousands)				(amounts in thousands)				(amounts in thousands)
Revenues	$	2,736	$	2,624	$	8,373	$	7,637	$	1,930	$	2,788
Operating expenses		1,184		1,047		3,356		3,094		726		1,107
Depreciation and amortization		627		444		1,684		1,333		460		521
Interest, net		388		315		1,260		949		262		431
Net income	$	537	$	818	$	2,073	$	2,261	$	482	$	729
Our share of net income	$	303	$	517	$	1,341	$	1,371	$	252	$	471

Below are the condensed combined balance sheets (unaudited) for the ~~five~~four above-mentioned LLCs/LPs that were accounted for under the equity method as of ~~September 30,~~March 31, 2021 and December 31, ~~2020:~~2021:

	September 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
	(amounts in thousands)						(amounts in thousands)
Net property, including construction in progress	$	42,789		$	42,374		$	30,566		$	30,983
Other assets (a.)		9,484			8,818			4,320			4,574
Total assets	$	52,273		$	51,192		$	34,886		$	35,557

Other liabilities (a.)	$	6,966		$	9,402		$	2,414		$	2,797
Mortgage notes payable, non-recourse to us		22,133			39,735			22,000			22,068
Advances payable to us (b.)		3,500			-			3,500			3,500
Equity		19,674			2,055			6,972			7,192
Total liabilities and equity	$	52,273		$	51,192		$	34,886		$	35,557

Investments in and advances to LLCs before amounts included in
accrued expenses and other liabilities	$	23,123		$	4,278		$	9,960		$	10,139
Amounts included in accrued expenses and other liabilities		(1,896	)		(3,020	)		(1,764	)		(1,784	)
Our share of equity in LLCs, net	$	21,227		$	1,258		$	8,196		$	8,355

(a.)

Other assets and other liabilities as of both ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 include approximately ~~$4.3 million~~$656,000 of right-of-use land assets and right-of-use land liabilities related to ground leases whereby the LLC/LP is the lessee, with third party lessors, including subsidiaries of UHS.

(b.)

Consists of a 7.25% member loan to FTX MOB Phase II, LP with a maturity date of March 1, 2023.

As of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs/LPs, 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

9/30/2021

12/31/2020

Maturity Date
FTX MOB Phase II (5.00% fixed rate mortgage loan) (b.)

$
-

$
4,777

February, 2021
Grayson Properties (5.034% fixed rate mortgage loan) (c.)

-

13,372

September, 2021
Grayson Properties II (3.70% fixed rate construction loan) (d.)

13,075

12,336

June, 2025
Brunswick Associates (2.80% fixed rate mortgage loan)

9,058

9,250

December, 2030

$
22,133

$
39,735

	Mortgage Loan Balance (a.)
Name of LLC/LP	3/31/2022		12/31/2021		Maturity Date
Brunswick Associates (2.80% fixed rate mortgage loan)		8,925		8,993	December, 2030
Grayson Properties II (3.70% fixed rate construction loan) (b.)		13,075		13,075	June, 2025
	$	22,000	$	22,068

(a.)

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

(b.)

Upon maturity in February 2021 this LP paid off this mortgage loan utilizing pro rata equity contributions from the limited partners as well as a $3.5 million member loan from us to the LP which was funded utilizing borrowings from our revolving credit agreement.

~~(c.)~~

~~Upon maturity in September, 2021 this LP paid off this mortgage utilizing an equity contribution from us, which was funded utilizing borrowings from our revolving credit agreement.~~

~~(d.~~)

This construction loan has a maximum commitment of $13.1 million and requires interest on the outstanding principal balance to be paid on a monthly basis through December 1, 2022. Monthly principal and interest payments are scheduled to commence on January 1, 2023.

Pursuant to the operating and/or partnership agreements of the ~~five~~four LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member ~~and/or~~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.

The minority partner in Grayson Properties, LP, as the Offering Member, made an offer to sell its entire 5% ownership interest to us at a stipulated price, and we agreed to purchase the ownership interest at the stipulated price of approximately $3.1 million. The transaction was completed during the fourth quarter of 2021, as discussed above.

(6) Recent Accounting Pronouncements

Accounting for Lease Concessions Granted in Connection with COVID-19

On April 8, 2020, the Financial Accounting Standards Board ("FASB") held a public meeting and shortly afterwards issued a question-and-answer ("Q&A") document which was intended to provide accounting relief for lease concessions related to the COVID-19 pandemic. The accounting relief permits an entity to choose to forgo the evaluation of the enforceable rights and obligations of a lease contract, which is a requirement of Accounting Standards Codification Topic 842, Leases, which we adopted on January 1, 2019,

as long as the total rent payments after the lease concessions are substantially the same, or less than, the total payments previously required by the lease. An entity may account for COVID-19 related lease concessions either (i) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or (ii) as a lease modification. To the extent that a rent concession is granted as a deferral of payments, but the total lease payments are substantially the same, lessors are allowed to account for the concession as if no change had been made to the original lease contract.

Based on the Q&A, an entity is not required to account for all lease concessions related to the effects of the COVID-19 pandemic under one elected option, however, the entity is required to apply the elected option consistently to leases with similar characteristics and in similar circumstances. The COVID-19 pandemic did not start to adversely impact the economic conditions in the United States until late March 2020 and did not have a material effect on our operations or financial results during the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 or the year ended December 31, ~~2020.~~2021.

Reference Rate Reform

In March 2020, the FASB issued an accounting standard classified under FASB ASC Topic 848, “Reference Rate Reform.” The amendments in this update contain practical expedients for reference rate reform related activities that impact debt, leases, derivatives

and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. We will evaluate the impact of the guidance and may apply elections as applicable as additional changes in the market occur.

(7) Lease Accounting

We adopted the ~~new~~ lease standard ASC 842 on January 1, 2019 and applied it to leases that were in place on the effective date as both a lessor and lessee. Our results for reporting periods beginning January 1, 2019 are presented under the ASC 842 lease standard. We adopted ASC 842 effective January 1, 2019 under the modified retrospective approach and elected the optional transition method to apply the provisions of ASC 842 as of the adoption date, rather than the earliest period presented. We elected to apply certain adoption related practical expedients for all leases that commenced prior to the election date. This practical expedient allowed us to not separate expenses reimbursed by our customers (“tenant reimbursements”) from the associated rental revenue if certain criteria were met.

As Lessor:

We lease most of our operating properties to customers under agreements that are typically classified as operating ~~leases.~~ leases (as noted below, 2 of our leases are accounted for as financing arrangements effective on December 31, 2021). We recognize the total minimum lease payments provided for under the operating leases on a straight-line basis over the lease term. Generally, under the terms of our leases, the majority of our rental expenses, including common area maintenance, real estate taxes and insurance, are recovered from our customers. We record amounts reimbursed by customers in the period that the applicable expenses are incurred, which is generally ratably throughout the term of the lease. We have elected the package of practical expedients that allows lessors to not separate lease and non-lease components by class of underlying asset. This practical expedient allowed us to not separate expenses reimbursed by our customers (“tenant reimbursements”) from the associated rental revenue if certain criteria were met. We assessed these criteria and concluded that the timing and pattern of transfer for rental revenue and the associated tenant reimbursements are the same, and ~~as our~~for the leases that qualify as operating leases, we accounted for and presented rental revenue and tenant reimbursements as a single component under Lease revenue in our consolidated statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021.

On December 31, 2021, as a result of the asset purchase and ~~2020.~~ sale transaction with UHS, as amended during the first quarter of 2022, the real estate assets of 2 wholly-owned subsidiaries of UHS were transferred to us (Aiken and Canyon Creek). As discussed in Note 2, these assets are accounted for as financing arrangements and our consolidated balance sheets at March 31, 2022 and December 31, 2021 reflect financing receivables related to this transaction amounting to $83.7 million and $82.4 million, respectively. Pursuant to the leases, as amended during the first quarter of 2022, the aggregate annual rental during 2022 on the acquired properties, which is payable to us on a monthly basis, amounts to approximately $5.7 million ($3.9 million related to Aiken and $1.8 million related to Canyon Creek). The portion of these lease payments that will be included in our consolidated statements of income, and reflected as interest income on financing leases, is expected to be approximately $5.5 million during the full year of 2022. Lease revenue will not be impacted by the lease payments received related to these 2 properties.

The components of the “Lease revenue – UHS facilities” and “Lease revenue – Non-related parties” captions for the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are disaggregated below (in thousands). Base rents are primarily stated rent amounts provided for under the leases that are recognized on a straight-line basis over the ~~lease term.~~term of the lease. Bonus rents and tenant reimbursements represent amounts where tenants are contractually obligated to pay an amount that is variable in nature.

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

UHS facilities:

Base rents
$
5,392

$
4,402

$
15,820

$
12,940

Bonus rents

1,828

1,680

5,171

4,477

Tenant reimbursements

354

299

980

826

Lease revenue - UHS facilities
$
7,574

$
6,381

$
21,971

$
18,243

Non-related parties:

Base rents

10,421

10,390

31,425

31,155

Tenant reimbursements

2,694

2,451

7,899

7,371

Lease revenue - Non-related parties
$
13,115

$
12,841

$
39,324

$
38,526

	Three Months Ended
	March 31,
	2022		2021
UHS facilities:
Base rents	$	6,089	$	5,146
Bonus rents (a.)		678		1,695
Tenant reimbursements		659		291
Lease revenue - UHS facilities	$	7,426	$	7,132



Non-related parties:
Base rents		10,135		10,505
Tenant reimbursements		2,760		2,587
Lease revenue - Non-related parties	$	12,895	$	13,092

(a.) Includes bonus rental on McAllen Medical Center, a UHS acute care hospital facility of $678 for the three-month period ended March 31, 2022 and includes bonus rental on 3 UHS acute care hospital facilities of $1,695 for the three-month period ended March 31, 2021.Please see disclosure above surrounding the December 31, 2021 asset purchase and sale transaction with UHS.

Disclosures Related to Certain Facilities:

Wellington Regional Medical Center:

Upon the December 31, 2021 expiration of the lease on this acute care hospital located in West Palm Beach, Florida, a wholly-owned subsidiary of UHS ~~has two 5-year renewal options at~~exercised its fair market value renewal option and renewed the lease ~~rates (2022 through 2031) related to Wellington Regional Medical Center. The current lease on this facility is~~for a 5-year term scheduled to expire on December 31, ~~2021. Since UHS’s lease renewal option for Wellington Regional Medical Center is~~2026. Effective January 1, 2022, the annual fair market value ~~(effective~~lease rate for this hospital, which is payable to us monthly, is $6.3 million (there is no longer a bonus rental component of the lease payment). Beginning on January 1, ~~2022),~~2023, and thereafter on each January 1^st through 2026, the ~~lease rate valuation process is currently in progress~~annual rent will increase by 2.50% on a cumulative and ~~expected~~compounded basis. Pursuant to ~~be completed during~~ the ~~fourth quarter~~terms of ~~2021. Subject to completion of a~~the renewed lease ~~agreement at acceptable rates and terms, UHS has indicated its intent to renew the lease on this facility.~~

~~Southwest Healthcare System, Inland Valley Campus:~~

~~UHS has two 5-year renewal options~~ at fair market value, we earned lease ~~rates (2022 through 2031) related~~revenue of $1.7 million during the three-month period ended March 31, 2022. Pursuant to the ~~Southwest Healthcare System, Inland Valley Campus property.~~ hospital’s previous lease, we earned aggregate lease revenue of $1.3 million during the three-month period ended March 31, 2021 (consisting of approximately $757,000 of base rental and approximately $568,000 of bonus rental) and of $5.5 million during the year ended December 31, 2021, (consisting of $3.0 million of base rental and $2.5 million of bonus rental).

Asset Purchase and Sale Agreement with UHS on December 31, 2021:

As previously disclosed on Form 8-K as filed on January 4, 2022, on December 31, 2021, we entered into an asset purchase and sale agreement with UHS and certain of its affiliates. Pursuant to the terms of the asset purchase and sale agreement, which was amended during the first quarter of 2022, 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 agreed to exchange, and lease back~~purchased from us ~~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 substitution properties consist~~Campus of ~~one~~Southwest Healthcare System (at its fair market value of $79.6 million), and 2 wholly-owned subsidiaries of UHS transferred to us the real estate assets of Aiken Regional Medical Center (at its fair market value of $57.7 million) and Canyon Creek Behavioral Health (at its fair market value of $26.0 million). In connection with this transaction, since the $83.7 million aggregate fair market value of Aiken Regional Medical Center (“Aiken”) located in Aiken, South Carolina, and Canyon Creek Behavioral Health (“Canyon Creek”) located in Temple, Texas, exceeded the $79.6 million fair market value of Inland Valley Campus of Southwest Healthcare System, we paid approximately $4.1 million in cash to UHS. Aiken Regional Medical Center includes an acute care hospital ~~(including~~and a behavioral health ~~pavilion)~~pavilion.

The properties acquired by us in connection with the asset purchase and sale agreement with UHS were accounted for as financing arrangements and our consolidated balance sheets as of March 31, 2022 and December 31, 2021 include financing receivables related to this transaction amounting to $83.7 million and $82.4 million, respectively. Pursuant to the leases, as amended, the aggregate annual rental during 2022 on the acquired properties, which is payable to us on a ~~newly constructed behavioral health hospital.~~ monthly basis, amounts to approximately $5.7 million ($3.9 million related to Aiken and $1.8 million related to Canyon Creek). The Independent Trustees of our Board, as well as the UHS Board of Directors, have approved these transactions subject to satisfactory completion of definitive agreements, which are in progress. The effective dateportion of the ~~transactions~~lease payments that will be included in our consolidated statements of income, and reflected as interest income on financing leases, is expected to ~~coincide with~~be approximately $5.5 million during the ~~scheduled lease maturity date~~full year of ~~December 31, 2021~~.2022. Pursuant to the terms of the previous lease on the Inland Valley Campus of Southwest Healthcare System, we earned ~~$3.4 million of lease revenue during the nine-month period ended September 30, 2021 ($2.0 million in base rental and $1.4 million in bonus rental) and $4.4~~$4.5 million of lease revenue during the year ended December 31, ~~2020~~2021 ($2.6 million in base rental and ~~$1.8~~$1.9 million in bonus rental).

PeaceHealth Medical Clinic:

~~The existing~~In July, 2021, the lease on the PeaceHealth Medical Clinic, an MOB located in Bellingham, Washington ~~was scheduled to expire on December 31, 2021. In July, 2021, the lease~~ was renewed for an additional seven year term, extending the scheduled expiration date to January 31, 2029. The renewed lease commenced on January 1, 2022. The tenant also has 2 additional five-year renewal terms. Additionally, the tenant has the right of first offer to purchase the property if the property is marketed by us; and the tenant has an option to purchase the property at the end of the lease term at the then fair market value. Pursuant to the terms of the lease on the PeaceHealth Medical Clinic, we earned ~~$2.1 million~~approximately $734,000 of lease revenue during the ~~nine-month~~three-month period ended ~~September 30, 2021~~March 31, 2022 and ~~$2.8 million~~$644,000 of lease revenue during the ~~year~~three-month period ended ~~December~~March 31, ~~2020.~~2021.

~~Kindred Hospital Chicago Central:~~Vacancies – Specialty Hospitals:

As previously disclosed, the ~~existing~~ lease on ~~Kindred Hospital Chicago Central, a 95-bed~~the specialty hospital located in Chicago, Illinois, ~~is scheduled to expire~~expired on December 31, ~~2021. The tenant of~~2021 and the facility ~~notified~~is currently vacant. During the first quarter of 2021, we earned $390,000 of lease revenue in connection with this property. The operating expenses incurred by us ~~that they do not intend~~in connection with this facility during the first quarter of 2022 were $494,000. Prior to ~~renew~~2022, the ~~lease upon its scheduled expiration. We are marketing~~former tenant was responsible for the operating expenses on this property to potential new tenants. However, should this property be vacant for an extended period of time, or should we experience a decrease in the lease rate on a future lease as compared to the current lease, or incur substantial renovation costs to make the property suitable for another operator/tenant, our future results of operations could be unfavorably impacted.facility. Pursuant to the terms of the lease that expired in December, 2021, we earned approximately ~~$1.2 million of lease revenue during the nine-month period ended September 30, 2021 and~~ $1.6 million of lease revenue during the ~~twelve-month period ended December 31, 2020.~~

~~Vacancies - Evansville, Indiana and Corpus Christi, Texas:~~2021 full year.

The leases on two specialty hospital facilities, located in Evansville, Indiana, and Corpus Christi, Texas, expired on May 31, 2019 and June 1, 2019, respectively. The hospital located in Evansville, Indiana, has remained vacant since September 30, 2019 and the hospital located in Corpus Christi, Texas, has remained vacant since June 1, 2019.

We estimate that the aggregate operating expenses for the three vacant specialty facilities, including the facility located in Chicago, Illinois, as well as the facilities located in Evansville, Indiana, and Corpus Christi, Texas, will approximate $1.9 million during the remaining nine months of 2022. Future operating expenses related to these facilities will be incurred by us during the time they remain owned and vacant. We continue to market ~~each property for lease~~these specialty facilities to ~~new tenants.~~potential interested parties. However, should these properties continue to remain ~~owned and~~ vacant for an extended period of time, or should we ~~experience decreased lease rates on future leases, as compared to prior/expired lease rates, or~~ incur substantial renovation costs to make the properties suitable for other operators/tenants, our future results of operations could be materially unfavorably impacted.

As Lessee:

We are the lessee with various third parties, including subsidiaries of UHS, in connection with ground leases for land at 14 of our consolidated properties. Our right-of-use land assets represent our right to use the land for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities were recognized upon adoption of Topic 842 based on the present value of lease payments over the lease term. We utilized our estimated incremental borrowing rate, which was derived from information available as of January 1, 2019, in determining the present value of lease payments. A right-of-use asset and lease liability are not recognized for leases with an initial term of 12 months or less, as these short-term leases are accounted for similarly to previous guidance for operating leases. We do not currently have any ground leases with an initial term of 12 months or less. As of ~~September 30, 2021,~~March 31, 2022, our condensed consolidated balance sheet includes right-of-use land assets of approximately ~~$8.9~~$11.5 million and ground lease liabilities of approximately ~~$8.9~~$11.5 million. There were no newly leased assets for which a right-of-use asset was recorded in exchange for a new lease liability during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

(8) 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 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~~revolving facility fee ranging from 0.15% to 0.35% (depending on the Trust’s ratio of debt to asset value) on the revolving committed amount of the ~~average daily unused portion of the revolving credit commitments.~~Credit Agreement. The Credit Agreement also provides for options to extend the maturity date and borrowing availability for 2 additional six-month periods.

The margins over LIBOR, Base Rate and the facility fee are based upon our total leverage ratio. At ~~September 30, 2021,~~March 31, 2022, the applicable margin over the LIBOR rate was ~~1.25~~1.20%, the margin over the Base Rate was ~~0.25~~0.20% and the facility fee was ~~0.25%~~0.20%.

At ~~September 30, 2021,~~March 31, 2022, we had ~~$276.8~~$275.1 million of outstanding borrowings and ~~$3.6~~$3.2 million of letters of credit outstanding under our Credit Agreement. We had ~~$94.6~~$96.7 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of ~~September 30, 2021.~~March 31, 2022. There are 0 compensating balance requirements.At December 31, ~~2020,~~2021, we had ~~$236.2~~$271.9 million of outstanding borrowings, $3.2 million of outstanding ~~against our Prior Credit Agreement~~letters of credit and ~~$108.2~~$99.9 million of available borrowing capacity.

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 then outstanding under the Credit Agreement. We are in compliance with all of the covenants in the Credit Agreement at ~~September 30, 2021~~March 31, 2022 and were in compliance with all of the covenants in the ~~Prior~~ Credit Agreement at December 31, ~~2020.~~2021. 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 Credit Agreement ~~in place at September 30, 2021 as well as the Prior Credit Agreement that was in place at December 31, 2020~~ (dollar amounts in thousands):

	Covenant	September 30, 2021			December 31, 2020			Covenant	March 31, 2022			December 31, 2021
Tangible net worth	> =$125,000	$	141,419		$	147,263		> =$125,000	$	225,799		$	225,355
Total leverage	< 60%		45.6	%		44.8	%	< 60%		42.4	%		43.1	%
Secured leverage	< 30%		8.1	%		8.6	%	< 30%		7.2	%		7.4	%
Unencumbered leverage	< 60%		47.2	%		41.4	%	< 60%		41.3	%		41.9	%
Fixed charge coverage	> 1.50x	4.8x			4.7x			> 1.50x	4.8x			4.8x

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 ~~September 30, 2021~~March 31, 2022 (amounts in thousands):

Facility Name	Outstanding Balance (in thousands) (a.)			Interest Rate			Maturity Date	Outstanding Balance (in thousands) (a.)			Interest Rate			Maturity Date
700 Shadow Lane and Goldring MOBs fixed rate mortgage loan (b.)	$	5,268			4.54	%	June, 2022	$	5,152			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		5,337			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		4,395			3.62	%	January, 2023
BRB Medical Office Building fixed rate mortgage loan (c.)									5,222			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan (c.)									4,316			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		6,458			4.95	%	November, 2023		6,377			4.95	%	November, 2023
Summerlin Hospital Medical Office Building III fixed rate mortgage loan		12,866			4.03	%	April, 2024		12,745			4.03	%	April, 2024
Tuscan Professional Building fixed rate mortgage loan		2,494			5.56	%	June, 2025		2,190			5.56	%	June, 2025
Phoenix Children’s East Valley Care Center fixed rate mortgage loan		8,530			3.95	%	January, 2030		8,401			3.95	%	January, 2030
Rosenberg Children's Medical Plaza fixed rate mortgage loan		12,333			4.42	%	September, 2033		12,213			4.42	%	September, 2033
Total, excluding net debt premium and net financing fees		57,681							56,616
Less net financing fees		(387	)						(348	)
Plus net debt premium		103							78
Total mortgages notes payable, non-recourse to us, net	$	57,397						$	56,346

(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 in the second quarter of 2022, at which time we intend on paying off the remaining principal balance 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.

The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages outstanding as of ~~September 30, 2021~~March 31, 2022 had a combined fair value of approximately ~~$60.3~~$57.0 million. At December 31, ~~2020,~~2021, 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~~2021 was ~~$59.2~~$57.2 million and had a combined fair value of approximately ~~$62.0~~$59.4 million. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosure 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.

Financial Instruments:

In March 2020, we entered into an interest rate swap agreement on a total notional amount of $55 million with a fixed interest rate of 0.565% that we designated as a cash flow hedge. The interest rate swap became effective on March 25, 2020 and is scheduled to mature on March 25, 2027. If the one-month LIBOR is above 0.565%, the counterparty pays us, and if the one-month LIBOR is less than 0.565%, we pay the counterparty, the difference between the fixed rate of 0.565% and one-month LIBOR.

In January 2020, we entered into an interest rate swap agreement on a total notional amount of $35 million with a fixed interest rate of 1.4975% that we designated as a cash flow hedge. The interest rate swap became effective on January 15, 2020 and is scheduled to mature on September 16, 2024. If the one-month LIBOR is above 1.4975%, the counterparty pays us, and if the one-month LIBOR is less than 1.4975%, we pay the counterparty, the difference between the fixed rate of 1.4975% and one-month LIBOR.

During the third quarter of 2019, we entered into an interest rate swap agreement on a total notional amount of $50 million with a fixed interest rate of 1.144% that we designated as a cash flow hedge. The interest rate swap became effective on September 16, 2019 and is scheduled to mature on September 16, 2024. If the one-month LIBOR is above 1.144%, the counterparty pays us, and if the one-month LIBOR is less than 1.144%, we pay the counterparty, the difference between the fixed rate of 1.144% and one-month LIBOR.

31, 2022 we paid or accrued approximately ~~$1.6~~$2.2 million in net payments made to the counterparty by us pursuant to the terms of the swap (consisting of approximately ~~$199,000~~$199,000 in payments or accruals made to us by the counterparty, offset by approximately ~~$1.8~~$2.4 million of payments due to the counterparty from us). Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or a liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are classified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. We do not expect any gains or losses on our interest rate swaps to be reclassified to earnings in the next twelve months.

(9) Segment Reporting

Our primary business is investing in and leasing healthcare and human service facilities through direct ownership or through joint ventures, which aggregate into a single reportable segment. We actively manage our portfolio of healthcare and human service facilities and may from time to time make decisions to sell lower performing properties not meeting our long-term investment objectives. The proceeds of sales are typically reinvested in new developments or acquisitions, which we believe will meet our planned rate of return. It is our intent that all healthcare and human service facilities will be owned or developed for investment purposes. Our revenue and net income are generated from the operation of our investment portfolio.

Our portfolio is located throughout the United States, however, we do not distinguish or group our operations on a geographical basis for purposes of allocating resources or measuring performance. We review operating and financial data for each property on an individual basis; therefore, we define an operating segment as our individual properties. Individual properties have been aggregated into 1 reportable segment based upon their similarities with regard to both the nature and economics of the facilities, tenants and operational processes, as well as long-term average financial performance. No individual property meets the requirements necessary to be considered its own segment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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,~~facilities, free-standing emergency departments, childcare centers and medical/office buildings. As of ~~November~~May 1, ~~2021,~~2022, we have ~~seventy-one~~seventy-six real estate investments or commitments located in ~~twenty~~twenty-one states consisting of:

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~~seven~~six hospital facilities consisting of three acute care ~~one~~hospitals and three behavioral health care ~~and three specialty hospitals (two of which are currently vacant);~~hospitals;

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four free-standing emergency departments (“FEDs”);

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~~fifty-six medical or general~~ fifty-nine medical/office buildings, including four owned by unconsolidated limited liability companies (“LLCs”)/limited liability partnerships (“LPs”)~~, and;~~;

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four preschool and childcare ~~centers.~~centers, and;

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three specialty facilities that are currently vacant.

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,~~2021, 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~~2021 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:

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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; vaccine requirements; 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. The nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issues facing our healthcare provider tenants, including UHS. In some areas, the labor scarcity is putting a strain on the resources of our tenants and their staff, which has required them to utilize higher-cost temporary labor and pay premiums

above standard compensation for essential workers. In addition to significantly increasing the labor cost of our tenants, the healthcare staffing shortage could also require the operators of our hospital facilities to limit the services provided which would have an adverse effect on their operating revenues. There may be significant declines in future bonus rental revenue earned on ~~our~~one acute care hospital ~~properties~~ leased to ~~subsidiaries~~a subsidiary of UHS to the extent that ~~each~~the hospital ~~continues to experience~~experiences significant ~~decline~~declines in patient volumes and

revenues. These factors may 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.

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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 may delay our construction projects which could result in increased costs and delay the timing of opening and rental payments from those projects, although no such delays have yet occurred. 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. WeAlthough COVID-19 has not previously had a material adverse impact on our financial results, we are not able to ~~fully~~ quantify the impact that these factors ~~will~~could have on our future financial results ~~during 2021, but~~and therefore can provide no assurance that developments related to the COVID-19 pandemic ~~are likely to~~will not have a material adverse impact on our future financial results.

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The Centers for Medicare and Medicaid Services (“CMS”) issued an Interim Final Rule (“IFR”) effective November 5, 2021 mandating COVID-19 vaccinations for all applicable staff at all Medicare and Medicaid certified facilities. ~~Facilities~~Under the IFR, facilities covered by this regulation must establish a policy ensuring all eligible staff have received the first dose of a two-dose COVID-19 vaccine or a one-dose COVID-19 vaccine prior to providing any care, treatment, or other services by December 5, 2021. All eligible staff must have received the necessary shots to be fully vaccinated – either two doses of Pfizer or Moderna or one dose of Johnson & Johnson – by January 4, 2022. The regulation also provides for exemptions based on recognized medical conditions or religious beliefs, observances, or practices. ~~Facilities~~Under the IFR, facilities must develop a similar process or plan for permitting exemptions in alignment with federal law. If facilities fail to comply with the IFR by the deadlines established, they are subject to potential termination from the Medicare and Medicaid program for non-compliance. In addition, the Occupational Safety and Health Administration also issued an Emergency Temporary Standard (“ETS”) requiring all businesses with 100 or more employees to be vaccinated by January 4, 2022. ~~Those~~Pursuant to the ETS, those employees not vaccinated by that date will need to show a negative COVID-19 test weekly and wear a face mask in the workplace. ~~However, healthcare employees at healthcare facilities covered by the CMS IFR will not have the option of weekly COVID-19 testing in lieu of vaccination.~~ Legal challenges to these rules ensued, and the U.S. Supreme Court has upheld a stay of the ETS requirements but permitted the IFR vaccination requirements to go into effect pending additional litigation. CMS has indicated that hospitals in states not involved in the Supreme Court litigation are expected ~~and we~~to be in compliance with IFR vaccination requirements consistent with the dates referenced above. Hospitals in states that were involved in the Supreme Court litigation must now come into compliance with second dose requirements by March 15, 2022. Hospitals in Texas must come into compliance with second dose requirements by March 21, 2022 due to the recent termination of separate litigation there. We cannot predict at this time the potential viability or impact of any such ~~litigation. No assurance can be given~~additional litigation on us or the operators of our facilities. Implementation of these rules could have an impact on staffing at the operators of our facilities for those employees that ~~implementation~~are not vaccinated in accordance with IFR and ETS requirements,and associated loss of ~~this IFR will not~~revenues and increased costs resulting from staffing issues could have a material adverse effect on our financial results or those of the ~~staffing, patient volumes, labor costs or results of operations of our operators.~~operators.

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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. There can be no assurance as to whether our tenants would be required to repay any previously granted funding, due to noncompliance with grant terms or otherwise. 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.

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A substantial portion of our revenues are dependent upon one operator, UHS, which comprised approximately ~~37%~~41% and ~~34%~~36% of our consolidated revenues for the three-month periods ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and approximately 36% and 33% of our consolidated revenues for the nine-month periods ended September 30, 2021 and 2020,~~ respectively. As previously disclosed, on December 31, 2021, 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 agreed to exchange, and lease back from us, substitution properties with an aggregate fair market value substantially equal to that of Southwest Healthcare System, Inland Valley Campus, in return forpurchased the real estate assets of ~~the~~ Inland Valley ~~Campus. The substitution properties consist~~

Campus of ~~one acute care hospital (including a behavioral health pavilion)~~Southwest Healthcare System from us and ~~a newly constructed behavioral health hospital. The~~in exchange, transferred the real estate assets of Aiken Regional Medical Center and Canyon Creek Behavioral Health to us. These transactions were approved by the Independent Trustees of our Board, as well as the UHS Board of ~~Directors, have approved~~Directors. The aggregate annual rental revenue during 2022 pursuant to the leases for the two facilities transferred to us is approximately $5.7 million; there is no bonus rent component applicable to either of these transactions subject to satisfactory completion of definitive agreements, which are in progress. The effective date of the transactions is expected to coincide with the scheduled lease maturity date of December 31, 2021.leases. Pursuant to the terms of the lease on the Inland Valley Campus, we earned ~~$3.4~~$4.5 million of lease revenue during ~~the nine-month period ended~~

~~September 30, 2021 ($2.0 million in base rental and $1.4 million in bonus rental) and $4.4 million of lease revenue during the~~ year ended December 31, ~~2020~~2021 ($2.6 million in base rental and ~~$1.8~~$1.9 million in bonus rental). Please see Note 7 to the condensed consolidated financial statements -Lease Accounting, for additional information related to this asset purchase and sale transaction between us and UHS.

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~~In addition, we~~We cannot assure you that subsidiaries of UHS will renew the leases on the hospital facilities and free-standing emergency departments, upon the scheduled expirations of the existing lease terms. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital facilities and FEDs, and do not enter into a 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 ~~the planned transaction with~~a lease renewal between us and Wellington Regional Medical Center, a wholly-owned subsidiary of ~~UHS in connection with Southwest Healthcare System, Inland Valley Campus.~~UHS.

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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.

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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.

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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.

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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~~fourth quarter of ~~one of our other~~2021 on three specialty ~~hospitals that they do not intend to renew the lease on its facility which expires on December 31, 2021)~~hospital facilities).

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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, if, and as, ~~described in Note 4 to the condensed consolidated financial statements –~~ ~~Acquisitions and Divestitures~~.applicable from time-to-time.

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Our ability to continue to obtain capital on acceptable terms, including borrowed funds, to fund future growth of our business.

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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 ~~37% and 34%~~41% of our consolidated revenues during the ~~three-month periods~~three months ended ~~September 30, 2021 and 2020, respectively, and 36% and 33% of our consolidated revenues during the nine-month period ended September 30, 2021 and 2020, respectively,~~March 31, 2022, 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.

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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.

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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.

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A continuation in the deterioration in general economic conditions which ~~could result~~has resulted in increases in the number of people unemployed and/or ~~insured.~~insured and likely increase the number of individuals without health insurance. Under these

circumstances, the operators of our facilities may experience declines in patient volumes which could result in decreased occupancy rates at our medical office buildings.

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A continuation of the 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~~rental revenue (on ~~the~~one UHS hospital ~~facilities)~~facility) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties.

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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.

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The impact of property values and results of operations of severe weather conditions, including the effects of hurricanes.

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Government regulations, including changes in the reimbursement levels under the Medicare and Medicaid programs.

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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 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.

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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. Subsequent legislation extended the payment reduction suspension through March 31, 2022, with a 1% payment reduction from then until June 30, 2022 and the full 2% payment reduction thereafter. 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.

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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.

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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.

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Competition for properties ~~include,~~includes, but ~~are~~is 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.

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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.

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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.

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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.

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Our ownership interest in four 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 a fourth quarter, 2021 transaction between us and the minority partner in Grayson Properties, LP.

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Fluctuations in the value of our common stock.

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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

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~~most real estate investments acquired from third parties. In accordance with current accounting guidance, we account for most of 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 most 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. Please see additional disclosure below regarding “Financing Assets”.

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.

Financing Assets: As discussed in Note 2 – Relationship with UHS and Related Party Transactions, on December 31, 2021 we entered into an asset purchase and sale agreement with UHS and certain of its affiliates. Pursuant to the agreement, which was amended during the first quarter of 2022, UHS purchased from us the real estate assets of the Inland Valley Campus of Southwest Healthcare System (“Inland Valley”) and transferred to us the real estate assets of Aiken Regional Medical Center (“Aiken”) and Canyon Creek Behavioral Health (“Canyon Creek”). In connection with this transaction, Aiken and Canyon Creek (as lessees), entered into a master lease and individual property leases (with us as lessor), as amended during the first quarter of 2022, for initial lease terms of approximately twelve years, ending on December 31, 2033. As a result of UHS’ purchase option within the lease agreements of Aiken and Canyon Creek, the transaction is accounted for as a failed sale leaseback in accordance with U.S. GAAP and we have accounted for the transaction with UHS as a financing arrangement. A portion of the monthly lease payment to us from UHS will be recorded to interest income based upon an imputed interest rate and the remainder will reduce the outstanding financing receivable. In connection with this transaction, our Consolidated Balance Sheets at March 31, 2022 and December 31, 2021, reflect financing receivables of $83.7 million and $82.4 million, respectively. As of March 31, 2022 there are no indicators of impairment and the financing receivable will be assessed for recoverability in accordance with our asset impairment policy.

Asset Impairment: ~~Purchase accounting~~We review each of our properties for indicators that its carrying amount may not be recoverable. Examples of such indicators may include a significant decrease in the market price of the property, a change in the expected holding period for the property, a significant adverse change in how the property is ~~applied~~being used or expected to be used based on the underwriting at the time of acquisition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of the property, or a history of operating or cash flow losses of the property. When such impairment indicators exist, we review an estimate of the future undiscounted net cash flows (excluding interest charges) expected to result from the real estate investment’s use and eventual disposition and compare that estimate to the ~~assets~~carrying value of the property. We consider factors such as future operating income, trends and ~~liabilities related~~prospects, as well as the effects of leasing demand, competition and other factors. If our future undiscounted net

cash flow evaluation indicates that we are unable to ~~all~~recover the carrying value of a 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 costsinvestment, an impairment loss is recorded to the ~~underlying assets and prohibits~~extent that the ~~recognition of goodwill or bargain purchase gains. The~~carrying value exceeds the estimated fair value of the ~~real estate acquired~~property. The evaluation of anticipated cash flows is ~~allocated~~highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Since cash flows on properties considered to be long-lived assets to be held and used are considered on an undiscounted basis to determine whether the ~~acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the~~carrying value of ~~above-market~~a property is recoverable, our strategy of holding properties over the long-term directly decreases the likelihood of their carrying values not being recoverable and ~~below-market leases,~~therefore requiring the recording of an impairment loss. If our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and ~~acquired ground leases, based in each case on~~such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to 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~~value.

We generally estimate the fair value of ~~any loans assumed in connection with acquiring the real estate.~~

~~The fair values~~rental properties utilizing a discounted cash flow analysis that includes projections of ~~the tangible assets of an acquired property are determined based on comparable land sales for land~~future revenues, expenses and ~~replacement~~capital improvement 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 based on the highest and best use of the asset, which is similar to ~~methods used~~the income approach that is commonly utilized by ~~independent~~ appraisers. In ~~addition, there~~certain cases, we may supplement this analysis by obtaining outside broker opinions of value or third party appraisals.

In considering whether to classify a property as held for sale, we consider factors such as whether management has committed to a plan to sell the property, the property is ~~intangible~~available for immediate sale in its present condition for a price that is reasonable in relation to its current value, the sale of the property is probable, and actions required for management to complete the plan indicate that it is unlikely that any significant changes will made to the plan. If all the criteria are met, we classify the property as held for sale. Upon being classified as held for sale, depreciation and amortization 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 ceases and ~~also avoiding rent losses~~it is recorded at the lower of its carrying amount or fair value less cost to sell. The assets and ~~unreimbursed operating expenses during~~related liabilities of the ~~hypothetical lease-up~~property are classified separately on the consolidated balance sheets for the most recent reporting period. ~~Factors~~Only those assets held for sale that constitute a strategic shift or that will have a major effect on our operations are classified as discontinued operations.

An other than temporary impairment of an investment in an unconsolidated LLC is recognized when the carrying value of the investment is not 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 periodsrecoverable based on ~~current market demand. Management also estimates costs to execute similar leases~~evaluation of the severity and duration of the decline in value, including ~~leasing commissions, tenant improvements, legal and other related costs. The~~projected declines in cash flow. To the extent impairment has occurred, the excess carrying value of ~~in-place leases are amortized~~the asset over its estimated fair value is charged to ~~expense over the remaining initial terms of the respective leases.~~income.

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.

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 ~~September 30, 2021,~~March 31, 2022, net income was ~~$5.3~~$5.4 million, as compared to ~~$5.2~~$5.6 million during the ~~third~~first quarter of ~~2020.~~2021. The ~~$151,000 increase~~$181,000 decrease was attributable to:

•

~~$289,000~~a decrease of ~~other combined net increases including an aggregate net increase~~$884,000 related to a vacant specialty hospital located in ~~income generated at various properties, including~~Chicago, Illinois, on which, as discussed in Note 7 to the ~~income recorded in connection with~~consolidated financial statements, the ~~newly constructed Clive Behavioral Health facility;~~lease expired on December 31, 2021;

•

~~$148,000~~a net increase of $431,000 resulting from the asset purchase and sale agreement with UHS that occurred on December 31, 2021, as discussed in ~~bonus rentals earned~~Note 7 to the consolidated financial statements;

•

an increase of $335,000 resulting from the impact of the fair market value lease renewal on Wellington Regional Medical Center, which became effective on January 1, 2022, as discussed in Note 7 to the ~~three hospital facilities leased to subsidiaries of UHS,~~consolidated financial statements, and;

•

$~~286,000 decrease resulting from an increase in interest expense, as discussed below in~~ ~~Interest Expense~~.

During the nine-month period ended September 30, 2021, net income was $17.6 million, as compared to $14.4 million during the nine-month period of 2020. The $3.1 million increase was attributable to:

•

~~$1.3 million increase resulting from the gain recorded during the second quarter~~63,000 of ~~2021 related to the sale of a medical office building located in Springdale, AR;~~other combined net decreases.

•

$1.4 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;

•

~~$694,000 increase in bonus rentals earned on the three hospital facilities leased to subsidiaries of UHS, and;~~

•

~~$277,000 decrease resulting from an increase in interest expense, as discussed below in~~ ~~Interest Expense~~.

~~Total revenues~~

Revenues increased $1.5 million ~~or 7.7%,~~to $22.2 million during the three-month period ended ~~September 30, 2021,~~March 31, 2022, as compared to $20.7 million during the first quarter of 2021. The increase during the first quarter of 2022, as compared to the ~~third~~first quarter of ~~2020,~~2021, was due to: (i) a $919,000 increase due to the recording on a consolidated basis of Grayson Properties, LP (effective as of November 1, 2021 as discussed in Note 5 to the consolidated financial statements), resulting from our purchase of the 5% minority ownership interest in the entity; (ii) a $335,000 increase resulting from the fair market value lease renewal on Wellington Regional Medical Center, which became effective on January 1, 2022; (iii) a $253,000 net increase resulting from the December 31, 2021 asset purchase and sale agreement with UHS whereby we divested the real estate assets of the Inland Valley Campus of Southwest Healthcare System and acquired the real estate assets of Aiken Regional Medical Center and Canyon Creek Behavioral Health; (iv) a $359,000 aggregate net increase generated at various properties, including the impact of acquisitions and divestitures, partially offset by; (v) a $390,000 decrease resulting from the December 31, 2021 lease expiration on the specialty hospital located in Chicago, Illinois. Although our revenues and expenses increased ~~$4.6 million, or 7.9%,~~ during the ~~nine-month period ended September 30, 2021,~~first quarter of 2022, as compared to the ~~comparable period of 2020. In addition to the increased revenues generated at various properties, the increases in each period~~first quarter of 2021, ~~as compared to 2020, resulted primarily~~resulting from the ~~revenue recorded in connection with~~recording of Grayson Properties, LP on a consolidated basis effective as of November 1, 2021, there was no significant impact on our net income resulting from the ~~Clive Behavioral Health facility located in Clive, Iowa, which was completed in December, 2020, and increased bonus rentals earned on~~change from the ~~three hospital facilities leased to wholly-owned subsidiaries of UHS.~~unconsolidated/equity method basis.

Included in our other operating expenses are expenses related to the consolidated medical office buildings and ~~two~~three vacant ~~hospital facilities, which~~specialty facilities. Other operating expenses totaled ~~$5.3~~$6.0 million and $4.8 million for the three-month periods ended ~~September 30,~~March 31, 2022 and 2021, respectively. The $1.2 million increase in our other operating expenses during the first quarter of 2022, as compared to the first quarter of 2021, was due primarily to $494,000 of operating expenses incurred during the first quarter of 2022 at a vacant specialty facility located in Chicago, Illinois, on which the lease expired on December 31, 2021 (the operating expenses for this facility were the tenant’s responsibility through the lease expiration date) and ~~2020, respectively, and $15.1 million and $14.2 million for~~$452,000 of other operating expenses recorded during the ~~nine-month periods ended September 30, 2021 and 2020, respectively.~~first quarter of 2022 in connection with Grayson Properties, LP, which as discussed above, was recorded on a consolidated basis effective as of November 1, 2021. 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 September 30, 2021 and 2020, is $225,000 and $153,000, respectively, and $571,000 and $533,000 for the nine months ended September 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,~~certain items, such as gains on transactions that occurred 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.

Below is a reconciliation of our reported net income to FFO for the ~~three and nine-month~~three-month periods ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2021

2020

2021

2020

Net income

$
5,344

$
5,193

$
17,551

$
14,447

Depreciation and amortization expense on consolidated
investments

6,813

6,399

20,551

19,160

Depreciation and amortization expense on unconsolidated
affiliates

460

290

1,196

869

Gain on sale of real estate assets

-

-

(1,304
)

-

Funds From Operations

$
12,617

$
11,882

$
37,994

$
34,476

Weighted average number of shares outstanding - Diluted

13,783

13,770

13,777

13,763

Funds From Operations per diluted share

$
0.92

$
0.86

$
2.76

$
2.50

	Three Months Ended March 31,
	2022		2021
Net income	$	5,405	$	5,586
Depreciation and amortization expense on consolidated Investments		6,709		6,787
Depreciation and amortization expense on unconsolidated Affiliates		295		362
Funds From Operations	$	12,409	$	12,735
Weighted average number of shares outstanding – Diluted		13,785		13,771
Funds From Operations per diluted share	$	0.90	$	0.92

Our FFO ~~increased $735,000,~~decreased $326,000, or ~~$.06~~$.02 per diluted share, during the ~~third~~first quarter of ~~2021,~~2022, as compared to the ~~third~~first quarter of ~~2020.~~2021. The net ~~increase~~decrease was primarily due to: (i) the ~~increase~~decrease in net income of ~~$151,000,~~$181,000, or ~~$.01~~$.02 per diluted share, as discussed ~~above;~~above, and; (ii) a ~~$584,000, or $.04 per diluted share, increase~~$145,000 decrease in depreciation and amortization expense incurred on our consolidated and unconsolidated ~~affiliates, due primarily to the depreciation expense recorded on the Clive Behavioral Health facility which was completed in December, 2020.~~affiliates.

Our FFO increased $3.5 million, or $.26 per diluted share, during the first nine months of 2021, as compared to the first nine months of 2020. The net increase was primarily due to: (i) the increase in net income of $3.1 million, or $.22 per diluted share, as discussed above; (ii) a $1.7 million, or $.13 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 first nine months of 2021 related to the sale of a medical office building, since we have historically excluded such gains from our calculation of FFO.

Other Operating Results

Interest Expense:

As reflected in the schedule below, interest expense was ~~$2.3~~$2.2 million and ~~$2.0~~$2.1 million during the three-month periods ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $6.6 million and $6.3 million during the nine-month periods ended September 30, 2021 and 2020,~~ respectively (amounts in thousands):


	Three Months Ended September 30, 2021			Three Months Ended September 30, 2020			Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020			Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Revolving credit agreement	$	1,131		$	948		$	3,127		$	3,646		$	1,168		$	967
Mortgage interest		623			645			1,887			1,957			612			635
Interest rate swaps expense/(income), net (a.)		328			299			957			430
Interest rate swaps expense, net (a.)														287			309
Amortization of financing fees		176			220			608			549			178			216
Amortization of fair value of debt		(13	)		(13	)		(39	)		(39	)		(13	)		(13	)
Capitalized interest on major projects		-			(128	)		-			(254	)		(21	)		-
Other interest		5			(7	)		26			-			11			19
Interest expense, net	$	2,250		$	1,964		$	6,566		$	6,289		$	2,222		$	2,133

(a.)

Represents ~~net~~ interest paid by ~~us/(~~us to ~~us) by~~ the counterparties pursuant to three interest rate SWAPs with a combined notional amount of $140 million.

Interest expense increased by ~~$286,000~~$89,000 during the three-month period ended ~~September 30, 2021,~~March 31, 2022, as compared to the comparable quarter of ~~2020,~~2021, due primarily to: (i) a ~~$183,000~~$201,000 increase in the interest expense on our revolving credit agreement primarily resulting from an increase in our average outstanding borrowings ($~~259.8~~270.2 million during the three months ended ~~September 30, 2021~~March 31, 2022 as compared to ~~$220.1~~$239.2 million in the comparable quarter of ~~2020); (ii) a $29,000 net~~2021) as well as an increase ~~in interest rate swap expense; (iii) a~~

$128,000 increase in interest expense due to a decrease in capitalized interest on major projects (both newly constructed facilities were substantially completed in December, 2020), and; (iv) $54,000 of other combined net decreases in interest expense.

Interest expense increased by $277,000 during the nine-month period ended September 30, 2021, as compared to the comparable period of 2020, due primarily to: (i) a $519,000 decrease in the interest expense on our revolving credit agreement resulting from a decrease in our average cost of borrowings ~~(1.35%~~pursuant to our revolving credit agreement (1.76% average effective rate during the ~~nine months ended September 30, 2021~~first quarter of 2022, as compared to ~~1.95%~~1.64% average effective rate during the comparable ~~nine month period~~quarter of ~~2020)~~2021), partially offset ~~by an increase in our average outstanding borrowings ($249.1 million during the nine-month period ended September 30, 2021 as compared to $216.3 million in the comparable 2020 nine-month period);~~by; (ii) a ~~$527,000 net increase~~$38,000 decrease in amortization of financing fees and fair value of debt; (iii) a $22,000 decrease in interest rate swap expense; ~~(iii)~~(iv) a ~~$254,000 increase in interest expense~~$21,000 decrease due to ~~a decrease~~an increase in capitalized interest on a major ~~projects (both newly constructed facilities were substantially completed~~project; (v) a $23,000 decrease in ~~December, 2020); (iv) a $59,000 increase resulting from increased amortization of financing fees,~~mortgage interest expense, and; ~~(v) $44,000~~(vi) $8,000 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 Wellington Regional Medical ~~Center, Southwest Healthcare System, Inland Valley Campus;~~Center; Aiken Regional Medical Center; Canyon Creek Behavioral Health; Evansville, Indiana; Corpus Christi, Texas; Chicago, Illinois, and; PeaceHealth Medical ~~Clinic, and; Kindred Hospital Chicago Central.~~Clinic.

Liquidity and Capital Resources

Net cash provided by operating activities

Net cash provided by operating activities was ~~$36.2~~$11.7 million during the ~~nine-month~~three-month period ended ~~September 30, 2021~~March 31, 2022 as compared to ~~$32.8~~$11.3 million during the comparable period of ~~2020.~~2021. The ~~$3.4~~$454,000 million net increase was attributable to:

•

~~a favorable~~an unfavorable change of ~~$3.3 million~~$312,000 due to ~~an increase~~a decrease 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 and stock-based ~~compensation and gain on sale of real estate assets)~~compensation), as discussed above;

•

an unfavorable change of ~~$484,000~~$81,000 in lease receivable;

•

a favorable change of ~~$458,000~~$489,000 in tenant reserves, deposits and deferred and prepaid rents;

•

an unfavorable change of ~~$505,000~~$117,000 in leasing costs paid, and;

•

other combined net favorable ~~changes~~change of ~~$643,000,~~$475,000, resulting primarily from the timing of deposits made on acquisitions and prepaid expense payments.

Net cash used in investing activities

Net cash used in investing activities was ~~$41.2~~$18.3 million during the first ~~nine~~three months of ~~2021~~2022 as compared to ~~$16.8~~$12.2 million during the first ~~nine~~three months of ~~2020.~~2021.

During the ~~nine-month~~three-month period ended ~~September 30, 2021~~March 31, 2022 we funded: (i) ~~$13.0~~$13.6 million, including transaction costs, on the ~~acquisition~~acquisitions of the ~~Fire Mesa~~Beaumont Heart and Vascular Center in March, 2022, and; the 140 Thomas Johnson Drive medical office building in ~~May, 2021,~~January, 2022, as discussed in Note 4 to the consolidated financial statements–Acquisitions and ~~Dispositions~~Divestitures; (ii) ~~$11.5~~$3.5 million in additions to real estate investments including construction costs related to the ~~100-bed~~Sierra Medical Plaza I medical office building located in Reno, Nevada, that is scheduled to be completed during the first quarter of 2023, as well as tenant improvements at various MOBs, and; (iii) $1.3 million as part of the asset purchase and sale agreement with UHS, as discussed in Note 2 to the consolidated financial statements-Relationship with UHS and Related Party Transactions. In addition, during the three-months ended March 31, 2022, we received approximately $160,000 of cash in excess of income from LLCs.

During the three-month period ended March 31, 2021 we funded: (i) $7.0 million in additions to real estate investments including construction costs related to Clive Behavioral Health, a newly constructed 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~~(ii) $3.5 million in a member loan to an unconsolidated LP; ~~(iv)~~(iii) $200,000 ~~in a~~ deposit on a real estate ~~assets,~~acquisition, and; ~~(v) $16.1~~(iv) $1.5 million in equity investments in unconsolidated LLCs. ~~In addition, during the nine-months ended September 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 nine-month period ended September 30, 2020 we funded: (i) $18.8 million in additions to real estate investments including $14.4 million of construction costs related to the 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 nine-months ended September 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 (used in)/ provided ~~by/(used in)~~by financing activities

Net cash used in financing activities was $7.0 million during the three months ended March 31, 2022, as compared to $1.4 million of cash provided by financing activities ~~was $8.6 million~~ during the ~~nine~~three months ended ~~September 30, 2021, as compared to $15.8 million of cash used in financing activities during the nine months ended September 30, 2020.~~March 31, 2021.

During the ~~nine-month~~three-month period ended ~~September 30, 2021,~~March 31, 2022, we paid: (i) ~~$1.6 million~~$536,000 on mortgage notes payable that are non-recourse to us; (ii) ~~$1.8 million~~$26,000 of financing costs ~~primarily~~ related to the ~~July 2, 2021 amended and restated~~ revolving credit agreement, and; (iii) ~~$28.8~~$9.7 million of dividends. Additionally, during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we received: (i) ~~$40.6~~$3.2 million of net borrowings on our revolving credit agreement, and; (ii) ~~$159,000~~$55,000 of net cash from the issuance of shares of beneficial interest.

During the ~~nine-month~~three-month period ended ~~September 30, 2020,~~March 31, 2021, we paid: (i) ~~$1.4 million~~$510,000 on mortgage notes payable that are non-recourse to us; (ii) ~~$372,000~~$35,000 of financing costs related to the revolving credit agreement, ~~in place at that time, including amendment fees,~~ and; (iii) ~~$28.4~~$9.6 million of dividends. Additionally, during the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, we received: (i) ~~$14.2~~$11.5 million of net borrowings on our revolving credit agreement, and; (ii) ~~$266,000~~$56,000 of net cash from the issuance of shares of beneficial ~~interest, as discussed below.~~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 ~~nine~~three months of ~~2021. Since inception~~2022 and no shares were issued 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 toduring the ~~commencement of our ATM program.~~ year ended December 31, 2021.

Additional cash flow and dividends paid information for the ~~nine-month~~three-month periods ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

As indicated on our condensed consolidated statement of cash flows, we generated net cash provided by operating activities of ~~$36.2~~$11.7 million and ~~$32.8~~$11.3 million during the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2022 and 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 ~~$28.8~~$9.7 million and ~~$28.4~~$9.6 million during the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. During the first ~~nine~~three months of ~~2021,~~2022, the ~~$36.2~~$11.7 million of net cash provided by operating activities was approximately ~~$7.4~~$2.0 million greater than the ~~$28.8~~$9.7 million of dividends paid during the first ~~nine~~three months of ~~2021.~~2022. During the first ~~nine~~three months of ~~2020,~~2021, the ~~$32.8~~$11.3 million of net cash provided by operating activities was approximately ~~$4.4~~$1.7 million greater than the ~~$28.4~~$9.6 million of dividends paid during the first ~~nine~~three months of ~~2020.~~2021.

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 ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. 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 $375 million revolving credit agreement (which had ~~$94.6~~$96.7 million of available borrowing capacity, net of outstanding borrowings and letters of credit as of ~~September 30, 2021)~~March 31, 2022); (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 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.

At ~~September 30, 2021,~~March 31, 2022, we had ~~$276.8~~$275.1 million of outstanding borrowings and ~~$3.6~~$3.2 million of letters of credit outstanding under our Credit Agreement. We had ~~$94.6~~$96.7 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of ~~September 30, 2021.~~March 31, 2022. There are no compensating balance requirements.At December 31, ~~2020,~~2021, we had ~~$236.2~~$271.9 million of outstanding borrowings, $3.2 million of outstanding ~~against our Prior Credit Agreement~~letters of credit and ~~$108.2~~$99.9 million of available borrowing capacity.

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 then outstanding under the Credit Agreement. We are in compliance with all of the covenants in the Credit Agreement at ~~September 30, 2021~~March 31, 2022 and were in compliance with all of the covenants in the ~~Prior~~ Credit Agreement at December 31, ~~2020.~~2021. 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.

	Covenant	September 30, 2021			December 31, 2020			Covenant	March 31, 2022			December 31, 2021
Tangible net worth	> =$125,000	$	141,419		$	147,263		> =$125,000	$	225,799		$	225,355
Total leverage	< 60%		45.6	%		44.8	%	< 60%		42.4	%		43.1	%
Secured leverage	< 30%		8.1	%		8.6	%	< 30%		7.2	%		7.4	%
Unencumbered leverage	< 60%		47.2	%		41.4	%	< 60%		41.3	%		41.9	%
Fixed charge coverage	> 1.50x	4.8x			4.7x			> 1.50x	4.8x			4.8x

Facility Name	Outstanding Balance (in thousands) (a.)			Interest Rate			Maturity Date	Outstanding Balance (in thousands) (a.)			Interest Rate			Maturity Date
700 Shadow Lane and Goldring MOBs fixed rate mortgage loan (b.)	$	5,268			4.54	%	June, 2022	$	5,152			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		5,337			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		4,395			3.62	%	January, 2023
BRB Medical Office Building fixed rate mortgage loan (c.)									5,222			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan (c.)									4,316			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		6,458			4.95	%	November, 2023		6,377			4.95	%	November, 2023
Summerlin Hospital Medical Office Building III fixed rate mortgage loan		12,866			4.03	%	April, 2024		12,745			4.03	%	April, 2024
Tuscan Professional Building fixed rate mortgage loan		2,494			5.56	%	June, 2025		2,190			5.56	%	June, 2025
Phoenix Children’s East Valley Care Center fixed rate mortgage loan		8,530			3.95	%	January, 2030		8,401			3.95	%	January, 2030
Rosenberg Children's Medical Plaza fixed rate mortgage loan		12,333			4.42	%	September, 2033		12,213			4.42	%	September, 2033
Total, excluding net debt premium and net financing fees		57,681							56,616
Less net financing fees		(387	)						(348	)
Plus net debt premium		103							78
Total mortgages notes payable, non-recourse to us, net	$	57,397						$	56,346

(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 in the second quarter of 2022, at which time we intend on paying off the remaining principal balance utilizing borrowings under our Credit Agreement.

(c.)

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 ~~September 30, 2021,~~March 31, 2022, 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 ~~September 30, 2021~~March 31, 2022 totaled ~~$3.6~~$3.2 million related to Grayson Properties II.

As of December 31, ~~2020~~2021 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~~2021 totaled ~~$5.6~~$3.2 million related to Grayson Properties II.

Acquisition and Divestiture Activity

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Reference is made to Item 7A in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. There have been no material changes in the quantitative and qualitative disclosures during the first ~~nine~~three months of ~~2021,~~2022, except for the additional disclosure below.

Financial Instruments

We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from third parties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At ~~September 30, 2021,~~March 31, 2022, the fair value of our interest rate swaps was a net ~~liability~~asset of ~~$556,000~~$6.8 million which is included in ~~accrued expenses~~deferred charges and other ~~liabilities~~assets on the accompanying condensed consolidated balance sheet. During the ~~third~~first quarter of ~~2021,~~2022, we paid or accrued approximately ~~$324,000 to the counterparty by us, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. During the first nine months of 2021, we paid or accrued approximately $945,000~~$289,000 to the counterparty by us, adjusted for the previous quarter accrual, pursuant to the terms of the swaps. From inception of the swap agreements through ~~September 30, 2021~~March 31, 2022 we paid or accrued approximately ~~$1.6~~$2.2 million in net payments made to the counterparty by us pursuant to the terms of the swap (consisting of approximately $199,000 in payments or accruals made to us by the counterparty, offset by approximately ~~$1.8~~$2.4 million of payments due to the counterparty from us). Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or a liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are classified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. We do not expect any gains or losses on our interest rate swaps to be reclassified to earnings in the next twelve months.

The sensitivity analysis related to our fixed and variable rate debt assumes current market rates with all other variables held constant. As of ~~September 30, 2021,~~March 31, 2022, the fair value and carrying value of our debt is approximately ~~$337.1~~$332.1 million and ~~$334.5~~$331.7 million, respectively. As of that date, the fair value exceeds the carrying value by approximately ~~$2.6 million.~~$400,000.

The table below presents information about our financial instruments that are sensitive to changes in interest rates. The interest rate swaps include the $50 million swap agreement entered into during the third quarter of 2019, the $35 million swap agreement entered into in January, 2020 and the $55 million swap agreement entered into in March, 2020. For debt obligations, the amounts of which are as of ~~September 30, 2021,~~March 31, 2022, the table presents principal cash flows and related weighted average interest rates by contractual maturity dates.

	Maturity Date, Year Ending December 31																					Maturity Date, Year Ending December 31
(Dollars in thousands)	2021			2022			2023			2024			2025			Thereafter			Total			2022			2023			2024			2025			2026			Thereafter			Total
Long-term debt:
Fixed rate:
Debt(a)	$	529		$	12,197		$	11,892		$	13,551		$	939		$	18,573		$	57,681		$	11,662		$	11,892		$	13,551		$	939		$	600		$	17,972		$	56,616
Average interest rates		4.3	%		4.4	%		4.4	%		4.4	%		4.3	%		4.3	%		4.3	%		4.40	%		4.40	%		4.40	%		4.30	%		4.20	%		4.30	%		4.4	%
Variable rate:
Debt(b)	$	—		$	—		$	—		$	—		$	276,800		$	—		$	276,800		$	—		$	—		$	—		$	275,100		$	—		$	—		$	275,100
Average interest rates	—			—			—			—				1.3	%	—				1.3	%	—			—			—				1.65	%	—			—				1.65	%
Interest rate swaps:
Notional amount(c)	$	—		$	—		$	—		$	85,000		$	—		$	55,000		$	140,000		$	—		$	—		$	85,000		$	—		$	—		$	55,000		$	140,000
Interest rates	—			—			—				1.320	%	—				0.565	%		1.070	%	—			—				1.320	%	—			—				0.565	%		1.070	%

(a)

Consists of non-recourse mortgage notes payable.

(b)

Includes ~~$276.8~~$275.1 million of outstanding borrowings under the terms of our $375 million revolving credit agreement which has a maturity date of July 2, 2025.

(c)

Includes a $50 million interest rate swap that became effective on September 16, 2019, and a $35 million interest rate swap that became effective on January 15, 2020, both of which are scheduled to mature during 2024. Additionally, included is a $55 million interest rate swap that became effective on March 25, 2020, which is scheduled to mature in 2027.

As calculated based upon our variable rate debt outstanding as of ~~September 30, 2021~~March 31, 2022 that is subject to interest rate fluctuations, and giving effect to the above-mentioned interest rate swap, each 1% change in interest rates would impact our net income by approximately $1.4 million.

Item 4. Controls and Procedures

As of ~~September 30, 2021,~~March 31, 2022, under the supervision and with the participation of our management, including the Trust’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”).

Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the 1934 Act and the SEC rules thereunder.

There have been no changes in our internal control over financial reporting or in other factors during the first ~~nine~~three months of ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

UNIVERSAL HEALTH REALTY INCOME TRUST

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 includes a listing of risk factors to be considered by investors in our securities. There have been no material changes in our risk factors from those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Item 6. Exhibits

(a.)

Exhibits:



10.1		~~Amended~~First amendment to lease by and ~~Restated Credit Agreement, dated as of July 2, 2021~~between Universal Health Realty Income Trust, a Maryland real estate investment trust and Temple Behavioral Healthcare Hospital, Inc., a Texas corporation.

10.2		First amendment to asset purchase and sale agreement by and among Universal Health Realty Income Trust, ~~the Lenders Party thereto~~a Maryland real estate investment trust and ~~Wells Fargo Bank, National Association, as Administrative Agent, Bank~~Universal Health Services, Inc., a Delaware corporation and certain of ~~America, N.A.~~its wholly-owned subsidiaries, Aiken Regional Medical Centers, LLC, a South Carolina limited liability company (“ARMC”), ~~as Syndication Agent~~Temple Behavioral Healthcare Hospital, Inc. (“Temple”), a Texas corporation, and ~~Fifth Third Bank, N.A., JPMorgan Chase Bank, N.A. and Truist Bank as Co-Documentation Agents, Wells Fargo Securities, LLC and BOFA Securities,~~Universal Health Services of Rancho Springs, Inc., ~~as Joint Lead Arrangers and Joint Bookrunners previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 2, 2021, is incorporated herein by reference~~a California corporation (“Inland Valley”)..

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended.

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended.

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data file because iXBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101)

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~November 8, 2021~~May 6, 2022		UNIVERSAL HEALTH REALTY INCOME TRUST (Registrant)

		/s/ Alan B. Miller
		Alan B. Miller,
		Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

		/s/ Charles F. Boyle
		Charles F. Boyle, Vice President and Chief Financial Officer (Principal Financial Officer)

	Mortgage Loan Balance (a.)
Name of LLC/LP	9/30/2021		12/31/2020		Maturity Date
FTX MOB Phase II (5.00% fixed rate mortgage loan) (b.)	$	-	$	4,777	February, 2021
Grayson Properties (5.034% fixed rate mortgage loan) (c.)		-		13,372	September, 2021
Grayson Properties II (3.70% fixed rate construction loan) (d.)		13,075		12,336	June, 2025
Brunswick Associates (2.80% fixed rate mortgage loan)		9,058		9,250	December, 2030
	$	22,133	$	39,735