10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission File No. 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 Number)
Universal Corporate Center 367 South Gulph Road P.O. Box 61558 King of Prussia, Pennsylvania	19406-0958 (Zip Code)
(Address of principal executive offices)

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

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

Title of each Class Shares of beneficial interest, $.01 par value Name of each exchange on which registered New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  ☐    No  ☒

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 of1934 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 suchfiling requirements for the past 90 days.

Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).

Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ☒

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

Large accelerated filer  ☒	Accelerated filer  ☐	Non-accelerated filer  ☐	Smaller reporting company  ☐
		(Do not check if a smaller reporting company)

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

Aggregate market value of voting shares and non-voting shares held by non-affiliates as of June 30, 2016: $721,622,979 (For the purpose of this calculation only, all members of the Board of Trustees are deemed to be affiliates). Number of shares of beneficial interest outstanding of registrant as of January 31, 2017: 13,599,104

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for our 2016 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2016 (incorporated by reference under Part III).

UNIVERSAL HEALTH REALTY INCOME TRUST

2016 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I
Item 1	Business	1
Item 1A	Risk Factors	8
Item 1B	Unresolved Staff Comments	17
Item 2	Properties	18
Item 3	Legal Proceedings	25
Item 4	Mine Safety Disclosures	25
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6	Selected Financial Data	27
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	44
Item 8	Financial Statements and Supplementary Data	45
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	45
Item 9A	Controls and Procedures	45
Item 9B	Other Information	49
PART III
Item 10	Directors, Executive Officers and Corporate Governance	49
Item 11	Executive Compensation	49
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	49
Item 13	Certain Relationships and Related Transactions, and Director Independence	49
Item 14	Principal Accountant Fees and Services	49
PART IV
Item 15	Exhibits and Financial Statement Schedules	50
SIGNATURES		52
Index to Financial Statements and Schedule		53
Exhibit Index		83
Exhibit 10.2—Advisory Agreement renewal
Exhibit 21—Subsidiaries of Registrant
Exhibit 23.1—Consent of KPMG LLP
Exhibit 31.1—Section 302 Certification of the Chief Executive Officer
Exhibit 31.2—Section 302 Certification of the Chief Financial Officer
Exhibit 32.1—Section 906 Certification of the Chief Executive Officer
Exhibit 32.2—Section 906 Certification of the Chief Financial Officer

This Annual Report on Form 10-K is for the year ended December 31, 2016. This Annual Report modifies and supersedes documents filed prior to this Annual Report. Information that we file with the Securities and Exchange Commission (the “SEC”) in the future will automatically update and supersede information contained in this Annual Report. In this Annual Report, “we,” “us,” “our” and the “Trust” refer to Universal Health Realty Income Trust and its subsidiaries.

As disclosed in this Annual Report, including in Part I, Item 1.-Relationship with Universal Health Services, Inc. (“UHS”), 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. Our officers are all employees of UHS through its wholly-owned subsidiary, UHS of Delaware, Inc. In addition, three of our hospital facilities and seventeen medical office buildings or free-standing emergency departments, that are either wholly or jointly-owned by us, have leases with subsidiaries of UHS and/or include tenants which are subsidiaries of UHS. 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 Annual Report, the term “revenues” does not include the revenues of the unconsolidated limited liability companies in which we have various non-controlling equity interests ranging from 33% to 95%. We currently account for our share of the income/loss from these investments by the equity method (see Note 8 to the Consolidated Financial Statements included herein).

PART I

ITEM  1. Business

General

We are a real estate investment trust (“REIT”) which commenced operations in 1986. We invest in health care and human service related facilities currently including acute care hospitals, rehabilitation hospitals, sub-acute facilities, surgery centers, free-standing emergency departments, childcare centers and medical office buildings (“MOBs”). As of February 28, 2017, we have sixty-seven real estate investments located in twenty states in the United States consisting of: (i) six hospital facilities including three acute care, one rehabilitation and two sub-acute; (ii) fifty-four MOBs; (iii) three free-standing emergency departments (“FEDs”), and; (iv) four preschool and childcare centers.

Available Information

We have our principal executive offices at Universal Corporate Center, 367 South Gulph Road, King of Prussia, PA 19406. Our telephone number is (610) 265-0688. Our website is located at http://www.uhrit.com. Copies of the annual, quarterly and current reports we file with the SEC, and any amendments to those reports, are available free of charge on our website. Additionally, we have adopted governance guidelines, a Code of Business Conduct and Ethics applicable to all of our officers and directors, a Code of Ethics for Senior Officers and charters for each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of the Board of Trustees. These documents are also available free of charge on our website. Copies of such reports and charters are available in print to any shareholder who makes a request. Such requests should be made to our Secretary at our King of Prussia, PA corporate headquarters. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers of any provision of our Code of Ethics for Senior Officers by promptly posting this information on our website. The information posted on our website is not incorporated into this Annual Report.

In accordance with Section 303A.12(a) of The New York Stock Exchange Listed Company Manual, we submitted our CEO’s Certification to the New York Stock Exchange in 2016. Additionally, contained in Exhibits 31.1 and 31.2 of this Annual Report are our CEO’s and CFO’s certifications regarding the quality of our public disclosure under Section 302 of the Sarbanes-Oxley Act of 2002.

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Overview of Facilities

As of February 28, 2017, we have investments in sixty-seven facilities, located in twenty states and consisting of the following:

Facility Name	Location	Type of Facility	Ownership		Guarantor
Southwest Healthcare System, Inland Valley Campus(A)	Wildomar, CA	Acute Care		100%	Universal Health Services, Inc.
McAllen Medical Center(A)	McAllen, TX	Acute Care		100%	Universal Health Services, Inc.
Wellington Regional Medical Center(A)	W. Palm Beach, FL	Acute Care		100%	Universal Health Services, Inc.
Kindred Hospital Chicago Central(B)	Chicago, IL	Sub-Acute Care		100%	Kindred Healthcare, Inc.
Vibra Hospital of Corpus Christi(B)	Corpus Christi, TX	Sub-Acute Care		100%	Kindred Healthcare, Inc.
HealthSouth Deaconess Rehabilitation Hospital(F)	Evansville, IN	Rehabilitation		100%	HealthSouth Corporation
Family Doctor’s Medical Office Bldg.(B)	Shreveport, LA	MOB		100%	ChristusHealth Northern Louisiana
Kelsey-Seybold Clinic at Kings Crossing(B)	Kingwood, TX	MOB		100%	Kelsey-Seybold MedicalGroup,PLLC
Professional Buildings at Kings Crossing(B)
Building A	Kingwood, TX	MOB		100%		—
Building B	Kingwood, TX	MOB		100%		—
Chesterbrook Academy(B)	Audubon, PA	Preschool & Childcare		100%	Nobel Learning Comm. & Subs.
Chesterbrook Academy(B)	New Britain, PA	Preschool & Childcare		100%	Nobel Learning Comm. & Subs.
Chesterbrook Academy(B)	Newtown, PA	Preschool & Childcare		100%	Nobel Learning Comm. & Subs.
Chesterbrook Academy(B)	Uwchlan, PA	Preschool & Childcare		100%	Nobel Learning Comm. & Subs.
Southern Crescent Center I(B)	Riverdale, GA	MOB		100%		—
Southern Crescent Center, II(D)	Riverdale, GA	MOB		100%		—
St, Matthews Medical Plaza II(C)	Louisville, KY	MOB		33%		—
Desert Valley Medical Center(E)	Phoenix, AZ	MOB		100%		—
Cypresswood Professional Center(B)
8101	Spring, TX	MOB		100%		—
8111	Spring, TX	MOB		100%		—
Desert Springs Medical Plaza(D)	Las Vegas, NV	MOB		100%		—
701 South Tonopah Bldg.(A)	Las Vegas, NV	MOB		100%		—
Santa Fe Professional Plaza(E)	Scottsdale, AZ	MOB		100%		—
Summerlin Hospital MOB I(D)	Las Vegas, NV	MOB		100%		—
Summerlin Hospital MOB II(D)	Las Vegas, NV	MOB		100%		—
Medical Center of Western Connecticut(B)	Danbury, CT	MOB		100%		—
Mid Coast Hospital MOB(C)	Brunswick, ME	MOB		74%		—
Rosenberg Children’s Medical Plaza(E)	Phoenix, AZ	MOB		100%		—
Gold Shadow(D)
700 Shadow Lane MOB	Las Vegas, NV	MOB		100%		—
2010 & 2020 Goldring MOBs	Las Vegas, NV	MOB		100%		—
St. Mary’s Professional Office Building(C)	Reno, NV	MOB		85%		—
Apache Junction Medical Plaza(E)	Apache Junction, AZ	MOB		100%		—
Spring Valley Medical Office Building(D)	Las Vegas, NV	MOB		100%		—
Spring Valley Hospital Medical Office Building II(D)	Las Vegas, NV	MOB		100%		—
Sierra San Antonio Medical Plaza(E)	Fontana, CA	MOB		100%		—
Phoenix Children’s East Valley Care Center(E)	Phoenix, AZ	MOB		100%		—
Centennial Hills Medical Office Building(D)	Las Vegas, NV	MOB		100%		—
Palmdale Medical Plaza(D)	Palmdale, CA	MOB		100%		—
Summerlin Hospital Medical Office Building III(D)	Las Vegas, NV	MOB		100%		—
Vista Medical Terrace(D)	Sparks, NV	MOB		100%		—
The Sparks Medical Building(D)	Sparks, NV	MOB		100%		—
Auburn Medical Office Building II(E)	Auburn, WA	MOB		100%		—
Texoma Medical Plaza(G)	Denison, TX	MOB		95%		—
BRB Medical Office Building(E)	Kingwood, TX	MOB		100%		—
3811 E. Bell(E)	Phoenix, AZ	MOB		100%		—
Lake Pointe Medical Arts Building(E)	Rowlett, TX	MOB		100%		—
Forney Medical Plaza(E)	Forney, TX	MOB		100%		—
Tuscan Professional Building(E)	Irving, TX	MOB		100%		—
Emory at Dunwoody Building(E)	Atlanta, GA	MOB		100%		—
PeaceHealth Medical Clinic(E)(H)	Bellingham, WA	MOB		100%		—
Forney Medical Plaza II(C)	Forney, TX	MOB		95%		—
Northwest Texas Professional Office Tower(E)	Amarillo, TX	MOB		100%		—
5004 Poole Road MOB(A)	Denison, TX	MOB		100%		—
Ward Eagle Office Village(E)	Farmington Hills, MI	MOB		100%		—
The Children’s Clinic at Springdale(E)	Springdale, AR	MOB		100%		—
The Northwest Medical Center at Sugar Creek(E)	Bentonville, AR	MOB		100%		—
Hanover Emergency Center (E)(K)	Mechanicsville, VA	FED		100%		—
Weslaco Free-standing Emergency Department(A)(L)	Weslaco, TX	FED		100%		—
Mission Free-standing Emergency Department(A)(L)	Mission, TX	FED		100%		—
Haas Medical Office Park(E)	Ottumwa, IA	MOB		100%	Regional Hospital Partners
Piedmont - Roswell Physician Center (E)(M)	Sandy Springs, GA	MOB		100%		—
Piedmont - Vinings Physician Center (E)M)	Vinings, GA	MOB		100%		—
Madison Professional Office Building (E)(I)	Madison, AL	MOB		100%		—
Chandler Corporate Center III (E)(N)	Chandler, AZ	MOB		100%		—

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Frederick Crestwood MOB (E)(O)	Frederick, MD	MOB	100%	—
2704 North Tenaya Way (E)(P)	Las Vegas, NV	MOB	100%	—
Henderson Medical Plaza (D)(J)	Henderson, NV	MOB	100%	—

(A) Real estate assets owned by us and leased to subsidiaries of Universal Health Services, Inc. (“UHS”).

(B) Real estate assets owned by us and leased to an unaffiliated third-party or parties.

(C) Real estate assets owned by a limited liability company (“LLC”) or a limited partnership (“LP”) in which we have a noncontrolling ownership interests and include tenants who are unaffiliated third-parties.

(D) Real estate assets owned by us or an LLC in which we hold 100% ownership interests and include tenants who are subsidiaries of UHS.

(E) Real estate assets owned by us or an LLC in which we hold 100% ownership interests and include tenants who are unaffiliated third-parties.

(F) The lessee on the HealthSouth Deaconess Rehabilitation Hospital (“Deaconess”) is HealthSouth/Deaconess L.L.C., a joint venture between HealthSouth Properties Corporation and Deaconess Hospital, Inc. The lease with Deaconess is scheduled to expire on May 31, 2019.

(G) Real estate assets owned by an LLC or an LP in which we have a noncontrolling ownership interest and include tenants who are subsidiaries of UHS.

(H) This MOB was acquired during the first quarter of 2012. In connection with the third-party loan agreement on this property, we are required to maintain separate financial records for the related entities.

(I) This MOB was acquired during the first quarter of 2016.

(J) This newly constructed MOB, located on the campus of Henderson Hospital, which is owned and operated by a subsidiary of UHS, is scheduled to be completed and opened during the first quarter of 2017.

(K) This free-standing emergency department was acquired during the third quarter of 2014 and has a 10-year initial term lease agreement with HCA Health Services of Virginia, Inc.

(L) This free-standing emergency department was acquired during the first quarter of 2015 and has a 10-year initial term lease agreement with a subsidiary of UHS.

(M) These MOBs were acquired during the second quarter of 2015 as part of a property exchange transaction and have 15-year initial term master lease agreements with Piedmont Healthcare, Inc.

(N) This MOB was acquired during the second quarter of 2016.

(O) This MOB was acquired during the third quarter of 2016.

(P) This MOB was acquired during the fourth quarter of 2016.

Other Information

Included in our portfolio at December 31, 2016 and 2015 are six hospital facilities with an aggregate investment of $130.4 million. The leases with respect to the six hospital facilities comprised approximately 28% and 29% of our consolidated revenues in 2016 and 2015, respectively.  The leases with respect to those six hospital facilities, plus The Bridgeway, a behavioral health facility which was sold on December 31, 2014, as discussed below, comprised approximately 33% of our consolidated revenues in 2014.

As of January 1, 2017, the leases on our six hospital facilities have fixed terms with an average of 4.1 years remaining and include renewal options ranging from zero to five, five-year terms. The remaining lease terms for each hospital facility, which vary by hospital, are included herein in Item 2. Properties.

We believe a facility’s earnings before interest, taxes, depreciation, amortization and lease rental expense (“EBITDAR”) and a facility’s EBITDAR divided by the sum of minimum rent plus additional rent payable to us (“Coverage Ratio”), which are non-GAAP financial measures, are helpful to us and our investors as a measure of the operating performance of a hospital facility. EBITDAR, which is used as an indicator of a facility’s estimated cash flow generated from operations (before rent expense, capital additions and debt service), is used by us in evaluating a facility’s financial viability and its ability to pay rent. For the hospital facilities owned by us at the end of each respective year (including The Bridgeway for 2014, which was sold on December 31, 2014, as discussed herein), the combined weighted average Coverage Ratio was approximately 8.3 (ranging from 0.6 to 18.1) during 2016, 8.1 (ranging from 1.1 to 19.3) during 2015 and 8.0 (ranging from 2.7 to 18.3) during 2014. The Coverage Ratio for individual facilities varies. See “Relationship with Universal Health Services, Inc.” below for Coverage Ratio information related to the hospital facilities leased to subsidiaries of UHS.

Pursuant to the terms of the leases for our hospital facilities, free-standing emergency departments, some single-tenant MOBs and the preschool and childcare centers, each lessee, including subsidiaries of UHS, is responsible for building operations, maintenance, renovations and property insurance. We, or the LLCs in which we have invested, are responsible for the building operations, maintenance and renovations of the remaining MOBs, however, a portion, or in some cases all, of the expenses associated with the MOBs are passed on directly to the tenants. Cash reserves have been established to fund required building maintenance and renovations at the multi-tenant MOBs. Lessees are required to maintain all risk, replacement cost and commercial property insurance policies on the leased properties and we, or the LLC in which we have invested, are also named insureds on these policies. In addition, we, UHS or the LLCs in which we have invested, maintain property insurance on all properties. For additional information on the terms of our leases, see “Relationship with Universal Health Services, Inc.”

See our consolidated financial statements and accompanying notes to the consolidated financial statements included in this Annual Report for our total assets, liabilities, debt, revenues, income and other operating information.

Relationship with Universal Health Services, Inc. (“UHS”)  

Leases:    We commenced operations in 1986 by purchasing properties of certain subsidiaries from UHS and immediately leasing the properties back to the respective subsidiaries. Most of the leases were entered into at the time we commenced operations

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and provided for initial terms of 13 to 15 years with up to six additional 5-year renewal terms. The current base rentals and lease and renewal terms for each of our three hospital facilities leased to subsidiaries of UHS are provided below. The base rents are paid monthly and each lease also provides for additional or bonus rents which are computed and paid on a quarterly basis based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The three hospital leases with subsidiaries of UHS are unconditionally guaranteed by UHS and are cross-defaulted with one another.

The combined revenues generated from the leases on the UHS hospital facilities accounted for approximately 27% of our total revenue for the five years ended December 31, 2016 (approximately 24%, 25% and 28% for the years ended December 31, 2016, 2015 and 2014, respectively). The decrease during 2016 and 2015 as compared to 2014 is due primarily to the 2016 and 2015 acquisitions, which are unrelated to UHS, as well as the divestiture of The Bridgeway which, as discussed below, occurred on December 31, 2014. Including 100% of the revenues generated at the unconsolidated LLCs in which we have various non-controlling equity interests ranging from 33% to 95%, the leases on the UHS hospital facilities accounted for approximately 21% of the combined consolidated and unconsolidated revenue for the five years ended December 31, 2016 (approximately 19%, 20% and 22% for each of the years ended December 31, 2016, 2015 and 2014, respectively). In addition, we have seventeen MOBs or free-standing emergency departments (“FEDs”), that are either wholly or jointly-owned by us, that include tenants which are subsidiaries of UHS.

Pursuant to the Master Lease Document by and among us and certain subsidiaries of UHS, dated December 24, 1986 (the “Master Lease”), which governs the leases of all hospital properties with subsidiaries of UHS, UHS has the option 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 at the end of the lease terms or any renewal terms at the appraised fair market value. In addition, the Master Lease, as amended during 2006, includes a change of control provision whereby UHS has the right, upon one month’s notice should a change of control of the Trust occur, to purchase any or all of the three leased hospital properties listed below at their appraised fair market value. 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. The leases related to the hospital facilities of UHS are guaranteed by UHS and cross-defaulted with one another.

In June, 2016, three wholly-owned subsidiaries of UHS provided the required notice to us, exercising the 5-year renewal options on the leases related to our acute care hospitals noted in the table below.  The renewals extended the lease terms on these facilities, at existing lease rates, to December, 2021.  

The table below details the existing lease terms and renewal options for our three acute care hospitals operated by wholly-owned subsidiaries of UHS:

Hospital Name	Annual Minimum Rent		End of Lease Term	Renewal Term (years)
McAllen Medical Center	$	5,485,000	December, 2021		10	(a)
Wellington Regional Medical Center	$	3,030,000	December, 2021		10	(b)
Southwest Healthcare System, Inland Valley Campus	$	2,648,000	December, 2021		10	(b)

(a) UHS has two 5-year renewal options at existing lease rates (through 2031).

(b) UHS has two 5-year renewal options at fair market value lease rates (2022 through 2031).

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 rental revenue currently earned pursuant to these leases.  

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During the first quarter of 2016, we committed to invest up to $21.1 million in the development and construction of the Henderson Medical Plaza, an MOB located on the campus of the Henderson Hospital. Henderson Hospital, which is owned and operated by a subsidiary of UHS, is a newly constructed, 130-bed acute care hospital that was completed and opened during the fourth quarter of 2016.  Henderson Medical Plaza, which contains approximately 78,800 rentable square feet, is scheduled to be completed and opened during the first quarter of 2017.  A ground lease has been executed between the limited liability company that owns the MOB and a subsidiary of UHS, the terms of which include a seventy-five year lease term with two, ten-year renewal options at the lessee’s option at an adjusting lease rate. We have invested $9.5 million on the development and construction of this MOB as of December 31, 2016.  

During the first quarter of 2015, we purchased from wholly-owned subsidiaries of UHS, the real property of two newly-constructed and recently opened FEDs located in Weslaco and Mission, Texas. Each FED consists of approximately 13,600 square feet and is operated by wholly-owned subsidiaries of UHS. In connection with these acquisitions, ten-year lease agreements with six, 5-year renewal terms were executed with UHS for each FED. The first four, 5-year renewal terms (covering years 2025 through 2044) include 2% annual lease rate increases, computed on a cumulative and compounded basis, and the last two, 5-year renewal terms (covering the years 2045 through 2054) will be at the then fair market value lease rates. These leases are cross-defaulted with one another. UHS has the option to purchase the leased properties upon the expiration of the fixed term and each five-year extended term at the fair market value at that time. The aggregate acquisition cost of these facilities was approximately $12.8 million, and the aggregate rental revenue earned by us at the commencement of the leases is approximately $900,000 annually.

During the third quarter of 2014, a wholly-owned subsidiary of UHS provided notification to us that, upon expiration of The Bridgeway’s lease term which occurred in December, 2014, it intended to exercise its option to purchase the real property of the facility. Pursuant to the terms of the lease, we and the wholly-owned subsidiary of UHS were both required to obtain independent appraisals of the property to determine its fair market value. On December 31, 2014, The Bridgeway, a 103-bed behavioral health facility located in North Little Rock, Arkansas, was sold to UHS for $17.3 million. A gain on divestiture of real property of approximately $13.0 million is included in our results of operations for the twelve-month period ended December 31, 2014.  Prior to its divestiture in 2014, our revenues, net cash provided by operating activities and funds from operations included approximately $1.1 million earned annually in connection with The Bridgeway’s lease.

Advisory Agreement:    UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an Advisory Agreement (the “Advisory Agreement”) dated December 24, 1986. 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. Our advisory fee was 0.70% during each of 2016, 2015 and 2014 of our average invested real estate assets, as derived from our consolidated balance sheet. In December of 2016, based upon a review of our advisory fee and other general and administrative expenses as compared to an industry peer group, the Advisory Agreement was renewed for 2017 pursuant to the same terms as the Advisory Agreement in place during the last three years.

The average real estate assets for advisory fee calculation purposes exclude certain items from our consolidated balance sheet such as, among other things, accumulated depreciation, cash and cash equivalents, base and bonus rent receivables, deferred charges and other assets. The advisory fee is payable quarterly, subject to adjustment at year-end based upon our audited financial statements. In addition, the Advisor is entitled to an annual incentive fee equal to 20% of the amount by which cash available for distribution to shareholders for each year, as defined in the Advisory Agreement, exceeds 15% of our equity as shown on our consolidated balance sheet, determined in accordance with generally accepted accounting principles without reduction for return of capital dividends. The Advisory Agreement defines cash available for distribution to shareholders as net cash flow from operations less deductions for, among other things, amounts required to discharge our debt and liabilities and reserves for replacement and capital improvements to our properties and investments. No incentive fees were paid during 2016, 2015 or 2014 since the incentive fee requirements were not achieved. Advisory fees incurred and paid (or payable) to UHS amounted to $3.3 million during 2016, $2.8 million during 2015 and $2.5 million during 2014 and were based upon average invested real estate assets of $466 million, $401 million and $363 million during 2015, 2014 and 2013, respectively.

Officers and Employees:    Our officers are all employees of a wholly-owned subsidiary of UHS and although as of December 31, 2016 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 compensation awards in the form of restricted stock and/or cash bonuses.

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Share Ownership:    As of December 31, 2016 and 2015, UHS owned 5.8% and 5.9%, respectively, of our outstanding shares of beneficial interest.

SEC reporting requirements of UHS:    UHS is subject to the reporting requirements of the Securities and Exchange Commission (“SEC”) and is required to file annual reports containing audited financial information and quarterly reports containing unaudited financial information. Since UHS comprised approximately 33%, 33% and 35% of our consolidated revenues for the years ended December 31, 2016, 2015 and 2014, 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.

Taxation

We believe we have operated in such a manner as to qualify for taxation as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, and we intend to continue to operate in such a manner. If we qualify for taxation as a REIT, we will generally not be subject to federal corporate income taxes on our net income that is currently distributed to shareholders. This treatment substantially eliminates the “double taxation”,i.e., at the corporate and shareholder levels, that usually results from investment in the stock of a corporation.

Please see the heading “If we fail to maintain our REIT status, we will become subject to federal income tax on our taxable income at regular corporate rates” under “Risk Factors” for more information.

Competition

We compete for the acquisition, leasing and financing of health care related facilities. Our competitors include, but are not limited to, other REITs, banks and other companies, including UHS. Some of these competitors are larger and may have a lower cost of capital than we do. These developments could result in fewer investment opportunities for us and lower spreads over the cost of our capital, which would hurt our growth.

In most geographical areas in which our facilities operate, there are other facilities that provide services comparable to those offered by our facilities. In addition, some competing facilities are owned by tax-supported governmental agencies or by nonprofit corporations and may be supported by endowments and charitable contributions and exempt from property, sales and income taxes. Such exemptions and support are not available to certain operators of our facilities, including UHS. In some markets, certain competing facilities may have greater financial resources, be better equipped and offer a broader range of services than those available at our facilities. Certain hospitals that are located in the areas served by our facilities are specialty hospitals that provide medical, surgical and behavioral health services that may not be provided by the operators of our hospitals. The increase in outpatient treatment and diagnostic facilities, ambulatory surgical centers and freestanding emergency departments also increases competition for us.

In addition, the number and quality of the physicians on a hospital’s staff are important factors in determining a hospital’s success and competitive advantage. Typically, physicians are responsible for making hospital admission decisions and for directing the course of patient treatment. The operators of our facilities also compete with other health care providers in recruiting and retaining qualified hospital management, nurses and other medical personnel. From time-to-time, the operators of our acute care hospitals may experience the effects of a shortage of skilled nursing staff nationwide, which has caused and may continue to cause an increase in salaries, wages and benefits expense in excess of the inflation rate. Our operators may experience difficulties attracting and retaining qualified physicians, nurses and medical support personnel. We anticipate that our operators, including UHS, will continue to encounter increased competition in the future that could lead to a decline in patient volumes and harm their businesses, which in turn, could harm our business.

A large portion of our non-hospital properties consist of MOBs which are located either close to or on the campuses of hospital facilities. These properties are either directly or indirectly affected by the factors discussed above as well as general real estate factors such as the supply and demand of office space and market rental rates. To improve our competitive position, we anticipate that we will continue investing in additional healthcare related facilities and leasing the facilities to qualified operators, perhaps including subsidiaries of UHS.

Regulation and Other Factors

During 2016, 2015 and 2014, 24%, 25% and 25%, respectively, of our revenues were earned pursuant to leases with operators of acute care services hospitals, all of which are subsidiaries of UHS. A significant portion of the revenue earned by the operators of our acute care hospitals is derived from federal and state healthcare programs, including Medicare and Medicaid (excluding managed Medicare and Medicaid programs).

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Our hospital facilities derive a significant portion of their revenue from third-party payors, including the Medicare and Medicaid programs. Changes in these government programs in recent years have resulted in limitations on reimbursement and, in some cases, reduced levels of reimbursement for healthcare services. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities. Neither we nor the operators of our hospital facilities are able to predict the effect of recent and future policy changes on our respective results of operations. In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, the funding requirements and other provisions of the Patient Protection and Affordable Care Act (the “PPACA”), may affect the availability of taxpayer funds for Medicare and Medicaid programs.  In addition, possible repeal or replacement of the PPACA may have significant impact on the reimbursement for healthcare services. If the rates paid or the scope of services covered by government payors are reduced, there could be a material adverse effect on the business, financial position and results of operations of the operators of our hospital facilities, and in turn, ours.

In addition, the healthcare industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things: hospital billing practices and prices for services; relationships with physicians and other referral sources; adequacy of medical care and quality of medical equipment and services; ownership of facilities; qualifications of medical and support personnel; confidentiality, maintenance, privacy and security issues associated with health-related information and patient medical records; the screening, stabilization and transfer of patients who have emergency medical conditions; certification, licensure and accreditation of our facilities; operating policies and procedures, and; construction or expansion of facilities and services.

These laws and regulations are extremely complex, and, in many cases, the operators of our facilities do not have the benefit of regulatory or judicial interpretation. In the future, it is possible that different interpretations or enforcement of these laws and regulations could subject the current or past practices of our operators to allegations of impropriety or illegality or could require them to make changes in their facilities, equipment, personnel, services, capital expenditure programs and operating expenses. Although UHS and the other operators of our hospital facilities believe that their policies, procedures and practices comply with governmental regulations, no assurance can be given that they will not be subjected to additional governmental inquiries or actions, or that they would not be faced with sanctions, fines or penalties if so subjected. Even if they were to ultimately prevail, a significant governmental inquiry or action under one of the above laws, regulations or rules could have a material adverse effect upon them, and in turn, us.

Each of our hospital facilities is deemed certified, meaning that they are accredited, properly licensed under the relevant state laws and regulations and certified under the Medicare program. The effect of maintaining certified facilities is to allow such facilities to participate in the Medicare and Medicaid programs. The operators of our hospital facilities believe that the facilities are in material compliance with applicable federal, state, local and other relevant regulations and standards. However, should any of our hospital facilities lose their deemed certified status and thereby lose certification under the Medicare or Medicaid programs, such facilities would be unable to receive reimbursement from either of those programs and their business, and in turn, ours, could be materially adversely affected.

The various factors and government regulation related to the healthcare industry, such as those outlined above, affects us because:

(i) The financial ability of lessees to make rent payments to us may be affected by governmental regulations such as licensure, certification for participation in government programs, and government reimbursement, and;

(ii) Our bonus rents on the three acute care hospitals operated by subsidiaries of UHS are based on our lessees’ net revenues which in turn are affected by the amount of reimbursement such lessees receive from the government.

A significant portion of the revenue earned by the operators of our acute care hospitals is derived from federal and state healthcare programs, including Medicare and Medicaid. Under the statutory framework of the Medicare and Medicaid programs, many of the general acute care operations are subject to administrative rulings, interpretations and discretion that may affect payments made under either or both of such programs as well as by other third party payors. The federal government makes payments to participating hospitals under its Medicare program based on various formulas. For inpatient services, the operators of our acute care hospitals are subject to an inpatient prospective payment system (“IPPS”). Under IPPS, hospitals are paid a predetermined fixed payment amount for each hospital discharge. The fixed payment amount is based upon each patient’s Medicare severity diagnosis related group (“MS-DRG”). Every MS-DRG is assigned a payment rate based upon the estimated intensity of hospital resources necessary to treat the average patient with that particular diagnosis. These rates are based upon historical national average costs and do not consider the actual costs incurred by a hospital in providing care. The MS-DRG rates are adjusted annually based on geographic region and are weighted based upon a statistically normal distribution of severity.

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For outpatient services, acute care hospitals are paid under an outpatient prospective payment system (“PPS”) according to ambulatory procedure codes. The outpatient PPS rate is a geographic adjusted national payment amount that includes the Medicare payment and the beneficiary co-payment. Special payments under the outpatient PPS may be made for certain new technology items and services through transitional pass-through payments and special reimbursement rates.

Our three acute care hospital facilities operated by subsidiaries of UHS and two sub-acute care hospital facilities operated by an unaffiliated third-party are located in Texas, Florida, California and Illinois. The majority of these states have reported significant budget deficits that have resulted in reductions of Medicaid funding at various times during the last few years and which could adversely affect future levels of Medicaid reimbursement received by certain operators of our facilities, including the operators of our hospital facilities. We can provide no assurance that reductions to Medicaid revenues earned by operators of certain of our facilities, particularly our hospital operators in the above-mentioned states, will not have a material adverse effect on the future operating results of those operators which, in turn, could have a material adverse effect on us.

Executive Officers of the Registrant

Name	Age		Position
Alan B. Miller		79	Chairman of the Board, Chief Executive Officer and President
Charles F. Boyle		57	Vice President and Chief Financial Officer
Cheryl K. Ramagano		54	Vice President, Treasurer and Secretary
Timothy J. Fowler		61	Vice President, Acquisition and Development

Mr. Alan B. Miller has been our Chairman of the Board and Chief Executive Officer since our inception in 1986 and was appointed President in February, 2003. He had previously served as our President until 1990. Mr. Miller has been Chairman of the Board and Chief Executive Officer of UHS since its inception in 1978. He previously held the title of President of UHS as well, until 2009 when Marc D. Miller was elected as President of UHS. He is the father of Marc D. Miller, who was elected to our Board of Trustees in December, 2008 and also serves as President and a member of the Board of Directors of UHS.

Mr. Charles F. Boyle was appointed our Vice President and Chief Financial Officer in 2003 and had served as our Vice President and Controller since 1991. Mr. Boyle has held various positions at UHS since 1983. He was appointed Senior Vice President of UHS in 2017 and continues to serve as its Controller. He had served as Vice President and Controller of UHS since 2003 and as its Assistant Vice President-Corporate Accounting since 1994.

Ms. Cheryl K. Ramagano was appointed Secretary of the Trust in 2003 and has served as our Vice President and Treasurer since 1992. Ms. Ramagano has held various positions at UHS since 1983. She was appointed Senior Vice President of UHS in 2017 and continues to serve as its Treasurer. She had served as Vice President and Treasurer of UHS since 2003 and as its Assistant Treasurer since 1994.

Mr. Timothy J. Fowler was elected as our Vice President of Acquisition and Development upon the commencement of his employment with UHS in 1993.

ITEM 1A. Risk Factors

We are subject to numerous known and unknown risks, many of which are described below and elsewhere in this Annual Report. Any of the events described below could have a material adverse effect on our business, financial condition and results of operations. Additional risks and uncertainties that we are not aware of, or that we currently deem to be immaterial, could also impact our business and results of operations.

The revenues and results of operations of the tenants of our hospital facilities, including UHS, and our medical office buildings, are significantly affected by payments received from the government and other third party payors.

The operators of our hospital facilities and tenants of our medical office buildings derive a significant portion of their revenue from third party payors, including the Medicare and Medicaid programs. Changes in these government programs in recent years have resulted in limitations on reimbursement and, in some cases, reduced levels of reimbursement for health care services. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities. Our tenants are unable to predict the effect of recent and future policy changes on their operations.

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Our three acute care hospital facilities operated by subsidiaries of UHS and two sub-acute care hospital facilities operated by an unaffiliated third-party are located in Texas, Florida, California and Illinois. The majority of these states have reported significant budget deficits that have resulted in reductions of Medicaid funding at various times during the last few years and which could adversely affect future levels of Medicaid reimbursement received by certain operators of our facilities, including the operators of our hospital facilities. We can provide no assurance that reductions to Medicaid revenues earned by operators of certain of our facilities, particularly our hospital operators in the above-mentioned states, will not have a material adverse effect on the future operating results of those operators which, in turn, could have a material adverse effect on us. In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, the funding requirements and other provisions of the Patient Protection and Affordable Care Act, may affect the availability of taxpayer funds for Medicare and Medicaid programs. If the rates paid or the scope of services covered by government payors are reduced, there could be a material adverse effect on the business, financial position and results of operations of the operators of our hospital facilities, and in turn, ours.

In addition to changes in government reimbursement programs, the ability of our hospital operators to negotiate favorable contracts with private payors, including managed care providers, significantly affects the revenues and operating results of those facilities. Private payors, including managed care providers, increasingly are demanding that hospitals accept lower rates of payment. Our hospital operators expect continued third party efforts to aggressively manage reimbursement levels and cost controls. Reductions in reimbursement amounts received from third party payors could have a material adverse effect on the financial position and results of operations of our hospital operators.

Reductions or changes in Medicare funding could have a material adverse effect on the future operating results of the operators of our facilities, including UHS, which could, in turn, materially reduce our revenues and net income.

On January 3, 2013, the American Taxpayer Relief Act of 2012 (the “2012 Act”) was signed into law. The 2012 Act postponed for two months sequestration cuts mandated under the Budget Control Act of 2011. The postponed sequestration cuts include a 2% annual reduction over ten years in Medicare spending to providers. Medicaid is exempt from sequestration. In order to offset the cost of the legislation, the 2012 Act reduces payments to other providers totaling almost $26 billion over ten years. Approximately half of those funds will come from reductions in Medicare reimbursement to hospitals. Although the Bipartisan Budget Act of 2013 has reduced certain sequestration-related budgetary cuts, spending reductions related to the Medicare program remain in place. On December 26, 2013, H.J. Res. 59, the Bipartisan Budget Act of 2013, which includes the Pathway for SGR Reform Act of 2013 (“the Act”), was signed into law. In addition, on February 15, 2014, Public Law 113-082 was enacted. The Act and subsequent federal legislation achieves new savings by extending sequestration for mandatory programs – including Medicare – for another three years, through 2024.

The 2012 Act includes a document and coding (“DCI”) adjustment and a reduction in Medicaid disproportionate share hospital (“DSH”) payments. Expected to save $10.5 billion over 10 years, the DCI adjustment decreases projected Medicare hospital payments for inpatient and overnight care through a downward adjustment in annual base payment increases. These reductions are meant to recoup what Medicare authorities consider to be “overpayments” to hospitals that occurred as a result of the transition to Medicare Severity Diagnosis Related Groups. The reduction in Medicaid DSH payments is expected to save $4.2 billion over 10 years. This provision extends the changes regarding DSH payments established by the Legislation and determines future allotments off of the rebased level. We cannot predict the effect this enactment will have on operators (including UHS), and, thus, our business.

The uncertainties of health care reform could materially affect the business and future results of operations of the operators of our facilities, including UHS, which could, in turn, materially reduce our revenues and net income.

On March 23, 2010, the Patient Protection and Affordable Care Act (the “PPACA”) was signed into law. The Healthcare and Education Reconciliation Act of 2010 (the “Reconciliation Act”), which contains a number of amendments to the PPACA, was signed into law on March 30, 2010. Two primary goals of the PPACA, combined with the Reconciliation Act (collectively referred to as the “Legislation”), are to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses.

Although the Legislation resulted in a reduction in uninsured patients in the U.S., the Legislation made a number of other changes to Medicare and Medicaid which we believe may have an adverse impact on the operators of our facilities. It has been projected that the Legislation will result in a net reduction in Medicare and Medicaid payments to hospitals totaling $155 billion over 10 years. The Legislation revises reimbursement under the Medicare and Medicaid programs to emphasize the efficient delivery of high quality care and contains a number of incentives and penalties under these programs to achieve these goals. The Legislation provides for decreases in the annual market basket update for federal fiscal years 2010 through 2019, a productivity offset to the market basket update beginning October 1, 2011 for Medicare Part B reimbursable items and services and beginning October 1, 2012 for Medicare inpatient hospital services. The Legislation and subsequent revisions provide for reductions to both Medicare DSH and Medicaid DSH payments. The Medicare DSH reductions began in October, 2013 while Medicaid DSH reimbursements were not adversely impacted until 2016. The Legislation implements a value-based purchasing program, which will reward the delivery of

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efficient care. Conversely, certain facilities will receive reduced reimbursement for failing to meet quality parameters; such hospitals will include those with excessive readmission or hospital-acquired condition rates.

A 2012 U.S. Supreme Court ruling limited the federal government’s ability to expand health insurance coverage by holding unconstitutional sections of the Legislation that sought to withdraw federal funding for state noncompliance with certain Medicaid coverage requirements. Pursuant to that decision, the federal government may not penalize states that choose not to participate in the Medicaid expansion program by reducing their existing Medicaid funding. Therefore, states can choose to accept or not to participate without risking the loss of federal Medicaid funding. As a result, many states, including Texas, have not expanded their Medicaid programs without the threat of loss of federal funding.

In addition, in King vs. Burwell, the Supreme Court decided in favor of the federal government’s ability to subsidize premiums paid by certain eligible individuals that obtain health insurance policies through federally facilitated exchanges. A number of our properties operate in states that utilize federally facilitated exchanges. The Supreme Court’s decision in this case ultimately preserved the viability of federally facilitated exchanges. A different decision by the Supreme Court could have resulted in an increased number of uninsured patients generally, including an increase of uninsured patients treated at our hospitals located in these states.

The various provisions in the Legislation that directly or indirectly affect Medicare and Medicaid reimbursement are scheduled to take effect over a number of years. The impact of the Legislation on healthcare providers will be subject to implementing regulations, interpretive guidance and possible future legislation or legal challenges. Certain Legislation provisions, such as those creating the Medicare Shared Savings Program and the Independent Payment Advisory Board, create uncertainty in how healthcare may be reimbursed by federal programs in the future. Thus, at this time, we cannot predict the impact of the Legislation on the future reimbursement of our hospital operators and we can provide no assurance that the Legislation will not have a material adverse effect on the future results of operations of the tenants/operators of our properties and, thus, our business.

The Legislation also contained provisions aimed at reducing fraud and abuse in healthcare. The Legislation amends several existing laws, including the federal Anti-Kickback Statute and the False Claims Act, making it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers. While Congress had previously revised the intent requirement of the Anti-Kickback Statute to provide that a person is not required to “have actual knowledge or specific intent to commit a violation of” the Anti-Kickback Statute in order to be found in violation of such law, the Legislation also provides that any claims for items or services that violate the Anti-Kickback Statute are also considered false claims for purposes of the federal civil False Claims Act. The Legislation provides that a healthcare provider that retains an overpayment in excess of 60 days is subject to the federal civil False Claims Act, although final regulations implementing this statutory requirement remain pending. The Legislation also expands the Recovery Audit Contractor program to Medicaid. These amendments also make it easier for severe fines and penalties to be imposed on healthcare providers that violate applicable laws and regulations.

The impact of the Legislation on hospitals may vary. Because Legislation provisions are effective at various times over the next several years, we anticipate that many of the provisions in the Legislation may be subject to further revision. Initiatives to repeal the Legislation, in whole or in part, to delay elements of implementation or funding, and to offer amendments or supplements to modify its provisions have been persistent and may increase as a result of the 2016 election.  The ultimate outcomes of legislative attempts to repeal or amend the Legislation and legal challenges to the Legislation are unknown.  Results of recent Congressional elections and the change of Presidential administrations beginning in 2017 could create a political environment in which substantial portions of the Legislation are repealed or revised.  Specifically, President Donald Trump’s 100 Day Action Plan called for full repeal of the Legislation and its replacement with health savings accounts, cross-states sales of health insurance, and modifications to state-managed Medicaid programs.  Nevertheless, prospects for rapid enactment of radical change in the health care regulatory landscape are not clear, and President Donald Trump has already indicated that popular provisions of the Legislation should be preserved.   It remains unclear what portions of the Legislation may remain, or what any replacement or alternative programs may be created by any future legislation.  Any such future repeal or replacement may have significant impact on the reimbursement for healthcare services generally, and may create reimbursement for services competing with the services offered by the operators of our hospitals.  Accordingly, there can be no assurance that the adoption of any future federal or state healthcare reform legislation will not have a negative financial impact on the operators of our hospitals, including their ability to compete with alternative healthcare services funded by such potential legislation, or for the operators of our hospitals to receive payment for services.

The trend toward value-based purchasing may negatively impact the revenues of our hospital operators.

We believe that value-based purchasing initiatives of both governmental and private payers tying financial incentives to quality and efficiency of care will increasingly affect the results of operations of our hospitals and other healthcare facilities and may negatively impact their revenues if they are unable to meet expected quality standards. The Affordable Care Act contains a number of provisions intended to promote value-based purchasing in federal healthcare programs. Medicare now requires providers to report certain quality measures in order to receive full reimbursement increases for inpatient and outpatient procedures that were previously awarded automatically. In addition, hospitals that meet or exceed certain quality performance standards will receive increased

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reimbursement payments, and hospitals that have “excess readmissions” for specified conditions will receive reduced reimbursement. Furthermore, Medicare no longer pays hospitals additional amounts for the treatment of certain hospital-acquired conditions unless the conditions were present at admission. Beginning in Federal Fiscal Year (FFY) 2015, hospitals that rank in the worst 25% of all hospitals nationally for hospital acquired conditions in the previous year will receive reduced Medicare reimbursements. The ACA also prohibits the use of federal funds under the Medicaid program to reimburse providers for treating certain provider-preventable conditions.

There is a trend among private payers toward value-based purchasing of healthcare services, as well. Many large commercial payers require hospitals to report quality data, and several of these payers will not reimburse hospitals for certain preventable adverse events. We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common and to involve a higher percentage of reimbursement amounts. We are unable at this time to predict how this trend will affect the results of operations of the operators of our hospitals, but it could negatively impact their revenues if they are unable to meet quality standards established by both governmental and private payers.

Increased competition in the health care industry has resulted in lower revenues and higher costs for our operators, including UHS, and may affect our revenues, property values and lease renewal terms.

The health care industry is highly competitive and competition among hospitals and other health care providers for patients and physicians has intensified in recent years. In most geographical areas in which our facilities are operated, there are other facilities that provide services comparable to those offered by our facilities. In addition, some competing facilities are owned by tax-supported governmental agencies or by nonprofit corporations and may be supported by endowments and charitable contributions and exempt from property, sales and income taxes. Such exemptions and support are not available to certain operators of our facilities, including UHS.

In some markets, certain competing facilities may have greater financial resources, be better equipped and offer a broader range of services than those available at our facilities. Certain hospitals that are located in the areas served by our facilities are specialty hospitals that provide medical, surgical and behavioral health services that may not be provided by the operators of our hospitals. The increase in outpatient treatment and diagnostic facilities, outpatient surgical centers and freestanding ambulatory surgical centers also increases competition for our operators.

In addition, 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 132-bed acute care hospital.

In addition, the number and quality of the physicians on a hospital’s staff are important factors in determining a hospital’s competitive advantage. Typically, physicians are responsible for making hospital admission decisions and for directing the course of patient treatment. Since the operators of our facilities also compete with other health care providers, they may experience difficulties in recruiting and retaining qualified hospital management, nurses and other medical personnel.

We anticipate that our operators, including UHS, will continue to encounter increased competition in the future that could lead to a decline in patient volumes and harm their businesses, which in turn, could harm our business.

Operators that fail to comply with governmental reimbursement programs such as Medicare or Medicaid, licensing and certification requirements, fraud and abuse regulations or new legislative developments may be unable to meet their obligations to us.

Our operators, including UHS and its subsidiaries, are subject to numerous federal, state and local laws and regulations that are subject to frequent and substantial changes (sometimes applied retroactively) resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. The ultimate timing or effect of these changes cannot be predicted. Government regulation may have a dramatic effect on our operators’ costs of doing business and the amount of reimbursement received by both government and other third-party payors. The failure of any of our operators to comply with these laws, requirements and regulations could adversely affect their ability to meet their obligations to us. These regulations include, among other items: hospital billing practices and prices for service; relationships with physicians and other referral sources; adequacy of medical care; quality of medical equipment and services; qualifications of medical and support personnel; the implementation of, and continued compliance with, electronic health records’ regulations; confidentiality, maintenance and security issues associated with health-related information and patient medical records; the screening, stabilization and transfer of patients who have emergency medical conditions; certification, licensure and accreditation of our facilities; operating policies and procedures, and; construction or expansion of facilities and services.

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If our operators fail to comply with applicable laws and regulations, they could be subjected to liabilities, including criminal penalties, civil penalties (including the loss of their licenses to operate one or more facilities), and exclusion of one or more facilities from participation in the Medicare, Medicaid and other federal and state health care programs. The imposition of such penalties could jeopardize that operator’s ability to make lease or mortgage payments to us or to continue operating its facility. In addition, our bonus rents are based on net revenues of the UHS hospital facilities, which in turn are affected by the amount of reimbursement that such lessees receive from the government.

Although UHS and the other operators of our acute care facilities believe that their policies, procedures and practices comply with governmental regulations, no assurance can be given that they will not be subjected to governmental inquiries or actions, or that they would not be faced with sanctions, fines or penalties if so subjected. Because many of these laws and regulations are relatively new, in many cases, our operators don’t have the benefit of regulatory or judicial interpretation. In the future, it is possible that different interpretations or enforcement of these laws and regulations could subject their current or past practices to allegations of impropriety or illegality or could require them to make changes in the facilities, equipment, personnel, services, capital expenditure programs and operating expenses. Even if they were to ultimately prevail, a significant governmental inquiry or action under one of the above laws, regulations or rules could have a material adverse effect upon them, and in turn, us.

A worsening of the economic and employment conditions in the United States could materially affect our business and future results of operations of the operators of our facilities which could, in turn, materially reduce our revenues and net income.

Our future results of operations could be unfavorably impacted by deterioration in general economic conditions which could result in increases in the number of people unemployed and/or uninsured. Our operators’ patient volumes, revenues and financial results depend significantly on the universe of patients with health insurance, which to a large extent is dependent on the employment status of individuals in certain markets. A worsening of economic conditions may result in a higher unemployment rate which will likely increase the number of individuals without health insurance. As a result, the operators of our facilities may experience a decrease in patient volumes. Should that occur, it may result in decreased occupancy rates at our medical office buildings as well as a reduction in the revenues earned by the operators of our hospital facilities which would unfavorably impact our future bonus rentals (on the UHS hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties.

The deterioration of credit and capital markets may adversely affect our access to sources of funding and we cannot be certain of the availability and terms of capital to fund the growth of our business when needed.

To retain our status as a REIT, we are required to distribute 90% of our taxable income to shareholders and, therefore, we generally cannot use income from operations to fund our growth. Accordingly, our growth strategy depends, in part, upon our ability to raise additional capital at reasonable costs to fund new investments. We believe we will be able to raise additional debt and equity capital at reasonable costs to refinance our debts (including third-party debt held by various LLCs in which we own non-controlling equity interests) at or prior to their maturities and to invest at yields which exceed our cost of capital. We can provide no assurance that financing will be available to us on satisfactory terms when needed, which could harm our business. Given these uncertainties, our growth strategy is not assured and may fail.

To fund all or a portion of our future financing needs, we rely on borrowings from various sources including fixed rate, long-term debt as well as borrowings pursuant to our revolving credit agreement. If any of the lenders were unable to fulfill their future commitments, our liquidity could be impacted, which could have a material unfavorable impact on our results of operations and financial condition.

In addition, the degree to which we are, or in the future may become, leveraged, our ability to obtain financing could be adversely impacted and could make us more vulnerable to competitive pressures. Our ability to meet existing and future debt obligations depends upon our future performance and our ability to secure additional financing on satisfactory terms, each of which is subject to financial, business and other factors that are beyond our control. Any failure by us to meet our financial obligations would harm our business.

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.

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A substantial portion of our revenues are dependent upon one operator. If UHS experiences financial difficulties, or otherwise fails to make payments to us, or elects not to renew the leases on our three acute care hospitals, our revenues could be materially reduced.

For the year ended December 31, 2016, lease payments from UHS comprised approximately 33% of our consolidated revenues. In addition, as of December 31, 2016, subsidiaries of UHS leased three of the six hospital facilities owned by us with terms expiring in 2021. We cannot assure you that UHS will continue to satisfy its obligations to us or renew existing leases upon their scheduled maturity. In addition, if subsidiaries of UHS exercise their options to purchase the respective three leased hospitals, or two leased FEDs, 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 the leases on the facilities. The failure or inability of UHS to satisfy its obligations to us, or should UHS elect not to renew the leases on the three acute care hospitals or two FEDs, our revenues and net income could be materially reduced, which could in turn reduce the amount of dividends we pay and cause our stock price to decline.

Our relationship with UHS may create conflicts of interest.

In addition to being dependent upon UHS for a substantial portion of our revenues and leases, since 1986, UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, has served as our Advisor. Pursuant to our 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. Further, all of our officers are employees of the Advisor. As of December 31, 2016, we had no salaried employees although 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 compensation awards in the form of restricted stock and/or cash bonuses. We believe that the quality and depth of the management and advisory services provided to us by our Advisor and UHS could not be replicated by contracting with unrelated third parties or by being self-advised without considerable cost increases. We believe that these relationships have been beneficial to us in the past, but we cannot guarantee that they will not become detrimental to us in the future.

All transactions with UHS must be approved by a majority of our Independent Trustees. Because of our historical and continuing relationship with UHS and its subsidiaries, in the future, our business dealings may not be on the same or as favorable terms as we might achieve with a third party with whom we do not have such a relationship. Disputes may arise between us and UHS that we are unable to resolve or the resolution of these disputes may not be as favorable to us as a resolution we might achieve with a third party.

UHS and its subsidiaries, are subject to pending legal actions, purported stockholder class actions, governmental investigations and regulatory actions.

UHS and its subsidiaries are subject to pending legal actions, purported shareholder class actions, governmental investigations and regulatory actions. Since UHS comprised approximately 33%, 33% and 35% of our consolidated revenues for the years ended December 31, 2016, 2015 and 2014, respectively, and since a subsidiary of UHS is our Advisor, you are encouraged to obtain and review the disclosures contained in the Legal Proceedings section of Universal Health Services, Inc.’s Forms 10-K and 10-Q, as publicly filed with the Securities and Exchange Commission. These filings are the sole responsibility of UHS and are not incorporated by reference herein

Defending itself against the allegations in the lawsuits and governmental investigations, or similar matters and any related publicity, could potentially entail significant costs and could require significant attention from UHS management. UHS has stated that it is unable to predict the outcome of these matters or to reasonably estimate the amount or range of any such loss; however, the outcome of these lawsuits, investigations and other actions could have a material adverse effect on their business, financial condition, results of operations and/or cash flows.

UHS is and may become subject to other loss contingencies, both known and unknown, which may relate to past, present and future facts, events, circumstances and occurrences. Should an unfavorable outcome occur in some or all of the legal proceedings or other loss contingencies, or if successful claims and other actions are brought against UHS in the future, there could be a material adverse impact on their financial position, results of operations and liquidity, which in turn could have a material adverse effect on us.

In particular, government investigations, as well as qui tam lawsuits, may lead to material fines, penalties, damages payments or other sanctions, including exclusion from government healthcare programs. Settlements of lawsuits involving Medicare and Medicaid issues routinely require both monetary payments and corporate integrity agreements, each of which could have a material adverse effect on UHS’s business, financial condition, results of operations and/or cash flows, which in turn could have a material adverse effect on us.

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We hold non-controlling equity ownership interests in various joint-ventures.

For the year ended December 31, 2016, 19% of our consolidated and unconsolidated revenues were generated by five jointly-owned LLCs/LPs in which we hold non-controlling equity ownership interests ranging from 33% to 95%.  Our level of investment and lack of control exposes us to potential losses of our investments and revenues. Although our ownership arrangements have been beneficial to us in the past, we cannot guarantee that they will continue to be beneficial in the future.

Pursuant to the operating and/or partnership agreements of the five LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and the Trust, at any time, potentially subject to certain conditions, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it either agrees to: (i) sell the entire ownership interest of the Offering Member to the Non-Offering Member (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has 60 to 90 days to either: (i) purchase the entire ownership interest of the Offering Member at the Transfer Price, or; (ii) sell its entire ownership interest to the Offering Member at the equivalent proportionate Transfer Price. The closing of the transfer must occur within 60 to 90 days of the acceptance by the Non-Offering Member.

In addition to the above-mentioned rights of the third-party members, from time to time, we have had discussions with third-party members about purchasing or selling the interests or the underlying property to each other or a third party. If we were to sell our interests or underlying property, we may not be able to redeploy the proceeds into assets at the same or greater return as we currently receive. During any such time that we were not able to do so, our ability to increase or maintain our dividend at current levels could be adversely affected which could cause our stock price to decline.

The bankruptcy, default, insolvency or financial deterioration of our tenants could significantly delay our ability to collect unpaid rents or require us to find new operators.

Our financial position and our ability to make distributions to our shareholders may be adversely affected by financial difficulties experienced by any of our major tenants, including bankruptcy, insolvency or a general downturn in the business. We are exposed to the risk that our operators may not be able to meet their obligations, which may result in their bankruptcy or insolvency. Although our leases and loans provide us the right to terminate an investment, evict an operator, demand immediate repayment and other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. An operator in bankruptcy may be able to restrict our ability to collect unpaid rents or interest during the bankruptcy proceeding.

Required regulatory approvals can delay or prohibit transfers of our healthcare facilities.

Transfers of healthcare facilities to successor tenants or operators may be subject to regulatory approvals or ratifications, including, but not limited to, change of ownership approvals under certificate of need laws and Medicare and Medicaid provider arrangements that are not required for transfers of other types of commercial operations and other types of real estate. The replacement of any tenant or operator could be delayed by the regulatory approval process of any federal, state or local government agency necessary for the transfer of the facility or the replacement of the operator licensed to manage the facility. If we are unable to find a suitable replacement tenant or operator upon favorable terms, or at all, we may take possession of a facility, which might expose us to successor liability or require us to indemnify subsequent operators to whom we might transfer the operating rights and licenses, all of which may materially adversely affect our business, results of operations, and financial condition.

Real estate ownership creates risks and liabilities that may result in unanticipated losses or expenses.

Our business is subject to risks associated with real estate acquisitions and ownership, including:

• general liability, property and casualty losses, some of which may be uninsured;

• the illiquid nature of real estate and the real estate market that impairs our ability to purchase or sell our assets rapidly to respond to changing economic conditions;

• real estate market factors, such as 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;

• costs that may be incurred relating to maintenance and repair, and the need to make expenditures due to changes in governmental regulations, including the Americans with Disabilities Act;

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• environmental hazards at our properties for which we may be liable, including those created by prior owners or occupants, existing tenants, mortgagors or other persons, and;

• defaults and bankruptcies by our tenants.

In addition to the foregoing risks, we cannot predict whether the leases on our properties, including the leases on the hospitals leased to subsidiaries of UHS, which have options to purchase the respective leased facilities at the end of the lease or renewal terms at the appraised fair market value, will be renewed at their current rates or fair market value lease rates at the end of the lease terms in 2021. If the leases are not renewed, we may be required to find other operators for these hospitals and/or enter into leases with less favorable terms. The exercise of purchase options for our hospitals may result in a less favorable rate of return for us than the rental revenue currently earned on such facilities. Further, the purchase options and rights of first refusal granted to the respective lessees to purchase or lease the respective leased hospitals, after the expiration of the lease term, may adversely affect our ability to sell or lease a hospital, and may present a potential conflict of interest between us and UHS since the price and terms offered by a third-party are likely to be dependent, in part, upon the financial performance of the facility during the final years of the lease term.

Significant potential liabilities and rising insurance costs and availability may have an adverse effect on the operations of our operators, which may negatively impact their ability to meet their obligations to us.

As is typical in the healthcare industry, in the ordinary course of business, our operators, including UHS, are subject to medical malpractice lawsuits, product liability lawsuits, class action lawsuits and other legal actions. Some of these actions may involve large claims, as well as significant defense costs. If their ultimate liability for professional and general liability claims could change materially from current estimates, if such policy limitations should be partially or fully exhausted in the future, or payments of claims exceed estimates or are not covered by insurance, it could have a material adverse effect on the operations of our operators and, in turn, us.

Property insurance rates, particularly for earthquake insurance in California, have also continued to increase. Our tenants and operators, including UHS, may be unable to fulfill their insurance, indemnification and other obligations to us under their leases and mortgages and thereby potentially expose us to those risks. In addition, our tenants and operators may be unable to pay their lease or mortgage payments, which could potentially decrease our revenues and increase our collection and litigation costs. Moreover, to the extent we are required to foreclose on the affected facilities, our revenues from those facilities could be reduced or eliminated for an extended period of time. In addition, we may in some circumstances be named as a defendant in litigation involving the actions of our operators. Although we have no involvement in the activities of our operators and our standard leases generally require our operators to carry insurance to cover us in certain cases, a significant judgment against us in such litigation could exceed our and our operators’ insurance coverage, which would require us to make payments to cover the judgment.

If we fail to maintain our REIT status, we will become subject to federal income tax on our taxable income at regular corporate rates.

In order to qualify as a REIT, we must comply with certain highly technical and complex Internal Revenue Code provisions. Although we believe we have been qualified as a REIT since our inception, there can be no assurance that we have been so qualified or will remain qualified in the future. Failure to qualify as a REIT may subject us to income tax liabilities, including federal income tax at regular corporate rates. The additional income tax incurred may significantly reduce the cash flow available for distribution to shareholders and for debt service. In addition, if disqualified, we might be barred from qualification as a REIT for four years following disqualification. Also, if disqualified, we will not be allowed a deduction for distributions to stockholders in computing our taxable income and we could be subject to increased state and local income taxes.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Any of these taxes would decrease cash available for the payment of our debt obligations.

Dividends paid by REITs generally do not qualify for reduced tax rates.

In general, dividends (qualified) paid by a U.S. corporation to individual U.S. shareholders are subject to Federal income tax at a maximum rate of 20% (subject to certain additional taxes for certain taxpayers). In contrast, since we are a REIT, our distributions to individual U.S. shareholders are not eligible for the reduced rates which apply to distributions from regular corporations, and thus may be subject to Federal income tax at a rate as high as 39.6% (subject to certain additional taxes for certain taxpayers).

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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.

To obtain the favorable tax treatment associated with qualifying as a REIT, in general, we are required each year to distribute to our shareholders at least 90% of our net taxable income. In addition, we are subject to a tax on any undistributed portion of our income at regular corporate rates and might also be subject to a 4% excise tax on this undistributed income. To meet the distribution requirements necessary to achieve the tax benefits associated with qualifying as a REIT, we could be required to: (i) seek borrowed funds even if conditions are not favorable for borrowing; (ii) issue equity which could have a dilutive effect on the future dividends and share value of our existing shareholders, and/or; (iii) divest assets that we might have otherwise decided to retain. Securing funds through these other non-operating means could adversely affect our financial condition and future results of operations.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we continually must satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the source-of-income, asset-diversification or distribution requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments.

The market value of our common stock could be substantially affected by various factors.

Many factors, certain of which are outside of our control, could have an adverse effect on the share price of our common stock. These factors include certain of the risks discussed herein, our financial condition, performance and prospects, the market for similar securities issued by REITs, demographic changes, operating results of our operators and other hospital companies, changes in our financial estimates or recommendations of securities analysts, speculation in the press or investment community, the possible effects of war, terrorist and other hostilities, adverse weather conditions, the level of seasonal illnesses, changes in general conditions in the economy, financial markets or overall interest rate environment, or other developments affecting the health care industry.

Ownership limitations and anti-takeover provisions in our declaration of trust and bylaws and under Maryland law and in our leases with UHS may delay, defer or prevent a change in control or other transactions that could provide shareholders with a take-over premium. We are subject to significant anti-takeover provisions.

In order to protect us against the risk of losing our REIT status for federal income tax purposes, our declaration of trust permits our Trustees to redeem shares acquired or held in excess of 9.8% of the issued and outstanding shares of our voting stock and, which in the opinion of the Trustees, would jeopardize our REIT status. In addition, any acquisition of our common or preferred shares that would result in our disqualification as a REIT is null and void. The right of redemption may have the effect of delaying, deferring or preventing a change in control of our company and could adversely affect our shareholders’ ability to realize a premium over the market price for the shares of our common stock.

Our declaration of trust authorizes our Board of Trustees to issue additional shares of common and preferred stock and to establish the preferences, rights and other terms of any series of preferred stock that we issue. Although our Board of Trustees has no intention to do so at the present time, it could establish a series of preferred stock that could delay, defer or prevent a transaction or a change in control that might involve the payment of a premium over the market price for our common stock or otherwise be in the best interests of our shareholders.

The Master Lease Documents by and among us and certain subsidiaries of UHS, which governs the three acute care hospital properties and the freestanding emergency departments leased to subsidiaries of UHS, includes a change of control provision. The change of control provision grants UHS the right, upon one month’s notice should a change of control of the Trust occur, to purchase any or all of the leased hospital properties at their appraised fair market values. The exercise of this purchase option may result in a less favorable rate of return earned on the sales proceeds received than the rental revenue currently earned on such facilities.

These provisions could discourage unsolicited acquisition proposals or make it more difficult for a third-party to gain control of us, which could adversely affect the market price of our securities and prevent shareholders from receiving a take-over premium.

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We depend heavily on key management personnel and the departure of one or more of our key executives or a significant portion of our operators’ local hospital management personnel could harm our business.

The expertise and efforts of our senior executives and key members of our operators’ local hospital management personnel are critical to the success of our business. The loss of the services of one or more of our senior executives or of a significant portion of our operators’ local hospital management personnel could significantly undermine our management expertise and our operators’ ability to provide efficient, quality health care services at our facilities, which could harm their business, and in turn, harm our business.

Increasing investor interest in our sector and consolidation at the operator or REIT level could increase competition and reduce our profitability.

Our business is highly competitive and we expect that it may become more competitive in the future. We compete for the acquisition, leasing and financing of health care related facilities. Our competitors include, but are not limited to, other REITs, banks and other companies, including UHS, some of which are larger and may have a lower cost of capital than we do. These developments could result in fewer investment opportunities for us and lower spreads over our cost of our capital, which would hurt our growth. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our business goals and could improve the bargaining power of property owners seeking to sell, thereby impeding our investment, acquisition and development activities. If we cannot capitalize on our development pipeline, identify and purchase a sufficient quantity of healthcare facilities at favorable prices or if we are unable to finance acquisitions on commercially favorable terms, our business, results of operations and financial condition may be materially adversely affected.

We may be required to incur substantial renovation costs to make certain of our healthcare properties suitable for other operators and tenants.

Healthcare facilities are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and at times tenant-specific. A new or replacement operator or tenant may require different features in a property, depending on that operator’s or tenant’s particular operations. If a current operator or tenant is unable to pay rent and vacates a property, we may incur substantial expenditures to modify a property before we are able to secure another operator or tenant. Also, if the property needs to be renovated to accommodate multiple operators or tenants, we may incur substantial expenditures before we are able to re-lease the space. These expenditures or renovations may materially adversely affect our business, results of operations and financial condition.

We are subject to significant corporate regulation as a public company and failure to comply with all applicable regulations could subject us to liability or negatively affect our stock price.

As a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002. While we have developed and instituted a corporate compliance program based on what we believe are the current best practices in corporate governance and continue to update this program in response to newly implemented or changing regulatory requirements, we cannot provide assurance that we are or will be in compliance with all potentially applicable corporate regulations. For example, we cannot provide assurance that in the future our management will not find a material weakness in connection with its annual review of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot provide assurance that we could correct any such weakness to allow our management to assess the effectiveness of our internal control over financial reporting as of the end of our fiscal year in time to enable our independent registered public accounting firm to state that we have maintained effective internal control over financial reporting as of the end of our fiscal year. If we fail to comply with any of these regulations, we could be subject to a range of regulatory actions, fines or other sanctions or litigation. If we must disclose any material weakness in our internal control over financial reporting, our stock price could decline.

Different interpretations of accounting principles could have a material adverse effect on our results of operations or financial condition.

Generally accepted accounting principles are complex, continually evolving and may be subject to varied interpretation by us, our independent registered public accounting firm and the SEC. Such varied interpretations could result from differing views related to specific facts and circumstances. Differences in interpretation of generally accepted accounting principles could have a material adverse effect on our financial position or results of operations.

Item 1B. Unresolved Staff Comments

None.

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ITEM 2. Properties

The following table shows our investments in hospital facilities leased to UHS and other non-related parties and also provides information related to various properties in which we have significant investments, some of which are accounted for by the equity method. The capacity in terms of beds (for the hospital facilities) and the five-year occupancy levels are based on information provided by the lessees.

																			Lease Term
		Number																			End of			% of RSF
		of																			initial			under
		available		Average Occupancy(1)																	or	Renewal		lease with			Range of
Hospital Facility Name and	Type of	beds @																	Minimum		renewed	term		guaranteed			guaranteed
Location	facility	12/31/2016		2016			2015			2014			2013			2012			rent(5)		term	(years)		escalators			escalation
Southwest Healthcare System: Inland Valley Campus(2)(5)(8)    Wildomar, California	Acute Care		132		64	%		63	%		59	%		58	%		62	%	$	2,648,000	2021		10		0	%		—
McAllen Medical Center(3)(5)(8)    McAllen, Texas	Acute Care		370		47	%		48	%		44	%		43	%		43	%		5,485,000	2021		10		0	%		—
Wellington Regional Medical    Center(4)(5)(8)    West Palm Beach, Florida	Acute Care		153		55	%		56	%		59	%		58	%		69	%		3,030,000	2021		10		0	%		—
HealthSouth Deaconess Rehab.    Hospital(9)    Evansville, Indiana	Rehabilitation		85		75	%		80	%		80	%		79	%		79	%		714,000	2019		5		0	%		—
Vibra Hospital of Corpus    Christi Corpus Christi, Texas	Sub- Acute Care		74		51	%		56	%		58	%		58	%		53	%		738,000	2019		25		100	%		3	%
Kindred Hospital Chicago    Central(10)    Chicago, Illinois	Sub- Acute Care		84		46	%		52	%		54	%		51	%		51	%		1,494,000	2021		—		0	%		—

																	Lease Term
																			End of		% of RSF
																			initial		under
	Type	Average Occupancy(1)																	or	Renewal	lease with			Range of
	of																Minimum		renewed	term	guaranteed			guaranteed
Facility Name and Location	facility	2016			2015			2014			2013			2012			rent(5)		term	(years)	escalators			escalation
Spring Valley MOB I(5)    Las Vegas, Nevada	MOB		72	%		61	%		60	%		64	%		68	%	$	537,000	2017-2021	Various		92	%	2%-3%
Spring Valley MOB II(5)    Las Vegas, Nevada	MOB		85	%		84	%		77	%		76	%		76	%		1,126,000	2018-2022	Various		42	%	1%-3%
Summerlin Hospital MOB I(5)    Las Vegas, Nevada	MOB		64	%		62	%		66	%		77	%		81	%		1,109,000	2017-2021	Various		82	%	2%-3%
Summerlin Hospital MOB II(5)    Las Vegas, Nevada	MOB		78	%		74	%		78	%		74	%		82	%		1,489,000	2017-2021	Various		80	%	2%-3%
Summerlin Hospital MOB III(5)    Las Vegas, Nevada	MOB		100	%		100	%		90	%		81	%		71	%		1,926,000	2017-2024	Various		72	%	2%-3%
St. Mary’s Professional Office Building(7)    Reno, Nevada	MOB		100	%		100	%		100	%		98	%		99	%		4,588,000	2017-2029	Various		35	%	2%-3%
Rosenberg Children’s Medical Plaza    Phoenix, Arizona	MOB		99	%		99	%		99	%		99	%		100	%		2,064,000	2018-2026	Various		59	%	3%
Centennial Hills MOB(5)    Las Vegas, Nevada	MOB		73	%		73	%		71	%		62	%		62	%		1,532,000	2017-2023	Various		61	%	2%-3%
PeaceHealth Medical Clinic    Bellingham, Washington	MOB		100	%		100	%		100	%		100	%		100	%		2,568,000	2021	20		100	%	1%
Lake Pointe Medical Arts Building    Rowlett, Texas	MOB		100	%		100	%		100	%		97	%		96	%		1,572,000	2017-2023	Various		24	%	3%
Chandler Corporate Center III(11)    Chandler, Arizona	MOB		92	%		-			-			-			-			1,737,000	2022-2027	Various		100	%	2%
Frederick Crestwood MOB(11)    Frederick, Maryland	MOB		100	%		-			-			-			-			1,696,000	2026-2030	Various		100	%	3%
2704 North Tenaya Way(11)    Las Vegas, Nevada	MOB		100	%		-			-			-			-			1,128,000	2023	18		100	%	2%

(1) Average occupancy rate for the hospital facilities is based on the average number of available beds occupied during each of the five years ended December 31, 2016. Average available beds is the number of beds which are actually in service at any given time for immediate patient use with the necessary equipment and staff available for patient care. A hospital may have appropriate licenses for more beds than are in service for a number of reasons, including lack of demand, incomplete construction and anticipation of future needs. The average occupancy rate of a hospital is affected by a number of factors, including the number of physicians using the hospital, changes in the number of beds, the composition and size of the population of the community in which the hospital is located, general and local economic conditions, variations in local medical and surgical practices and the degree of outpatient use of the hospital services. Average occupancy rate for the multi-tenant medical office buildings is based on the occupied square footage of each building, including any applicable master leases.

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(2) In July, 2002, the operations of Inland Valley Regional Medical Center (“Inland Valley”) were merged with the operations of Rancho Springs Medical Center (“Rancho Springs”), an acute care hospital located in California and also operated by UHS, the real estate assets of which are not owned by us. Inland Valley, our lessee, was merged into Universal Health Services of Rancho Springs, Inc. The merged entity is now doing business as Southwest Healthcare System (“Southwest Healthcare”). As a result of merging the operations of the two facilities, the revenues of Southwest Healthcare include the revenues of both Inland Valley and Rancho Springs. Although we do not own the real estate assets of the Rancho Springs facility, Southwest Healthcare became the lessee on the lease relating to the real estate assets of the Inland Valley facility. Since the bonus rent calculation for the Inland Valley campus is based on net revenues and the financial results of the two facilities are no longer separable, the lease was amended during 2002 to exclude from the bonus rent calculation the estimated net revenues generated at the Rancho Springs campus (as calculated pursuant to a percentage based allocation determined at the time of the merger). No assurance can be given as to the effect, if any, the merger of Inland Valley and Rancho Springs had on the underlying value of Inland Valley.  Base rental commitments and the guarantee by UHS under the original lease continue for the remainder of the lease term. The average occupancy rates shown for this facility for all years were based on the combined number of beds occupied at the Inland Valley and Rancho Springs campuses.

(3) During the first quarter of 2001, UHS purchased the assets and operations of the 60-bed McAllen Heart Hospital located in McAllen, Texas. Upon acquisition by UHS, the Heart Hospital began operating under the same license as McAllen Medical Center (which has 370 available beds as of December 31, 2016). The net revenues of the combined operations included revenues generated by the Heart Hospital, the real property of which is not owned by us. Accordingly, the McAllen Medical Center lease was amended during 2001 to exclude from the bonus rent calculation, the estimated net revenues generated at the Heart Hospital (as calculated pursuant to a percentage based allocation determined at the time of the merger). During 2000, UHS purchased the South Texas Behavioral Health Center, a behavioral health care facility located in McAllen, Texas. In 2006, a newly constructed, 134-bed replacement facility for the South Texas Behavioral Health Center was completed and opened. We do not own the real property of South Texas Behavioral Health Center. Upon UHS’s acquisition of the South Texas Behavioral Health Center in 2000, the facility’s license was merged into the operating license of McAllen Medical Center/McAllen Heart Hospital. There was no amendment to the McAllen Medical Center lease related to the operations of the South Texas Behavioral Health Center and its net revenues are distinct and excluded from the bonus rent calculation. In 2007, the operations of each of the above-mentioned facilities, as well as the operations of Edinburg Regional Medical Center/Children’s Hospital, a 213-bed facility located in Edinburg, Texas, were merged into one license operating as the South Texas Health System (“STHS”). The real property of Edinburg Regional Medical Center/Children’s Hospital is not owned by us and its net revenues are distinct and excluded from the bonus rent calculation. In 2015, the newly constructed Weslaco and Mission Free Standing Emergency Departments (“FEDs”) were completed and opened. These facilities also operate under the STHS license. The real property of these two FEDs was purchased by us and leased back to STHS. The average occupancy rates reflected above are based upon the combined occupancy and combined number of beds at McAllen Medical Center and McAllen Heart Hospital. No assurance can be given as to the effect, if any, the consolidation of the facilities into one operating license, as mentioned above, had on the underlying value of McAllen Medical Center.  Base rental commitments and the guarantee by UHS under the original lease continue for the remainder of the lease terms.  

(4) In 2014, an 80-bed expansion was added to Wellington Regional Medical Center increasing the hospital’s total available beds from 153 to 233. Pursuant to terms of the Wellington Regional Medical Center lease, we are entitled to bonus rental on the net revenues generated from the 80-bed expansion. However, since we did not acquire the property associated with the additional 80-beds, the hospital’s base rental remained unchanged and the additional beds are not included in the number of available beds reflected above.      

(5) The real estate assets of this facility are owned by us (either directly or through an LLC in which we hold 100% of the ownership interest) and include tenants who are subsidiaries of UHS.

(6) Minimum rent amounts contain impact of straight-line rent adjustments, if applicable.

(7) The real estate assets of this facility are owned by an LLC in which we hold a 85% non-controlling ownership interest as of December 31, 2016.

(8) See Note 2 to the consolidated financial statements-Relationship with UHS and Related Party Transactions, regarding UHS’s purchase option, right of first refusal and change of control purchase option related to these properties. We believe the respective fair values for each of these hospitals exceeds the respective net book values as of December 31, 2016 amounting to: $14.8 million for Southwest Healthcare System-Inland Valley Campus; $20.1 million for McAllen Medical Center, and; $14.8 million for Wellington Regional Medical Center.  

(9) The lessee of this facility has a purchase option which is exercisable, subject to certain terms and conditions, at the expiration of each lease term (current term expires in 2019). If exercised, the purchase option stipulates that the purchase price be the fair market value of the facility, subject to stipulated minimum and maximum prices. As currently being utilized, we believe the estimated current fair market value of the property is between the stipulated minimum and maximum prices. We believe the fair market value of the facility exceeds the $3.0 million net book value as of December 31, 2016. The lessee also has a first refusal to purchase right which, if applicable and subject to certain terms and conditions, grants the lessee the option to purchase the property at the same terms and conditions as an accepted third-party offer.

(10) During the second quarter of 2016, the tenant of this facility provided the required notice to us, exercising the 5-year renewal option on the facility, extending the lease term to December, 2021 at existing lease rates. The lessee of this facility has a purchase option which is exercisable, subject to certain terms and conditions, at the expiration of each lease term. If exercised, the purchase option stipulates that the purchase price be the fair market value of the facility, subject to a stipulated minimum price. We believe the fair market value of the facility exceeds the $158,000 net book value as of December 31, 2016. The lessee also has a first refusal to purchase right which, if applicable and subject to certain terms and conditions, grants the lessee the option to purchase the property at the same terms and conditions as an accepted third-party offer.

(11) This property was acquired during 2016.

Leasing Trends at Our Significant Medical Office Buildings

During 2016, we had a total of 32 new or renewed leases related to the medical office buildings indicated above, in which we have significant investments, some of which are accounted for by the equity method. These leases comprised approximately 10% of the aggregate rentable square feet of these properties (7% related to renewed leases and 3% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property to property based upon factors such as, but not limited to, the current

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occupancy and age of our buildings, local overall economic conditions, proximity to hospital campuses and the vacancy rates, rental rates and capacity of our competitors in the market. The weighted-average tenant improvement costs associated with these new or renewed leases was approximately $12 per square foot during 2016. The weighted-average leasing commissions on the new and renewed leases commencing during 2016 was approximately 2% of base rental revenue over the term of the leases. The average aggregate value of the tenant concessions, generally consisting of rent abatements, provided in connection with new and renewed leases commencing during 2016 was approximately 2% of the future aggregate base rental revenue over the lease terms. Rent abatements were, or will be, recognized in our results of operations under the straight-line method over the lease term regardless of when payments are due. In connection with lease renewals executed during 2016, the weighted-average rental rates, as compared to rental rates on the expired leases, decreased by approximately 3%.

Set forth is information detailing the rentable square feet (“RSF”) associated with each of our properties as of December 31, 2016 (excluding Henderson Medical Plaza which is scheduled to be completed and opened during the first quarter of 2017) and the percentage of RSF on which leases expire during the next five years and thereafter. For the MOBs that have scheduled lease expirations during 2017 of 10% or greater (of RSF), we have included information regarding estimated market rates relative to lease rates on the expiring leases.

20

						Percentage of RSF with lease expirations
	Total RSF		Available for Lease Jan. 1, 2017			2017			2018			2019			2020			2021			2022 and Later
Hospital Investments:
McAllen Medical Center		422,276		0	%		0	%		0	%		0	%		0	%		100	%		0	%
Wellington Regional Medical Center		196,489		0	%		0	%		0	%		0	%		0	%		100	%		0	%
Southwest Healthcare System - Inland Valley		164,377		0	%		0	%		0	%		0	%		0	%		100	%		0	%
Kindred Hospital Chicago Central		115,554		0	%		0	%		0	%		0	%		0	%		100	%		0	%
HealthSouth Deaconess Rehab. Hospital		77,440		0	%		0	%		0	%		100	%		0	%		0	%		0	%
Vibra Hospital Corpus Christi		69,700		0	%		0	%		0	%		100	%		0	%		0	%		0	%
Sub-total Hospitals		1,045,836		0	%		0	%		0	%		14	%		0	%		86	%		0	%
Medical Office Buildings:
Saint Mary's Professional Office Building		190,754		0	%		9	%		0	%		0	%		42	%		0	%		49	%
Goldshadow - 2010/20 Goldring MOB (b.)		74,774		29	%		19	%		2	%		3	%		7	%		12	%		28	%
Goldshadow - 700 Shadow Lane MOB (b.)		42,060		3	%		25	%		19	%		30	%		23	%		0	%		0	%
Texoma Medical Plaza		115,284		0	%		2	%		6	%		2	%		57	%		5	%		28	%
St. Matthews Medical Plaza II		103,011		0	%		1	%		6	%		2	%		0	%		11	%		80	%
Desert Springs Medical Plaza		102,579		56	%		2	%		14	%		8	%		0	%		6	%		14	%
Peace Health Medical Clinic		98,886		0	%		0	%		0	%		0	%		0	%		100	%		0	%
Centennial Hills Medical Office Building		96,573		23	%		8	%		13	%		5	%		22	%		12	%		17	%
Summerlin Hospital Medical Office Building II (b.)		92,313		19	%		19	%		13	%		21	%		4	%		20	%		4	%
Summerlin Hospital Medical Office Building I (b.)		89,636		35	%		22	%		6	%		14	%		19	%		4	%		0	%
The Sparks Medical Building		35,127		10	%		7	%		6	%		3	%		17	%		0	%		57	%
Vista Medical Terrace (e.)		50,921		51	%		18	%		9	%		0	%		7	%		1	%		14	%
Chandler Corporate Center III		81,770		8	%		0	%		0	%		0	%		0	%		0	%		92	%
3811 E. Bell (a.)		80,484		34	%		16	%		16	%		3	%		4	%		3	%		24	%
Summerlin Hospital Medical Office Building III		77,713		0	%		9	%		8	%		44	%		10	%		18	%		11	%
Mid Coast Hospital MOB		74,629		0	%		0	%		5	%		0	%		0	%		4	%		91	%
North West Texas Professional Office Tower		72,351		0	%		3	%		0	%		0	%		0	%		0	%		97	%
Rosenberg Children's Medical Plaza		66,231		1	%		0	%		75	%		6	%		3	%		0	%		15	%
Frederick Crestwood MOB		62,297		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Palmdale Medical Plaza		59,405		46	%		5	%		9	%		0	%		9	%		12	%		19	%
Sierra San Antonio Medical Plaza (c.)		59,160		35	%		10	%		0	%		3	%		0	%		8	%		44	%
Spring Valley Medical Office Building (b.)		57,828		21	%		41	%		12	%		12	%		0	%		6	%		8	%
Spring Valley Medical Office Building II		57,432		15	%		0	%		39	%		21	%		17	%		0	%		8	%
Southern Crescent Center II		53,680		49	%		0	%		0	%		8	%		4	%		0	%		39	%
Desert Valley Medical Center (a.)		53,625		7	%		11	%		11	%		13	%		9	%		11	%		38	%
Tuscan Professional Building		53,231		0	%		0	%		12	%		0	%		30	%		19	%		39	%
Lake Pointe Medical Arts Building (g.)		50,974		0	%		33	%		23	%		14	%		17	%		9	%		4	%
Forney Medical Plaza		50,947		9	%		0	%		67	%		0	%		0	%		5	%		19	%
2704 N. Tenaya Way		44,894		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Southern Crescent Center I		41,897		68	%		6	%		21	%		5	%		0	%		0	%		0	%
Auburn Medical Office Building		41,311		10	%		9	%		0	%		0	%		20	%		0	%		61	%
BRB Medical Office Building (d.)		40,733		13	%		11	%		17	%		3	%		56	%		0	%		0	%
Cypresswood Prof. Center - 8101		10,200		100	%		0	%		0	%		0	%		0	%		0	%		0	%
Cypresswood Prof. Center - 8111 (c.)		29,882		10	%		11	%		7	%		16	%		56	%		0	%		0	%
Medical Center of Western Connecticut (h.)		36,141		0	%		24	%		5	%		71	%		0	%		0	%		0	%
Phoenix Children’s East Valley Care Center		30,960		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Forney Medical Plaza II		30,507		42	%		0	%		5	%		0	%		0	%		0	%		53	%
Madison Station MOB		30,096		0	%		0	%		0	%		0	%		0	%		0	%		100	%

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						Percentage of RSF with lease expirations
	Total RSF		Available for Lease Jan. 1, 2017			2017			2018			2019			2020			2021			2022 and Later
Apache Junction Medical Plaza (a.)		26,901		9	%		13	%		0	%		4	%		0	%		34	%		40	%
Santa Fe Professional Plaza (a.)		24,883		25	%		11	%		11	%		23	%		10	%		20	%		0	%
Prof. Bldg at King's Crossing-Bldg A		11,528		100	%		0	%		0	%		0	%		0	%		0	%		0	%
Prof. Bldg at King's Crossing-Bldg B (f.)		12,790		0	%		11	%		20	%		11	%		18	%		0	%		40	%
Kelsey-Seybold Clinic at King's Crossing		20,470		0	%		0	%		0	%		0	%		100	%		0	%		0	%
Emory at Dunwoody Building		20,366		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Piedmont - Roswell Physicians Center		19,927		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Piedmont - Vinings Physicians Center		16,790		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Ward Eagle Office Village		16,282		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Haas Medical Office Park		15,850		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Northwest Medical Center at Sugar Creek		13,696		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Family Doctor's MOB		12,050		0	%		0	%		0	%		0	%		0	%		100	%		0	%
701 South Tonopah Building		10,747		0	%		0	%		0	%		0	%		0	%		100	%		0	%
The Children's Clinic at Springdale		9,761		0	%		0	%		0	%		0	%		0	%		0	%		100	%
5004 Pool Road MOB		4,400		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Preschool and Childcare Centers:
Chesterbrook Academy - Audubon		8,300		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Chesterbrook Academy - Uwchlan		8,163		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Chesterbrook Academy - Newtown		8,100		0	%		0	%		0	%		0	%		0	%		100	%		0	%
Chesterbrook Academy - New Britain		7,998		0	%		0	%		100	%		0	%		0	%		0	%		0	%
Ambulatory Care Centers:
Hanover Freestanding Emergency Center		22,000		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Mission Freestanding Emergency Center		13,578		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Weslaco Freestanding Emergency Center		13,578		0	%		0	%		0	%		0	%		0	%		0	%		100	%
Sub-total Other Investments		2,758,454		15	%		8	%		10	%		7	%		12	%		10	%		38	%
Total		3,804,290		11	%		6	%		7	%		9	%		9	%		31	%		27	%

(a) The estimated market rates related to the 2017 expiring RSF are greater than the lease rates on the expiring leases by an average of approximately 3%.

(b) The estimated market rates related to the 2017 expiring RSF are greater than the lease rates on the expiring leases by an average of approximately 2%

(c) The estimated market rates related to the 2017 expiring RSF are greater than the lease rates on the expiring leases by an average of approximately 1%.

(d) The estimated market rates related to the 2017 expiring RSF are equal to the lease rates on the expiring leases.

(e) The estimated market rates related to the 2017 expiring RSF are less than the lease rates on the expiring leases by an average of approximately 2%.

(f) The estimated market rates related to the 2017 expiring RSF are less than the lease rates on the expiring leases by an average of approximately 3%.

(g) The estimated market rates related to the 2017 expiring RSF are greater than the lease rates on the expiring leases by an average of approximately 5%.

(h) The estimated market rates related to the 2017 expiring RSF are less than the lease rates on the expiring leases by an average of approximately 11%.

On a combined basis, based upon the aggregate revenues and square footage for the hospital facilities owned as of December 31, 2016 and 2015, the average effective annual rental per square foot was $17.99 and $17.83, respectively. On a combined basis, based upon the aggregate consolidated and unconsolidated revenues and the estimated average occupied square footage for our MOBs, FEDs and childcare centers owned as of December 31, 2016 and 2015, the average effective annual rental per square foot was $28.74 and $28.53, respectively. On a combined basis, based upon the aggregate consolidated and unconsolidated revenues and estimated average occupied square footage for all of our properties owned as of December 31, 2016 and 2015, the average effective annual rental per square foot was $25.41 and $24.97, respectively. The estimated average occupied square footage for 2016 was calculated by averaging the unavailable rentable square footage on January 1, 2016 and January 1, 2017. The estimated average occupied square footage for 2015 was calculated by averaging the unavailable rentable square footage on January 1, 2015 and January 1, 2016.

During 2016, the lease with one of the UHS-related hospitals (McAllen Medical Center) generated revenues that comprised more than 10% of our consolidated revenues. None of the properties had book values greater than 10% of our consolidated assets as of December 31, 2016. Including 100% of the revenues generated at the properties owned by our unconsolidated LLCs, none of our unconsolidated LLCs had revenues greater than 10% of the combined consolidated and unconsolidated revenues during 2016. Including 100% of the book values of the properties owned by our unconsolidated LLCs, none of the properties had book values greater than 10% of the consolidated and unconsolidated assets.

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The following table sets forth the average effective annual rental per square foot for 2016, based upon average occupied square feet for McAllen Medical Center:

Property	2016 Average Occupied Square Feet		2016 Revenues		2016 Average Effective Rental Per Square Foot
McAllen Medical Center		422,276	$	7,070,000	$	16.74

The following table sets forth lease expirations for each of the next ten years for our properties as of December 31, 2016.

	Expiring Square Feet		Number of Tenants		AnnualRentals of Expiring Leases(1)		Percentage of Annual Rentals(2)
Hospital properties
2017		0	0		$	0		0	%
2018		0	0		0			0	%
2019		147,140	2			1,452,063		2	%
2020		0	0		0			0	%
2021		898,696	4			12,637,102		15	%
2022		0	0		0			0	%
2023		0	0		0			0	%
2024		0	0		0			0	%
2025		0	0		0			0	%
2026		0	0		0			0	%
Thereafter		0	0		0			0	%
Subtotal-hospital facilities		1,045,836		6	$	14,089,165		17	%
Other consolidated properties
2017		190,572	69		$	5,345,497		7	%
2018		255,959	69			7,527,202		9	%
2019		168,768	51			4,891,996		6	%
2020		197,126	52			5,781,937		7	%
2021		249,951	40			6,969,460		9	%
2022		210,084	34			5,806,145		7	%
2023		176,052	22			4,496,861		6	%
2024		63,327	7			1,844,016		2	%
2025		84,510	9			2,350,258		3	%
2026		45,831	7			1,473,457		2	%
Thereafter		198,466	9			4,953,271		6	%
Subtotal-other consolidated properties		1,840,646		369	$	51,440,100		64	%
Other unconsolidated properties (MOBs)
2017		20,380	7		$	631,571		1	%
2018		18,174	5			570,116		1	%
2019		3,816	3			112,733		0	%
2020		145,312	16			4,467,896		5	%
2021		19,619	6			569,436		1	%
2022		32,376	8			953,827		1	%
2023		12,641	4			544,552		1	%
2024		40,113	7			1,274,727		1	%
2025		129,764	13			3,943,249		5	%
2026		68,024	8			1,852,770		2	%
Thereafter		11,169	2			555,682		1	%
Subtotal-other unconsolidated properties		501,388		79	$	15,476,559		19	%
Total all properties at December 31, 2016		3,387,870		454	$	81,005,824		100	%

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(1) The annual rentals of expiring leases reflected above were calculated based upon each property’s 2016 average rental rate per occupied square foot applied to each property’s scheduled lease expirations (on a square foot basis). These amounts include the data related to the unconsolidated LLCs/LPs in which we hold various non-controlling ownership interests at December 31, 2016 and exclude the bonus rentals earned on the UHS hospital facilities.

(2) The percentages of annual rentals reflected above were calculated based upon the annual rentals of expiring leases (as reflected above) divided by the total annual rentals of expiring leases (as reflected above).

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ITEM 3. Legal Proceedings

None

ITEM  4. Mine Safety Disclosures

Not applicable

PART II

ITEM  5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our shares of beneficial interest are listed on the New York Stock Exchange. The high and low closing sales prices for our shares of beneficial interest for each quarter in the years ended December 31, 2016 and 2015 are summarized below:

	2016				2015
	High Price		Low Price		High Price		Low Price
First Quarter	$	56.80	$	47.26	$	56.87	$	49.08
Second Quarter	$	57.85	$	52.27	$	56.86	$	46.46
Third Quarter	$	64.06	$	56.73	$	50.35	$	43.54
Fourth Quarter	$	65.59	$	55.17	$	53.40	$	46.76

Holders

As of January 31, 2017, there were approximately 355 shareholders of record of our shares of beneficial interest.

Dividends

It is our intention to declare quarterly dividends to the holders of our shares of beneficial interest so as to comply with applicable sections of the Internal Revenue Code governing REITs. Our revolving credit facility limits our ability to increase dividends in excess of 95% of cash available for distribution, as defined in our revolving credit agreement, unless additional distributions are required to be made so as to comply with applicable sections of the Internal Revenue Code and related regulations governing REITs. In each of the past two years, dividends per share were declared as follows:

	2016		2015
First Quarter	$	.645	$	.635
Second Quarter		.650		.640
Third Quarter		.650		.640
Fourth Quarter		.655		.645
	$	2.600	$	2.560

25

Stock Price Performance Graph

The following graph compares our performance with that of the S&P 500 and a group of peer companies, where performance has been weighted based on market capitalization. Companies in our peer group are as follows: HCP, Inc., Omega Healthcare Investors, Inc., Welltower, Inc. (previously known as Health Care REIT, Inc.), Healthcare Realty Trust, Inc., LTC Properties, Inc., and National Health Investors, Inc.

The total cumulative return on investment (change in the year-end stock price plus reinvested dividends) for each of the periods for us, the peer group and the S&P 500 composite is based on the stock price or composite index at the end of fiscal 2011.

	Base		INDEXED RETURNS
	Period		Years Ending
Company Name / Index	Dec 11		Dec 12		Dec 13		Dec 14		Dec 15		Dec 16
Universal Health Realty Income Trust	$	100	$	137.17	$	114.75	$	145.96	$	159.67	$	218.59
S&P 500 Index	$	100	$	116.00	$	153.57	$	174.60	$	177.01	$	198.18
Peer Group	$	100	$	118.57	$	108.71	$	148.89	$	140.58	$	140.93

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ITEM 6. Selected Financial Data

The following table contains our selected financial data for, or at the end of, each of the five years ended December 31, 2016. You should read this table in conjunction with our consolidated financial statements and related notes contained elsewhere in this Annual Report and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	(000s, except per share amounts)
	2016			2015			2014			2013			2012
Operating Results:
Total revenues(1)	$	67,081		$	63,950		$	59,786		$	54,280		$	53,950
Net income(2)	$	17,215		$	23,691		$	51,551		$	13,169		$	19,477
Balance Sheet Data:
Real estate investments, net of accumulated    depreciation(1)(3)	$	447,240		$	390,496		$	380,109		$	297,748		$	314,386
Investments in LLCs, net of liabilities(1)(4)		33,731			30,492			8,605			39,201			28,636
Intangible assets, net of accumulated amortization(3)		23,815			19,757			23,123			20,782			26,293
Total assets(1)(3)		524,750			458,503			428,490			372,626			382,558
Total indebtedness, including debt premium(1)(3)(5)		315,717			252,306			212,779			199,468			197,456
Other Data:
Funds from operations(6)	$	41,559		$	38,349		$	35,937		$	34,955		$	34,280
Cash provided by (used in):
Operating activities		40,733			38,178			32,796			31,294			30,783
Investing activities		(74,834	)		(44,309	)		(4,038	)		(13,373	)		(8,565	)
Financing activities		34,137			6,164			(29,815	)		(17,491	)		(30,819	)
Per Share Data:
Basic earnings per share:
Total basic earnings per share(2)	$	1.28		$	1.78		$	3.99		$	1.04		$	1.54
Diluted earnings per share:
Total diluted earnings per share(2)	$	1.28		$	1.78		$	3.99		$	1.04		$	1.54
Diluted funds from operations per share:
Total diluted funds from operations per share	$	3.09		$	2.88		$	2.78		$	2.75		$	2.71
Dividends per share	$	2.600		$	2.560		$	2.520		$	2.495		$	2.460
Other Information (in thousands)
Weighted average number of shares outstanding—basic		13,464			13,293			12,927			12,689			12,661
Weighted average number of shares and share equivalents    outstanding—diluted		13,468			13,301			12,934			12,701			12,669

(1) As discussed in Note 1 “Summary of Significant Accounting Policies—Investments in Limited Liability Companies”, our consolidated financial statements only include the accounts of our consolidated investments.

(2) Net income and earnings per share during 2016 includes $528,000 of transactions costs related to various transactions during 2016.  Net income and earnings per share during 2015 includes: (i) an $8.7 million gain recorded in connection with a property exchange transaction, and; (ii) $243,000 of transaction costs related to various transactions during 2015.      Net income and earnings per share during 2014 includes: (i) a $25.4 million gain recorded in connection with our purchase of third-party minority ownership interests in eight LLCs (January and August, 2014, as discussed below) in which we formerly held non-controlling majority ownership interests (we own 100% of each of these entities since the effective dates); (ii) a $13.0 million gain on the divestiture of real property (the Bridgeway), and; (iii) $427,000 of transaction costs related to the 2014 acquisition and divestiture activity previously mentioned. Net income and earnings per share during 2013 includes approximately $200,000 of transaction costs related to various acquisitions. Net income and earnings per share during 2012 includes an $8.5 million gain on the divestitures of properties owned by two unconsolidated LLCs in which we formerly held non-controlling majority ownership interests, and $680,000 of transaction costs related to various acquisitions.

(3) Amounts include the fair value of the real property and debt of the eight previously unconsolidated LLCs, which we began consolidating during the first and third quarters of 2014 subsequent to our purchase of the third-party minority ownership interests on January 1, 2014 and August 1, 2014 (we owned 100% of each of these entities at December 31, 2014).

(4) Investments in LLCs at December 31, 2014, 2013 and 2012 reflect the consolidation of various LLCs, as mentioned in notes 2 and 3 above, as well as the divestiture of property owned by various unconsolidated LLCs during 2012. Additionally, at December 31, 2013, Investments in LLCs reflects the deconsolidation of Palmdale Medical Properties. This LLC was deemed to be a variable interest entity during the term of the master lease and was consolidated in our financial statements through June 30, 2013 since we were the primary beneficiary through that date. Effective July 1, 2013, this LLC is no longer be deemed a variable interest entity and is accounted for in our financial statements on an unconsolidated basis pursuant to the equity method.

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Effective January 1, 2014, Investments in LLCs reflects the consolidation of Palmdale Medical Properties, since we purchased the third-party minority ownership interests in Palmdale and began accounting for this LLC on a consolidated basis as of that date.

(5) Excludes third-party debt that is non-recourse to us, incurred by unconsolidated LLCs in which we hold various non-controlling equity interests as follows: $28.4 million as of December 31, 2016, $28.9 million as of December 31, 2015, $52.7 million as of December 31, 2014, $80.1 million as of December 31, 2013 and $77.5 million as of December 31, 2012 (See Note 8 to the consolidated financial statements).

(6) Our funds from operations (“FFO”) during 2016, 2015, 2014, 2013 and 2012 are net of reductions for transaction costs of $528,000, $243,000 $427,000, $203,000 and $680,000, respectively.

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 (“GAAP” is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. We compute FFO, as reflected below, 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 do 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.    

A reconciliation of our reported net income to FFO for each of the last five years is shown below:

	(000s)
	2016		2015			2014			2013		2012
Net income	$	17,215	$	23,691		$	51,551		$	13,169	$	19,477
Depreciation and amortization expense on real    property/intangibles:
Consolidated investments		22,493		21,710			20,548			18,496		20,030
Unconsolidated affiliates		1,851		1,690			2,290			3,290		3,293
Less gains:
Gain on property exchange		—		(8,742	)		—			—		—
Gains on fair value recognition resulting from the    purchase of minority interests in    majority-owned LLCs, net		—		—			(25,409	)		—		—
Gain on divestiture of real property		—		—			(13,043	)		—		—
Gains on divestiture of properties owned by    unconsolidated LLCs, net		—		—			—			—		(8,520	)
Funds From Operations	$	41,559	$	38,349		$	35,937		$	34,955	$	34,280
Weighted average number of shares and equivalents outstanding - Diluted		13,468		13,301			12,934			12,701		12,669
Funds From Operations per diluted share	$	3.09	$	2.88		$	2.78		$	2.75	$	2.71

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ITEM 7. 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, rehabilitation hospitals, sub-acute facilities, surgery centers, free-standing emergency departments, childcare centers and medical office buildings. As of February 28, 2017, we have sixty-seven real estate investments or commitments in twenty states consisting of:

• six hospital facilities including three acute care, one rehabilitation and two sub-acute;

• three free-standing emergency departments (“FEDs”);

• fifty-four medical office buildings (“MOBs”), including five owned by unconsolidated LLCs/LPs, and;

• four preschool and childcare centers.

Forward Looking Statements

This report contains “forward-looking statements” that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of our goals and objectives, and other similar expressions concerning matters that are not historical facts. 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.

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:  

• a substantial portion of our revenues are dependent upon one operator, Universal Health Services, Inc. (“UHS”). We cannot assure you that subsidiaries of UHS will renew the leases on our three acute care hospitals (which are scheduled to expire in December, 2021) and two FEDs at existing lease rates or fair market value lease rates. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital facilities and FEDs upon expiration of the lease terms, 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;

• in certain of our markets, the general real estate market has been unfavorably impacted by increased competition/capacity and decreases in occupancy and rental rates which may adversely impact our operating results and the underlying value of our properties;

• a number of legislative initiatives have recently been passed into law that may result in major changes in the health care delivery system on a national or state level to the operators of our facilities, including UHS. No assurances can be given that the implementation of these new laws will not have a material adverse effect on the business, financial condition or results of operations of our operators;

• a subsidiary of UHS is our Advisor and our officers are all employees of a wholly-owned subsidiary of UHS, which may create the potential for conflicts of interest;

• lost revenues resulting from the exercise of purchase options, lease expirations and renewals, loan repayments and other restructuring;

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

• the outcome of known and unknown litigation, government investigations, and liabilities and other claims asserted against us, UHS or the other operators of our facilities;

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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;

• the potential unfavorable impact on our business of deterioration in national, regional and local economic and business conditions, including a worsening of credit and/or capital market conditions, which may adversely affect our ability to obtain capital which may be required to fund the future growth of our business and refinance existing debt with near term maturities;

• a deterioration in general economic conditions which could result in increases in the number of people unemployed and/or insured and likely increase the number of individuals without health insurance; as a result, the operators of our facilities may experience decreases in patient volumes which could result in decreased occupancy rates at our medical office buildings;

• a worsening of the economic and employment conditions in the United States could materially affect the business of our operators, including UHS, which may unfavorably impact our future bonus rentals (on the UHS hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties;

• real estate market factors, including without limitation, the supply and demand of office space and market rental rates, changes in interest rates as well as an increase in the development of medical office condominiums in certain markets;

• government regulations, including changes in the reimbursement levels under the Medicare and Medicaid programs;

• the issues facing the health care industry that affect the operators of our facilities, including UHS, such as: changes in, or the ability to comply with, existing laws and government regulations; unfavorable changes in the levels and terms of reimbursement by third party payors or government programs, including Medicare (including, but not limited to, the potential unfavorable impact of future reductions to Medicare reimbursements resulting from the Budget Control Act of 2011, as discussed 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;

• in August, 2011, the Budget Control Act of 2011 (the “2011 Act”) was enacted into law. The 2011 Act 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. The 2011 Act provides for new spending on program integrity initiatives intended to reduce fraud and abuse under the Medicare program. 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 2011 Act.  We cannot predict whether Congress will restructure the implemented Medicare payment reductions or what federal other deficit reduction initiatives may be proposed by Congress going forward. We also cannot predict the effect these enactments will have on operators (including UHS), and, thus, our business;

• in March, 2010, the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act (the “ACA”) were enacted into law and created significant changes to health insurance coverage for U.S. citizens as well as material revisions to the federal Medicare and state Medicaid programs. The two combined primary goals of these acts are to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses. Medicare, Medicaid and other health care industry changes are scheduled to be implemented at various times during this decade.  Initiatives to repeal the ACA, in whole or in part, to delay elements of implementation or funding, and to offer amendments or supplements to modify its provisions, have been persistent and may increase as a result of the 2016 election.  The ultimate outcomes of legislative attempts to repeal or amend the ACA and legal challenges to the ACA are unknown.  Results of recent Congressional elections and the change of Presidential administrations beginning in 2017 could create a political environment in which substantial portions of the ACA are repealed or revised.  Specifically, President Donald Trump’s 100 Day Action Plan called for full repeal of the ACA and its replacement with health savings accounts, cross-states sales of health insurance, and modifications to state-managed Medicaid programs.  Nevertheless,

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prospects for rapid enactment of radical change in the health care regulatory landscape are not clear, and President Donald Trump has already indicated that popular provisions of the ACA should be preserved.  It remains unclear what portions of the ACA may remain, or what any replacement or alternative programs may be created by any future legislation.  Any such future repeal or replacement may have significant impact on the reimbursement for healthcare services generally, and may create reimbursement for services competing with the services offered by our hospitals. Accordingly, there can be no assurance that the adoption of any future federal or state healthcare reform legislation will not have a negative financial impact on our hospitals, including their ability to compete with alternative healthcare services funded by such potential legislation, or for the operators of our hospitals to receive payment for services;

• competition for our operators from other REITs;

• 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 132-bed acute care hospital;

• changes in, or inadvertent violations of, tax laws and regulations and other factors than can affect REITs and our status as a REIT;

• should we be unable to comply with the strict income distribution requirements applicable to REITs, utilizing only cash generated by operating activities, we would be required to generate cash from other sources which could adversely affect our financial condition;

• our ownership interest in five LLCs/LPs in which we hold non-controlling equity interests. In addition, pursuant to the operating and/or partnership agreements of the five LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and the Trust, at any time, potentially subject to certain conditions, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it either agrees to: (i) sell the entire ownership interest of the Offering Member to the Non-Offering Member (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has 60 to 90 days to either: (i) purchase the entire ownership interest of the Offering Member at the Transfer Price, or; (ii) sell its entire ownership interest to the Offering Member at the equivalent proportionate Transfer Price. The closing of the transfer must occur within 60 to 90 days of the acceptance by the Non-Offering Member.

• fluctuations in the value of our common stock, and;

• other factors referenced herein or in our other filings with the Securities and Exchange Commission.

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

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

Critical Accounting Policies and Estimates

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

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

Revenue Recognition:  Our revenues consist primarily of rentals received from tenants, which are comprised of minimum rent (base rentals), bonus rentals and reimbursements from tenants for their pro-rata share of expenses such as common area maintenance costs, real estate taxes and utilities.

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The minimum rent for our six hospital facilities, which is paid monthly, is fixed over the term of the respective leases which are scheduled to expire in 2019 (2 hospitals) or 2021 (4 hospitals). In addition, for the three hospital facilities leased to subsidiaries of UHS, bonus rents are paid on a quarterly basis, based upon a computation that compares the hospitals’ current quarter net revenues to the corresponding quarter in the base year. Rental income recorded by our other properties, including our consolidated and unconsolidated MOBs, relating to leases in excess of one year in length, is recognized using the straight-line method under which contractual rents are recognized evenly over the lease term regardless of when payments are due. The amount of rental revenue resulting from straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants, stipulated rent increases under existing leases, as well as the acquisitions and sales of properties that have existing in-place leases with terms in excess of one year. As a result, the straight-line adjustments to rental revenue may vary from period-to-period. Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred.

Purchase Accounting for Acquisition of Investments in Real Estate:

Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired from third parties. In accordance with current accounting guidance, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, and acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above market rate loans, or loan discounts, in the case of below market loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

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

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

 Asset Impairment:    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 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 carrying value of the property. We consider factors such as future operating income, trends and 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 recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is 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 carrying value of a property is recoverable, our strategy of holding properties over the long-term directly decreases the likelihood of their

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carrying values not being recoverable and 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 such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to their fair value.

We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers. In 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 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 the property ceases and it is recorded at the lower of its carrying amount or fair value less cost to sell. The assets and related liabilities of the property are classified separately on the consolidated balance sheets for the most recent reporting period. 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 LLC is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value, including projected declines in cash flow. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to 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. As such, we are exempt from federal income taxes and we are required to distribute at least 90% of our real estate investment taxable income 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

Year ended December 31, 2016 as compared to the year ended December 31, 2015:

For the year ended December 31, 2016, net income was $17.2 million as compared to $23.7 million during 2015.  The $6.5 million decrease in net income during 2016, as compared to 2015, was primarily attributable to the following:

• a decrease of approximately $8.7 million resulting from the gain recorded on a property exchange transaction that occurred in May, 2015;

• a $1.1 million decrease due to an increase in interest expense resulting primarily from: (i) the refinancing in the form of a member loan (during the fourth quarter of 2015) of a previously outstanding $22.8 million, third-party mortgage loan of an unconsolidated LLC utilizing funds borrowed under our revolving credit facility, and; (ii) the interest expense incurred on the additional borrowings utilized to finance the 2016 acquisitions, as discussed herein;

• a $1.9 million increase in equity in income of unconsolidated LLCs, due in large part to the above-mentioned refinancing of the previously outstanding $22.8 million, third-party mortgage loan during the fourth quarter of 2015, as well as our purchase of an additional 10% ownership interest in the Arlington Medical Properties, LLC from the third-party minority member, and;    

• $1.4 million of other combined net increases due primarily to increased net income generated at various properties, the income generated at the properties acquired during 2016 (before interest expense) and the favorable impact resulting from the property exchange transaction completed during the second quarter of 2015.

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Total revenue increased $3.1 million, or 4.9%, during the year ended December 31, 2016, as compared to 2015, due primarily to the revenues generated at MOBs acquired during 2016, as well as net increases at various other properties.

Included in our other operating expenses are expenses related to the consolidated medical office buildings, which totaled $16.4 million for each of the years ended December 31, 2016 and 2015.  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.  

During 2016, we had a total of 32 new or renewed leases related to the medical office buildings as indicated in Item 2. Properties, in which we have significant investments, some of which are accounted for by the equity method. These leases comprised approximately 10% of the aggregate rentable square feet of these properties (7% related to renewed leases and 3% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property to property based upon factors such as, but not limited to, the current occupancy and age of our buildings, local overall economic conditions, proximity to hospital campuses and the vacancy rates, rental rates and capacity of our competitors in the market. The weighted-average tenant improvement costs associated with these new or renewed leases was approximately $12 per square foot during 2016. The weighted-average leasing commissions on the new and renewed leases commencing during 2016 was approximately 2% of base rental revenue over the term of the leases. The average aggregate value of the tenant concessions, generally consisting of rent abatements, provided in connection with new and renewed leases commencing during 2016 was approximately 2% of the future aggregate base rental revenue over the lease terms. Rent abatements were, or will be, recognized in our results of operations under the straight-line method over the lease term regardless of when payments are due. In connection with lease renewals executed during 2016, the weighted-average rental rates, as compared to rental rates on the expired leases, decreased by approximately 3%.

During 2015, we had a total of 60 new or renewed leases related to the medical office buildings in which we have significant investments, some of which are accounted for by the equity method. These leases comprised approximately 14% of the aggregate rentable square feet of these properties (4% related to renewed leases and 10% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property to property based upon factors such as, but not limited to, the current occupancy and age of our buildings, local overall economic conditions, proximity to hospital campuses and the vacancy rates, rental rates and capacity of our competitors in the market. The weighted-average tenant improvement costs associated with these new or renewed leases was approximately $11 per square foot during 2015. The weighted-average leasing commissions on the new and renewed leases commencing during 2015 was approximately 2% of base rental revenue over the term of the leases. The average aggregate value of the tenant concessions, generally consisting of rent abatements, provided in connection with new and renewed leases commencing during 2015 was approximately 2% of the future aggregate base rental revenue over the lease terms. Rent abatements were, or will be, recognized in our results of operations under the straight-line method over the lease term regardless of when payments are due. In connection with lease renewals executed during 2015, the weighted-average rental rates, as compared to rental rates on the expired leases, decreased by approximately 3%.

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 (“GAAP” is Generally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. We compute FFO, as reflected below, 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 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 2016 and 2015 (in thousands):

	2016		2015
Net income	$	17,215	$	23,691
Depreciation and amortization expense on consolidated investments		22,493		21,710
Depreciation and amortization expense on unconsolidated affiliates		1,851		1,690
Gain on property exchange		—		(8,742	)
Funds From Operations	$	41,559	$	38,349
Weighted average number of shares and equivalents outstanding - Diluted		13,468		13,301
Funds From Operations per diluted share	$	3.09	$	2.88

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Our FFO increased $3.2 million to $41.6 million, or $3.09 per diluted share, during 2016, as compared to $38.3 million, or $2.88 per diluted share, during 2015. The increase in FFO during 2016, as compared to 2015, related primarily to: (i) an increase in income generated at various properties as well as the favorable impact on our net income resulting from the property exchange transaction in May, 2015, and; (ii) a $944,000 net increase in the addback of depreciation and amortization expense incurred at our properties on a consolidated and unconsolidated basis.

Year ended December 31, 2015 as compared to the year ended December 31, 2014:

Effective August 1, 2014, we purchased the minority ownership interests, ranging from 5% to 15%, held by third-party members in six LLCs in which we previously held noncontrolling majority ownership interests. As a result of these minority ownership purchases, we now own 100% of each of these six LLCs and our Consolidated Statement of Income for the year ended December 31, 2015 includes the revenues and expenses associated with each of these properties. Prior to August 1, 2014, these LLCs were accounted for on an unconsolidated basis pursuant to the equity method, as discussed above, and our Consolidated Statement of Income for the year ended December 31, 2014 includes the revenues and expenses associated with each of these properties for the five-month period ended December 31, 2014.

The table below provides supplemental financial information related to each of the above-mentioned entities for the seven-month period ended July 31, 2014, and also presents the twelve-month period of 2014 on an “As Adjusted” financial statement presentation basis similar to the presentation applied for each entity for the twelve-month periods ended December 31, 2015. Other than increased depreciation and amortization expense resulting from the amortization of the intangible assets recorded in connection with these transactions, there was no material impact to our net income as a result of the consolidation of these LLCs.

Year Ended December 31, 2015 as compared to the Year Ended December 31, 2014:

	As reported in Consolidated Statements of Income for the Year Ended December 31, 2015			As reported in Consolidated Statements of Income for the Year Ended December 31, 2014			2014 Adjustments (a.)			“As Adjusted” Twelve Months Ended December 31, 2014			“As Adjusted” Variance
Revenues	$	63,950		$	59,786		$	3,581		$	63,367		$	583
Expenses:
Depreciation and amortization		22,108			20,885			732			21,617			(491	)
Advisory fees to UHS		2,810			2,545			—			2,545			(265	)
Other operating expenses		18,152			16,882			1,644			18,526			374
Transaction costs		243			427			—			427			184
		43,313			40,739			2,376			43,115			(198	)
Income before equity in income of unconsolidated LLCs,    interest expense and gains		20,637			19,047			1,205			20,252			385
Equity in income of unconsolidated LLCs		2,536			2,428			(551	)		1,877			659
Gain on property exchange		8,742			—			—			—			8,742
Gains on fair value recognition resulting from purchase    of minority interests in majority-owned LLCs		—			25,409			—			25,409			(25,409)
Gain on divestiture of real property	-	—			13,043			—			13,043			(13,043)
Interest expense, net		(8,224	)		(8,376	)		(654	)		(9,030	)		806
Net income	$	23,691		$	51,551		$	—		$	51,551		$	(27,860)

(a.) Adjustments consist of revenues and expenses for the seven months ended July 31, 2014, for the six LLCs that we began consolidating effective August 1, 2014, as mentioned above.

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For the year ended December 31, 2015, net income was $23.7 million as compared to $51.6 million during 2014.  The $27.9 million decrease in net income during 2015, as compared to 2014, was primarily attributable to the following, as computed utilizing the “As Adjusted” Variance column indicated on the table above:

• a decrease of approximately $25.4 million from the aggregate gain recorded during 2014 on the fair value recognition resulting from the purchase of minority interests in majority-owned LLCs, as discussed above;

• a decrease of approximately $13.0 million from the gain recorded during 2014 on the divestiture of real property (The Bridgeway);

• an increase of approximately $8.7 million due to the gain recorded during the second quarter of 2015 in connection with a property exchange transaction;

• a decrease of $491,000 (“As Adjusted”) attributable to a net increase in depreciation and amortization expense partially resulting from the fair value recognition recorded in connection with our acquisition of minority ownership interests in various LLCs in August, 2014;

• an increase of $806,000 attributable to a decrease in interest expense (“As Adjusted”) due primarily to the repayment of three third-party mortgages (during the third quarter of 2014 and the first and fourth quarters of 2015) utilizing funds borrowed under our revolving credit facility which bears interest at a comparatively lower interest rate, and a decrease in our average cost of borrowings under our revolving credit facility;

• an increase of $659,000 (“As Adjusted”) in equity in income of unconsolidated LLCs, resulting from combined net increases at various unconsolidated properties, and;

• other combined net increases of approximately $876,000, including the income generated at properties acquired during 2015.

Total revenue increased $583,000 (“As Adjusted”) during the year ended December 31, 2015, as compared to 2014, due primarily to the revenues generated at MOBs acquired during the third quarter of 2014 and the first and second quarters of 2015.

Included in our other operating expenses are expenses related to the consolidated medical office buildings, which totaled $16.4 million and $16.9 million (“As Adjusted”) for the years ended December 31, 2015 and 2014, respectively.  A large portion of the expenses associated with our consolidated medical office buildings is passed on directly to the tenants either directly as tenant reimbursements of common area maintenance expenses or included in base rental amounts.  

Information related to new or renewed leases that commenced during 2015 at the medical office buildings in which we have significant investments is provided above.  

During 2014, we had a total of 80 new or renewed leases related to the medical office buildings, in which we have significant investments, some of which are accounted for by the equity method. These leases comprised approximately 11% of the aggregate rentable square feet of these properties (6% related to renewed leases and 5% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property to property based upon factors such as, but not limited to, the current occupancy and age of our buildings, local overall economic conditions, proximity to hospital campuses and the vacancy rates, rental rates and capacity of our competitors in the market. The weighted-average tenant improvement costs associated with these new or renewed leases was approximately $22 per square foot during 2014. The weighted-average leasing commissions on the new and renewed leases commencing during 2014 was approximately 2% of base rental revenue over the term of the leases. The average aggregate value of the tenant concessions, generally consisting of rent abatements, provided in connection with new and renewed leases commencing during 2014 was approximately 2% of the future aggregate base rental revenue over the lease terms. Rent abatements were, or will be, recognized in our results of operations under the straight-line method over the lease term regardless of when payments are due. In connection with lease renewals executed during 2014, the weighted-average rental rates, as compared to rental rates on the expired leases, decreased by approximately 1%.

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Below is a reconciliation of our reported net income to FFO for 2015 and 2014 (in thousands):

	2015			2014
Net income	$	23,691		$	51,551
Depreciation and amortization expense on consolidated investments		21,710			20,548
Depreciation and amortization expense on unconsolidated affiliates		1,690			2,290
Gain on property exchange		(8,742	)		—
Gains on fair value recognition resulting from the purchase of minority interests in majority-owned LLCs		—			(25,409	)
Gain on divestiture of real property		—			(13,043	)
Funds From Operations	$	38,349		$	35,937
Weighted average number of shares and equivalents outstanding - Diluted		13,301			12,934
Funds From Operations per diluted share	$	2.88		$	2.78

 Our FFO increased $2.4 million to $38.3 million during 2015, as compared to $35.9 million during 2014.  The increase in FFO during 2015, as compared to 2014, related primarily to: (i) a net increase in income generated at our properties, including the income generated at our properties acquired at various times during 2015 and 2014, and; (ii) the $806,000 net decrease in interest expense (“As Adjusted”), as discussed above.

Effects of Inflation

Inflation has not had a material impact on our results of operations over the last three years. However, since the healthcare industry is very labor intensive and salaries and benefits are subject to inflationary pressures, as are supply and other costs, we and the operators of our hospital facilities cannot predict the impact that future economic conditions may have on our/their ability to contain future expense increases. Depending on general economic and labor market conditions, the operators of our hospital facilities may experience unfavorable labor market conditions, including a shortage of nurses which may cause an increase in salaries, wages and benefits expense in excess of the inflation rate. Their ability to pass on increased costs associated with providing healthcare to Medicare and Medicaid patients is limited due to various federal, state and local laws which have been enacted that, in certain cases, limit their ability to increase prices. Therefore, there can be no assurance that these factors will not have a material adverse effect on the future results of operations of the operators of our facilities which may affect their ability to make lease payments to us.

Most of our leases contain provisions designed to mitigate the adverse impact of inflation. Our hospital leases require all building operating expenses, including maintenance, real estate taxes and other costs, to be paid by the lessee. In addition, certain of the hospital leases contain bonus rental provisions, which require the lessee to pay additional rent to us based on increases in the revenues of the facility over a base year amount. In addition, most of our MOB leases require the tenant to pay an allocable share of operating expenses, including common area maintenance costs, insurance and real estate taxes. These provisions may reduce our exposure to increases in operating costs resulting from inflation. To the extent that some leases do not contain such provisions, our future operating results may be adversely impacted by the effects of inflation.

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Liquidity and Capital Resources

Year ended December 31, 2016 as compared to December 31, 2015:

Net cash provided by operating activities

Net cash provided by operating activities was $40.7 million during 2016 as compared to $38.2 million during 2015.  The $2.6 million increase was attributable to:

• a favorable change of approximately $3.1 million due to an increase in net income plus the adjustments to reconcile net income to net cash provided by operating activities (depreciation and amortization, amortization of debt premium, stock-based compensation and gain on property exchange);

• an unfavorable change of $914,000 in rent receivable due, in part, to increased receivables at newly acquired properties, and;

• other combined net favorable changes of approximately $410,000

Net cash used in investing activities

Net cash used in investing activities was $74.8 million during 2016 as compared to $44.3 million during 2015.

2016:

During 2016, we used $74.8 million of net cash in investing activities as follows:

• spent $5.5 million to fund equity investments in unconsolidated LLCs;

• spent $11.2 million in additions to real estate investments, including the construction of an MOB in Las Vegas, Nevada, which is scheduled to be completed and opened during the first quarter of 2017, as well as tenant improvements at various MOBs;

• spent $60.4 million to acquire the real estate assets of four MOBs, as discussed in Note 3 to the consolidated financial statements – New Construction, Acquisitions, Dispositions and Property Exchange Transaction;

• received $851,000 of cash repayments for an outstanding member loan to an unconsolidated LLC, as discussed in Note 8 to the consolidated financial statements – Summarized Financial Information of Equity Affiliates, and;

• received $1.4 million of cash in excess of income related to our unconsolidated LLCs ($5.8 million of cash distributions received less $4.4 million of equity in income of unconsolidated LLCs).

2015:

During 2015, we used $44.3 million of net cash in investing activities as follows:

• spent $667,000 to fund equity investments in unconsolidated LLCs;

• spent $22.8 million in advances in the form of a member loan to an unconsolidated LLC;

• spent $5.3 million in additions to real estate investments primarily for tenant improvements at various MOBs;

• spent $150,000 consisting of a deposit on real estate assets;

• spent $16.8 million to acquire the real estate assets of a medical office building and two free-standing emergency departments;

• spent $2.3 million for payment of a note payable related to the purchase of third-party minority interests in six majority-owned LLCs during the third quarter of 2014, as discussed above;

• received $306,000 of cash as repayment for the above-mentioned member loan to an unconsolidated LLC;

• received $224,000 of cash in excess of income related to our unconsolidated LLCs ($2.8 million of cash distributions received less $2.5 million of equity in income of unconsolidated LLCs);

• received $1.1 million of cash proceeds in connection with the refinancing of third-party debt by a majority-owned LLC in which we hold a noncontrolling ownership interest, and;

• received $2.0 million of cash proceeds in connection with the property exchange with an unrelated third party.

Net cash provided by financing activities

Net cash provided by financing activities was $34.1 million during 2016 as compared to $6.2 million during 2015.

2016:

The $34.1 million of net cash provided by financing activities during 2016 consisted of:

• received $59.4 million of additional borrowings on our revolving line of credit;

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• received $13.5 million of net cash from the issuance of shares of beneficial interest, $13.2 million of which related to our at-the-market equity issuance program (as discussed below) and approximately $280,000 of which was primarily related to our dividend reinvestment program;

• paid $3.2 million on mortgages and other notes payable that are non-recourse to us;

• paid $307,000 of financing costs related to the amendment of our revolving credit facility;

• paid $35.1 million of dividends, and;

• paid $30,000 of partial settlements of dividend equivalent rights.

2015:

The $6.2 million of net cash provided by financing activities during 2015 consisted of:

• received $52.4 million of additional borrowings on our revolving line of credit;

• received $5.2 million of proceeds related to a new mortgage note payable (refinance) that is non-recourse to us;

• received $1.7 million of net cash from the issuance of shares of beneficial interest ($1.1 million relates to shares issued in late December, 2014, as discussed below);

• paid $17.8 million on mortgages and other notes payable that are non-recourse to us, (including the pay-off of the $4.9 million and $5.9 million outstanding mortgages on the Spring Valley Medical Office Building and the Palmdale Medical Plaza, respectively, utilizing funds borrowed under our revolving credit facility);

• paid $1.1 million of financing costs on the new revolving credit facility and a new mortgage note payable refinance, and;

• paid $34.1 million of dividends.

At-The-Market Equity Issuance Program (“ATM”):

During the second quarter of 2016, we recommenced our 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 approximately $23.3 million to or through Merrill Lynch, Pierce, Fenner and Smith, Incorporated (“Merrill Lynch”), as sales agent and/or principal. The common shares were offered pursuant to the Registration Statement filed with the Securities and Exchange Commission, which became effective during the fourth quarter of 2015.

Pursuant to the ATM Program, during the twelve months ended December 31, 2016, there were 249,016 shares issued at an average price of $55.30 per share (all of which were issued during the second quarter), which generated approximately $13.2 million of cash net proceeds (net of approximately $558,000, consisting of compensation of $344,000 to Merrill Lynch, as well as $214,000 of other various fees and expenses). As of December 31, 2016, we had approximately $9.5 million of gross proceeds still available for issuance under the program.  Since inception of this ATM program through December 31, 2016, we have issued 829,916 shares at an average price of $48.77 per share, which generated approximately $38.8 million of net proceeds (net of approximately $1.7 million, consisting of compensation of $1.0 million to Merrill Lynch as well as $680,000 of other various fees and expenses).  We have, and intend, to use the proceeds generated pursuant to the ATM program to reduce amounts outstanding under our revolving credit agreement.  After such repayment of debt, we may re-borrow funds under our revolving credit agreement for general operating purposes, including working capital, capital expenditures, acquisitions, dividend payments and the refinance of third-party debt.

There were no shares issued pursuant to an ATM program during 2015. During 2014, pursuant to an ATM equity issuance program in effect at that time, which is now expired, we issued 426,187 shares at an average price of $47.51 per share, which generated approximately $19.5 million of net proceeds, approximately $1.1 million of which were received in early January, 2015 (net of approximately $700,000, consisting of compensation of $506,000 to Merrill Lynch, as well as $195,000 of other various fees and expenses).

Year ended December 31, 2015 as compared to December 31, 2014:

Net cash provided by operating activities

Net cash provided by operating activities was $38.2 million during 2015 as compared to $32.8 million during 2014.  The $5.4 million increase was attributable to:

• a favorable change of approximately $3.2 million due to an increase in net income plus the adjustments to reconcile net income to net cash provided by operating activities (depreciation and amortization, amortization of debt premium, stock-based compensation and gains on property exchange, divestiture of real property and purchases of minority interests in majority-owned LLCs);

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• a favorable change of approximately $2.1 million in tenant reserves, escrows, deposits and prepaid rents, and;

• other combined net favorable changes of approximately $109,000.

Net cash used in investing activities

Net cash used in investing activities was $44.3 million during 2015 as compared to $4.0 million during 2014.  The factors contributing to the $44.3 million of net cash used in investing activities during 2015 are detailed above.

2014:

During 2014, we used $4.0 million of net cash in investing activities as follows:

• spent $1.3 million to fund equity investments in unconsolidated LLCs;

• spent $2.9 million on additions to real estate investments primarily for tenant improvements at various MOBs;

• spent $15.6 million to acquire the real estate assets of three medical office buildings;

• spent $4.7 million (plus a net note payable of $2.3 million to the previous third-party minority interest member, which was satisfied during January, 2015) to acquire the minority interests in eight majority-owned LLCs in two separate transactions effective August 1, 2014 and January 1, 2014;

• spent $100,000 consisting of a deposit on real estate assets related to the acquisition of a medical office building that we purchased during the first quarter of 2015;

• received $17.3 million of cash proceeds in connection with the sale of the real property of The Bridgeway, as discussed herein;

• received $2.3 million of cash distribution proceeds in connection with refinancing of third-party debt by the LP that owns the Texoma Medical Plaza in which we have a 95% non-controlling equity interest, and;

• received $1.0 million of cash in excess of income related to our unconsolidated LLCs ($3.4 million of cash distributions received less $2.4 million of equity in income of unconsolidated LLCs).

Net cash provided by/(used in) financing activities

Net cash provided by financing activities was $6.2 million during 2015, as compared to $29.8 million of net cash used in financing activities during 2014.  The factors contributing to the $6.2 million of net cash provided by financing activities are detailed above.

2014:

The $29.8 million of net cash used in financing activities during 2014 consisted of:

• received $19.3 million of net cash from the issuance of shares of beneficial interest, $19.0 million of which related to our at-the-market equity issuance program and approximately $250,000 of which was primarily related to our dividend reinvestment program;

• paid $32.7 million of dividends;

• paid $12.3 million on mortgage and other notes payable that are non-recourse to us (including the pay-off of the $9.1 million outstanding mortgage balance on the Summerlin Hospital Medical Office Building I utilizing borrowed funds under our revolving credit facility);

• paid $4.0 million net repayments on our revolving line of credit, and;

• paid $94,000 as partial settlement of accrued dividend equivalent rights.

Additional cash flow and dividends paid information for 2016, 2015 and 2014:

As indicated on our consolidated statements of cash flows, we generated net cash provided by operating activities of $40.7 million during 2016, $38.2 million during 2015 and $32.8 million during 2014. As also indicated on our statements of cash flows, noncash expenses such as depreciation and amortization expense, amortization of debt premium, stock-based compensation expense and gains recorded during 2015 and 2014, are the primary differences between our net income and net cash provided by operating activities for each year. In addition, as reflected in the cash flows from investing activities section, we received $1.4 million during 2016, $224,000 during 2015 and $1.0 million during 2014, of cash distributions in excess of income from various unconsolidated LLCs which represents our share of the net cash flow distributions from these entities. These cash distributions in excess of income represent operating cash flows net of capital expenditures and debt repayments made by the LLCs.

We therefore generated $42.1 million during 2016, $38.4 million during 2015 and $33.8 million during 2014, related to the operating activities of our properties recorded on a consolidated and an unconsolidated basis. We paid dividends of $35.1 million during 2016, $34.1 million during 2015 and $32.7 million during 2014. During 2016, the $42.1 million of cash generated related to the operating activities of our properties was approximately $7.0 million greater than the $35.1 million of dividends paid. During 2015,

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the $38.4 million of cash generated related to the operating activities of our properties exceeded the $34.1 million of dividends paid by approximately $4.3 million. During 2014, the $33.8 million of net cash generated related to the operating activities of our properties exceeded the $32.7 million of dividends paid by approximately $1.1 million.

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 each of the last three years.  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 $250 million revolving credit facility agreement (which had $45.8 million of available borrowing capacity, net of outstanding borrowings and letters of credit, as of December 31, 2016);   (ii) the issuance of equity pursuant to our at-the-market (“ATM”) equity issuance program;  (iii) borrowings under or refinancing of existing third-party debt pursuant to mortgage loan agreements entered into by our consolidated and unconsolidated LLCs/LPs, 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 facility, 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 $250 million revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of additional equity issuances pursuant to our at-the-market 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 facility 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 March 27, 2015, we entered into a $185 million revolving credit agreement (“Credit Agreement”) which was amended on May 24, 2016 to, among other things, increase the borrowing capacity to $250 million. The amended Credit Agreement, which is scheduled to mature in March, 2019, includes a $40 million sub limit for letters of credit and a $20 million sub limit for swingline/short-term loans. The Credit Agreement also provides a one-time option to extend the maturity date for an additional one year period, and an option to increase the total facility borrowing capacity up to an additional $50 million, subject to lender agreement. Borrowings under the Credit Agreement are guaranteed by certain subsidiaries of the Trust. In addition, borrowings under the Credit Agreement are secured by first priority security interests in and liens on all equity interests in the Trust’s wholly-owned subsidiaries. Borrowings made pursuant to the Credit Agreement will bear interest, at our option, at one, two, three, or six month LIBOR plus an applicable margin ranging from 1.50% to 2.00% or at the Base Rate plus an applicable margin ranging from 0.50% to 1.00%. The

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Credit Agreement defines “Base Rate” as the greatest of: (a) the administrative agent’s prime rate; (b) the federal funds effective rate plus 1/2 of 1%, and; (c) one month LIBOR plus 1%. A commitment fee of 0.20% to 0.40% (depending on our total leverage ratio) will be charged on the average unused portion of the revolving credit commitments. The margins over LIBOR, Base Rate and the commitment fee are based upon our ratio of debt to total capital. At December 31, 2016, the applicable margin over the LIBOR rate was 1.625%, the margin over the Base Rate was 0.625%, and the commitment fee was 0.25%.

At December 31, 2016, we had $201.5 million of outstanding borrowings and $2.7 million of letters of credit outstanding against our revolving credit agreement. The carrying amount and fair value of borrowings outstanding pursuant to the Credit Agreement was $201.5 million at December 31, 2016. We had $45.8 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2016. There are no compensating balance requirements.  The average amount outstanding under our revolving credit agreement (which as amended in May, 2016 to an increased borrowing capacity of $250 million, as discussed above) was $164.2 million in 2016, with a corresponding effective interest rate, including commitment fees, of 2.3%. The average amount outstanding under our revolving credit agreement was $114.3 million in 2015 with a corresponding effective interest rate, including commitment fees, of 2.1%.  The average amount outstanding under our previous revolving credit agreement (which was replaced in March, 2015, as discussed above), was $104.6 million in 2014 with a corresponding effective interest rate, including commitment fees, of 2.4%.

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 net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts outstanding under the Credit Agreement. We are in compliance with all of the covenants at December 31, 2016. We also believe that we would remain in compliance if the full amount of our commitment was borrowed.

The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):

		Covenant			December 31, 2016
Tangible net worth		$	125,000		$	167,462
Total leverage	< 60			%		48.6	%
Secured leverage	< 30			%		18.1	%
Unencumbered leverage	< 60			%		50.3	%
Fixed charge coverage	> 1.50x					3.6x

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As indicated on the following table, we have fifteen mortgages, all of which are non-recourse to us, included on our consolidated balance sheet as of December 31, 2016 (amounts in thousands):

Facility Name	Outstanding Balance (in thousands)(a.)			Interest Rate			Maturity Date
Summerlin Hospital Medical Office Building III    floating rate mortgage loan (b.)	$	10,384			3.88	%	March, 2017
Peace Health fixed rate mortgage loan (b.)		20,309			5.64	%	April, 2017
Auburn Medical II floating rate mortgage loan (b.)		6,726			3.37	%	April, 2017
Medical Center of Western Connecticut fixed rate    mortgage loan (b.)		4,535			6.00	%	June, 2017
Summerlin Hospital Medical Office Building II fixed    rate mortgage loan (b.)		11,092			5.50	%	October, 2017
Phoenix Children’s East Valley Care Center fixed rate    mortgage loan (b.)		6,202			5.88	%	December, 2017
Centennial Hills Medical Office Building floating rate    mortgage loan		10,040			3.88	%	January, 2018
Sparks Medical Building/Vista Medical Terrace    floating rate mortgage loan		4,231			3.88	%	February, 2018
Rosenberg Children’s Medical Plaza fixed rate    mortgage loan		8,146			4.85	%	May, 2018
Vibra Hospital-Corpus Christi fixed rate mortgage loan		2,723			6.50	%	July, 2019
700 Shadow Lane and Goldring MOBs fixed rate    mortgage loan		6,248			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		6,316			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		5,081			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		7,137			4.95	%	November, 2023
Tuscan Professional Building fixed rate mortgage loan		4,992			5.56	%	June, 2025
Total, excluding net debt premium and net financing fees		114,162
Less net financing fees		(381	)
Plus net debt premium		436
Total mortgage notes payable, non-recourse to us, net	$	114,217

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

(b.) This loan is scheduled to mature within the next twelve months, at which time we will decide whether to refinance pursuant to a new mortgage loan or by utilizing borrowings under our Credit Agreement.

The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages have a combined fair value of approximately $115.7 million as of December 31, 2016. Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.

At December 31, 2015, we had fourteen mortgages, all of which were non-recourse to us, included in our consolidated balance sheet. The combined outstanding balance of these fourteen mortgages was $110.3 million (excluding net debt premium of $298,000 and net of net financing fees of $398,000 at December 31, 2015), and had a combined fair value of approximately $112.4 million at December 31, 2015.

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Contractual Obligations:

The following table summarizes the schedule of maturities of our outstanding borrowing under our revolving credit facility (“Credit Agreement”), the outstanding mortgages applicable to our properties recorded on a consolidated basis and our other contractual obligations as of December 31, 2016 (amounts in thousands):

	Payments Due by Period (dollars in thousands)
Debt and Contractual Obligation	Total		Less than 1 Year		2-3 years		4-5 years		More than 5 years
Long-term non-recourse debt-fixed(a)(b)	$	82,781	$	43,532	$	12,996	$	2,648	$	23,605
Long-term non-recourse debt-variable(a)(b)		31,381		17,583		13,798		—		—
Long-term debt-variable(c)		201,500		—		201,500		—		—
Estimated future interest payments on debt outstanding as    of December 31, 2016(d)		21,159		8,685		8,875		2,272		1,327
Equity and debt financing commitments(e)		1,141		1,141		—		—		—
Total contractual obligations	$	337,962	$	70,941	$	237,169	$	4,920	$	24,932

(a) The mortgages are secured by the real property of the buildings as well as property leases and rents. Property-specific debt is detailed above.

(b) Consists of non-recourse debt with a fair value of approximately $115.7 million as of December 31, 2016. 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. Excludes $28.4 million of combined third-party debt outstanding as of December 31, 2016, that is non-recourse to us, at the unconsolidated LLCs in which we hold various non-controlling ownership interests (see Note 8 to the consolidated financial statements).

(c) Consists of $201.5 million of borrowings outstanding as of December 31, 2016 under the terms of our $250 million Credit Agreement which matures on March 27, 2019. The amount outstanding approximates fair value as of December 31, 2016.

(d) Assumes that all debt outstanding as of December 31, 2016, including borrowings under the Credit Agreement, and the fifteen loans, which are non-recourse to us, remain outstanding until the stated maturity date of the debt agreements at the same interest rates which were in effect as of December 31, 2016. We have the right to repay borrowings under the Credit Agreement at any time during the terms of the agreement, without penalty. Interest payments are expected to be paid utilizing cash flows from operating activities or borrowings under our revolving Credit Agreement.

(e) As of December 31, 2016, we have equity investment and debt financing commitments remaining in connection with our investments in various unconsolidated LLCs. As of December 31, 2016, we had outstanding letters of credit which secured the majority of these equity and debt financing commitments. The $45.8 million of available borrowing capacity as of December 31, 2016, pursuant to the terms of our Credit Agreement, is net of the standby letters of credit outstanding at that time. Our remaining financing commitments related to our investments in unconsolidated LLCs are as follows (in thousands):

	Amount
Grayson Properties	$	149
FTX MOB Phase II		369
Arlington Medical Properties		623
Total	$	1,141

Off Balance Sheet Arrangements

As of December 31, 2016, we are party to certain off balance sheet arrangements consisting of standby letters of credit and equity and debt financing commitments as detailed on the above “Contractual Obligations” table. Our outstanding letters of credit at December 31, 2016 totaled $2.7 million consisting of: (i) $1.7 million related to Centennial Hills Medical Properties; (ii) $646,000 related to Banburry Medical Properties, and; (iii) $376,000 related to FTX MOB Phase II.

ITEM  7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risks Associated with Financial Instruments

During the third quarter of 2013, we entered into an interest rate cap on a total notional amount of $10 million whereby we paid a premium of $136,000. During the first quarter of 2014, we entered into two additional interest rate cap agreements on a total notional amount of $20 million whereby we paid premiums of $134,500. In exchange for the premium payments, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap. From inception through December 31, 2016, no payments have been made to us by the counterparties pursuant to the terms of these caps which expired in January, 2017.  

44

During the second quarter of 2016, we entered into an interest rate cap on a total notional amount of $30 million whereby we paid a premium of $115,000.  In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap.  This interest rate cap became effective in January, 2017, coinciding with the expiration of the above-mentioned interest rate caps and expires in March, 2019.  During the third quarter of 2016, we entered into an additional interest rate cap agreement on a total notional amount of $30 million whereby we paid a premium of $55,000.  In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.5% and one-month LIBOR if one-month LIBOR rises above 1.5% during the term of the cap.  This interest rate cap became effective in October, 2016 and expires in March, 2019.

The sensitivity analysis related to our fixed and variable rate debt assumes current market rates with all other variables held constant. The fair value of our debt is approximately $317.2 million. The difference between actual amounts outstanding and fair value is approximately $1.6 million.

The table below presents information about our financial instruments that are sensitive to changes in interest rates, including debt obligations as of December 31, 2016. For debt obligations, the table presents principal cash flows and related weighted average interest rates by contractual maturity dates.

	Maturity Date, Year Ending December 31
(Dollars in thousands)	2017			2018			2019			2020			2021			Thereafter			Total
Long-term debt:
Fixed rate:
Debt(a)	$	43,532		$	9,245		$	3,751		$	1,292		$	1,356		$	23,605		$	82,781
Average interest rates		5.1	%		4.9	%		4.7	%		4.6	%		4.6	%		5.0	%		4.8	%
Variable rate:
Debt(b)	$	17,583		$	13,798		$	201,500		$	—		$	—		$	—		$	232,881
Average interest rates		2.5	%		2.4	%		2.4	%		—			—			—			2.4	%
Interest rate caps:
Notional amount	$	30,000		$	—		$	60,000		$	—		$	—		$	—		$	90,000
Interest rates		1.5	%		—			1.5	%		—			—			—			1.5	%

(a) Consists of non-recourse mortgage notes payable.

(b) Includes $31.4 million of non-recourse mortgage notes payable and of $201.5 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

As calculated based upon our variable rate debt outstanding as of December 31, 2016 that is subject to interest rate fluctuations, and giving effect to the above-mentioned interest rate caps, each 1% change in interest rates would impact our net income by approximately $2.2 million.

ITEM  8. Financial Statements and Supplementary Data

Our Consolidated Balance Sheets, Consolidated Statements of Income, Comprehensive Income, Changes in Equity and Cash Flows, together with the reports of KPMG LLP, an independent registered public accounting firm, are included elsewhere herein. Reference is made to the “Index to Financial Statements and Schedule.”

ITEM  9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

ITEM  9A. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2016, under the supervision and with the participation of our management, including our 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 and 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 Securities and Exchange Act of 1934 and the SEC rules thereunder.

45

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting or in other factors during the fourth quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

46

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining an adequate system of internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on its assessment, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013), issued by the COSO. The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

47

Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders

Universal Health Realty Income Trust:

We have audited Universal Health Realty Income Trust’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Universal Health Realty Income Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Universal Health Realty Income Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Universal Health Realty Income Trust and subsidiaries as of December 31, 2016 and 2015, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2016, and the related financial statement schedule III, real estate and accumulated depreciation – December 31, 2016, and our report dated February 28, 2017 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

(signed) KPMG LLP

Philadelphia, Pennsylvania
February 28, 2017

48

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

There is hereby incorporated by reference the information to appear under the captions “Proposal No. 1” (Election of Trustees), “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2016. See also “Executive Officers of the Registrant” appearing in Item 1 hereof.

ITEM 11. Executive Compensation

There is hereby incorporated by reference information to appear under the caption “Executive Compensation” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2016.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

There is hereby incorporated by reference the information to appear under the caption “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2016.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

There is hereby incorporated by reference the information to appear under the captions “Certain Relationships and Related Transactions” and “Corporate Governance” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2016.

ITEM 14. Principal Accounting Fees and Services

There is hereby incorporated herein by reference the information to appear under the caption “Relationship with Independent Registered Public Accounting Firm” in our Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2016.

49

PART IV

ITEM 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report:

(1) Financial Statements: See “Index to Financial Statements and Schedule”

(2) Financial Statement Schedules: See “Index to Financial Statements and Schedule”

(3) Exhibits:

3.1 Declaration of Trust, dated as of August 1986, previously filed as Exhibit 4.1 to the Trust’s Registration Statement on Form S-3 (File No. 333-60638) is incorporated herein by reference.

3.2 Amendment to Declaration of Trust, dated as of June 15, 1993, previously filed as Exhibit 4.2 to the Trust’s Registration Statement on Form S-3 (File No. 333-60638) is incorporated herein by reference.

3.3 Amended and restated bylaws previously filed as Exhibit 3.1 to the Trust’s Current Report on Form 8-K dated September 28, 2016 is incorporated herein by reference.

3.4 Amendment to the bylaws, effective as of September 6, 2013, previously filed as Exhibit 3.2 to the Trust’s Current Report on Form 8-K dated September 6, 2013, is incorporated herein by reference.

10.1 Advisory Agreement, dated as of December 24, 1986, between UHS of Delaware, Inc. and the Trust, previously filed as Exhibit 10.2 to the Trust’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference.

10.2 Agreement dated December 1, 2016, to renew Advisory Agreement dated as of December 24, 1986 between Universal Health Realty Income Trust and UHS of Delaware, Inc. is filed herewith.

10.3 Contract of Acquisition, dated as of August 1986, between the Trust and certain subsidiaries of Universal Health Services, Inc., previously filed as Exhibit 10.2 to Amendment No. 3 of the Registration Statement on Form S-11 and S-2 of Universal Health Services, Inc. and the Trust (File No. 33-7872), is incorporated herein by reference.

10.4 Form of Leases, including Form of Master Lease Document Leases, between certain subsidiaries of Universal Health Services, Inc. and the Trust, previously filed as Exhibit 10.3 to Amendment No. 3 of the Registration Statement on Form S-11 and Form S-2 of Universal Health Services, Inc. and the Trust (File No. 33-7872), is incorporated herein by reference.

10.5 Corporate Guaranty of Obligations of Subsidiaries Pursuant to Leases and Contract of Acquisition, dated December 1986, issued by Universal Health Services, Inc. in favor of the Trust, previously filed as Exhibit 10.5 to the Trust’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference.

10.6 Lease, dated December 22, 1993, between the Trust and THC-Chicago, Inc., as lessee, previously filed as Exhibit 10.14 to the Trust’s Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference.

10.7 Credit Agreement, dated as of March 27, 2015, by and among the Trust, a syndicate of lenders and Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Fifth Third Bank, N.A., JPMorgan Chase Bank, N.A. and SunTrust Bank as Co-Documentation Agents, previously filed as Exhibit 10.1 to the Trust’s Current Report on Form 8-K dated March 27, 2015, is incorporated herein by reference.

10.8 First Amendment to Credit Agreement, dated as of May 24, 2016, between Universal Health Realty Income Trust, certain subsidiaries of Universal Health Realty Income Trust, certain banks and financial institutions from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent, previously filed as Exhibit 10.1 to the Trust’s Current Report on form 8-K dated May 24, 2016, as incorporated herein by reference.

10.9 Dividend Reinvestment and Share Purchase Plan included in the Trust’s Registration Statement on Form S-3 (Registration No. 333-81763) filed on June 28, 1999, is incorporated herein by reference.

50

10.10 Asset Exchange and Substitution Agreement, dated as of April 24, 2006, by and among the Trust and Universal Health Services, Inc. and certain of its subsidiaries, previously filed as Exhibit 10.1 to the Trust’s Current Report on Form 8-K dated April 25, 2006, is incorporated herein by reference.

10.11 Amendment No. 1 to the Master Lease Document, between certain subsidiaries of Universal Health Services, Inc. and the Trust, previously filed as Exhibit 10.2 to the Trust’s Current Report on Form 8-K dated April 25, 2006, is incorporated herein by reference.

10.12* Amendment and Restatement of the Universal Health Realty Income Trust 2007 Restricted Stock Plan, previously filed as Exhibit 4.1 to the Trust’s Registration Statement on Form S-8 (File No. 333-211903), is incorporated herein by reference.

10.13* Form of Restricted Stock Agreement, previously filed as Exhibit 10.2 to the Trust’s Current Report on Form 8-K dated April 27, 2007, is incorporated herein by reference.

11 Statement re computation of per share earnings is set forth on the Consolidated Statements of Income.

21 Subsidiaries of Registrant, filed herewith.

23.1 Consent of Independent Registered Public Accounting Firm, filed herewith.

31.1 Certification from the Trust’s Chief Executive Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, filed herewith.

31.2 Certification from the Trust’s Chief Financial Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, filed herewith.

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

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

101.INS XBRL Instance Document, filed herewith.

101.SCH XBRL Taxonomy Extension Schema Document, filed herewith.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.

101.LAB XBRL Taxonomy Extension Label Linkbase Document, filed herewith.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.

* Management contract or compensatory plan or arrangement.

Exhibits, other than those incorporated by reference, have been included in copies of this Annual Report filed with the Securities and Exchange Commission. Shareholders of the Trust will be provided with copies of those exhibits upon written request to the Trust.

51

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

UNIVERSAL HEALTH REALTY INCOME TRUST
By:	/S/    ALAN B. MILLER
	Alan B. Miller, Chairman of the Board, Chief Executive Officer and President

Date: February 28, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/S/    ALAN B. MILLER         Alan B. Miller	Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)	February 28, 2017
/S/    JAMES E. DALTON, JR.         James E. Dalton, Jr.	Trustee	February 28, 2017
/S/    MILES L. BERGER         Miles L. Berger	Trustee	February 28, 2017
/S/    ELLIOT J. SUSSMAN         Elliot J. Sussman, M.D., M.B.A.	Trustee	February 28, 2017
/S/    ROBERT F. MCCADDEN         Robert F. McCadden	Trustee	February 28, 2017
/S/    MARC D. MILLER         Marc D. Miller	Trustee	February 28, 2017
/S/    CHARLES F. BOYLE         Charles F. Boyle	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 28, 2017

52

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

	Page
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and Schedule	54
Consolidated Balance Sheets—December 31, 2016 and December 31, 2015	55
Consolidated Statements of Income—Years Ended December 31, 2016, 2015 and 2014	56
Consolidated Statements of Comprehensive Income —Years Ended December 31, 2016, 2015 and 2014	57
Consolidated Statements of Changes in Equity—Years Ended December 31, 2016, 2015 and 2014	58
Consolidated Statements of Cash Flows—Years Ended December 31, 2016, 2015 and 2014	59
Notes to the Consolidated Financial Statements	60
Schedule III—Real Estate and Accumulated Depreciation—December 31, 2016	79
Notes to Schedule III—December 31, 2016	82

53

Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders

Universal Health Realty Income Trust:

We have audited the accompanying consolidated balance sheets of Universal Health Realty Income Trust and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three‑year period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III, real estate and accumulated depreciation - December 31, 2016. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Health Realty Income Trust and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, real estate and accumulated depreciation - December 31, 2016, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Universal Health Realty Income Trust’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

(signed) KPMG LLP

Philadelphia, Pennsylvania
February 28, 2017

54

UNIVERSAL HEALTH REALTY INCOME TRUST

CONSOLIDATED BALANCE SHEETS

(dollar amounts in thousands)

	December 31,			December 31,
	2016			2015
Assets:
Real Estate Investments:
Buildings and improvements and construction in progress	$	534,190		$	469,933
Accumulated depreciation		(138,588	)		(121,161	)
		395,602			348,772
Land		51,638			41,724
Net Real Estate Investments		447,240			390,496
Investments in and advances to limited liability companies ("LLCs")		35,593			31,597
Other Assets:
Cash and cash equivalents		3,930			3,894
Base and bonus rent receivable from UHS		2,321			2,116
Rent receivable - other		5,291			4,292
Intangible assets (net of accumulated amortization of $27.1 million and    $25.1 million at December 31, 2016 and December 31, 2015, respectively)		23,815			19,757
Deferred charges and other assets, net		6,560			6,351
Total Assets	$	524,750		$	458,503
Liabilities:
Line of credit borrowings	$	201,500		$	142,150
Mortgage notes payable, non-recourse to us, net		114,217			110,156
Accrued interest		626			504
Accrued expenses and other liabilities		11,809			6,807
Tenant reserves, deposits and prepaid rents		5,321			3,844
Total Liabilities		333,473			263,461
Equity:
Preferred shares of beneficial interest, $.01 par value; 5,000,000 shares authorized;    none issued and outstanding		-			-
Common shares, $.01 par value;    95,000,000 shares authorized; issued and outstanding: 2016 - 13,599,055;    2015 - 13,327,020		136			133
Capital in excess of par value		255,656			241,700
Cumulative net income		572,501			555,286
Cumulative dividends		(637,121	)		(601,983	)
Accumulated other comprehensive income/(loss)		105			(94	)
Total Equity		191,277			195,042
Total Liabilities and Equity	$	524,750		$	458,503

See the accompanying notes to these consolidated financial statements.

55

UNIVERSAL HEALTH REALTY INCOME TRUST

CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share amounts)

	Year ended December 31,
	2016			2015			2014
Revenues:
Base rental - UHS facilities	$	16,299		$	15,955		$	15,601
Base rental - Non-related parties		37,060			35,157			31,386
Bonus rental - UHS facilities		4,723			4,565			4,607
Tenant reimbursements and other - Non-related parties		8,113			7,490			7,490
Tenant reimbursements and other - UHS facilities		886			783			702
		67,081			63,950			59,786
Expenses:
Depreciation and amortization		22,956			22,108			20,885
Advisory fees to UHS		3,263			2,810			2,545
Other operating expenses		18,220			18,152			16,882
Transaction costs		528			243			427
		44,967			43,313			40,739
Income before equity in income of unconsolidated limited liability    companies ("LLCs"), interest expense and gains		22,114			20,637			19,047
Equity in income of unconsolidated LLCs		4,456			2,536			2,428
Gain on property exchange		—			8,742			—
Gains on fair value recognition resulting from the purchase of minority    interests in majority-owned LLCs		—			—			25,409
Gain on divestiture of real property		—			—			13,043
Interest expense, net		(9,355	)		(8,224	)		(8,376	)
Net income	$	17,215		$	23,691		$	51,551
Basic earnings per share	$	1.28		$	1.78		$	3.99
Diluted earnings per share	$	1.28		$	1.78		$	3.99
Weighted average number of shares outstanding - Basic		13,464			13,293			12,927
Weighted average number of share equivalents		4			8			7
Weighted average number of shares and equivalents outstanding - Diluted		13,468			13,301			12,934

See the accompanying notes to these consolidated financial statements.

56

UNIVERSAL HEALTH REALTY INCOME TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollar amounts in thousands)

	Year ended December 31,
	2016		2015			2014
Net Income	$	17,215	$	23,691		$	51,551
Other comprehensive income/(loss):
Unrealized derivative gains/(losses) on interest rate caps		199		(6	)		(31	)
Total other comprehensive income/(loss):		199		(6	)		(31	)
Total comprehensive income	$	17,414	$	23,685		$	51,520

See the accompanying notes to these consolidated financial statements.

57

UNIVERSAL HEALTH REALTY INCOME TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Common Shares
					Capital in								Accumulated other			UHT
	Number				excess of			Cumulative		Cumulative			comprehensive			Shareholders'			Total
	of Shares		Amount		par value			net income		dividends			income/(loss)			Equity			Equity
January 1, 2014		12,859	$	128	$	220,691		$	480,044	$	(535,176	)	$	(57	)	$	165,630		$	165,630
Shares of Beneficial Interest:
Issued		443		5		19,839			—		—			—			19,844			19,844
Partial settlement of dividend equivalent rights		—		—		(94	)		—		—			—			(94	)		(94	)
Restricted stock-based compensation expense		—		—		399			—		—			—			399			399
Dividends ($2.52/share)		—		—		—			—		(32,718	)		—			(32,718	)		(32,718	)
Comprehensive income:
Net income		—		—		—			51,551		—			—			51,551			51,551
Unrealized loss on interest rate cap		—		—		—			—		—			(31	)		(31	)		(31	)
Subtotal - comprehensive income									51,551					(31	)		51,520			51,520
January 1, 2015		13,302		133		240,835			531,595		(567,894	)		(88	)		204,581			204,581
Shares of Beneficial Interest:
Issued		25		—		513			—		—			—			513			513
Partial settlement of dividend equivalent rights		—		—		(75	)		—		—			—			(75	)		(75	)
Restricted stock-based compensation expense		—		—		427			—		—			—			427			427
Dividends ($2.56/share)		—		—		—			—		(34,089	)		—			(34,089	)		(34,089	)
Comprehensive income:
Net income		—		—		—			23,691		—			—			23,691			23,691
Unrealized loss on interest rate cap		—		—		—			-		—			(6	)		(6	)		(6	)
Subtotal - comprehensive income									23,691					(6	)		23,685			23,685
January 1, 2016		13,327		133		241,700			555,286		(601,983	)		(94	)		195,042			195,042
Shares of Beneficial Interest:
Issued		272		3		13,505			—		—			—			13,508			13,508
Partial settlement of dividend equivalent rights		—		—		(30	)		—		—			—			(30	)		(30	)
Restricted stock-based compensation expense		—		—		481			—		—			—			481			481
Dividends ($2.60/share)		—		—		—			—		(35,138	)		—			(35,138	)		(35,138	)
Comprehensive income:
Net income		—		—		—			17,215		—			—			17,215			17,215
Unrealized gain on interest rate cap		—		—		—			—		—			199			199			199
Subtotal - comprehensive income									17,215					199			17,414			17,414
December 31, 2016		13,599	$	136	$	255,656		$	572,501	$	(637,121	)	$	105		$	191,277		$	191,277

See the accompanying notes to these consolidated financial statements.

58

UNIVERSAL HEALTH REALTY INCOME TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	Year ended December 31,
	2016			2015			2014
Cash flows from operating activities:
Net income	$	17,215		$	23,691		$	51,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,008			22,198			20,975
Amortization of debt premium		(225	)		(225	)		(312	)
Stock-based compensation expense		481			427			399
Gain on property exchange		—			(8,742	)		—
Gain on divestiture of real property		—			—			(13,043	)
Gains on purchase of minority interests in majority-owned LLCs		—			—			(25,409	)
Changes in assets and liabilities:
Rent receivable		(1,204	)		(290	)		(555	)
Accrued expenses and other liabilities		3			(184	)		(509	)
Tenant reserves, deposits and prepaid rents		1,377			1,781			(303	)
Accrued interest		122			(41	)		(62	)
Leasing costs		(627	)		(556	)		(787	)
Other, net		583			119			851
Net cash provided by operating activities		40,733			38,178			32,796
Cash flows from investing activities:
Investments in LLCs		(5,454	)		(667	)		(1,337	)
Repayments of advances made to LLCs		851			306			—
Advances made to LLCs		—			(22,795	)		—
Cash distributions in excess of income from LLCs		1,362			224			1,029
Cash distribution of refinancing proceeds from LLCs		—			1,045			2,280
Additions to real estate investments, net		(11,204	)		(5,257	)		(2,866	)
Cash received for property exchange		—			2,000			—
Deposits on real estate assets		—			(150	)		(100	)
Net cash paid for acquisition of properties		(60,389	)		(16,765	)		(15,600	)
Cash paid to acquire minority interests in majority-owned LLCs		—			(2,250	)		(4,744	)
Cash proceeds received from divestiture of real property		—			—			17,300
Net cash used in investing activities		(74,834	)		(44,309	)		(4,038	)
Cash flows from financing activities:
Net borrowings on line of credit		59,350			52,400			—
Net repayments on line of credit		—			—			(3,950	)
Proceeds from mortgage notes payable		—			5,200			—
Repayments of mortgage notes payable		(3,230	)		(17,826	)		(12,327	)
Financing costs paid		(307	)		(1,114	)		—
Dividends paid		(35,138	)		(34,089	)		(32,718	)
Partial settlement of dividends equivalent rights		(30	)		(75	)		(94	)
Issuance of shares of beneficial interest, net		13,492			1,668			19,274
Net cash provided by/(used in) financing activities		34,137			6,164			(29,815	)
Increase/(decrease) in cash and cash equivalents		36			33			(1,057	)
Increase in cash due to recording of LLCs on a consolidated/unconsolidated basis		—			—			1,581
Cash and cash equivalents, beginning of period		3,894			3,861			3,337
Cash and cash equivalents, end of period	$	3,930		$	3,894		$	3,861
Supplemental disclosures of cash flow information:
Interest paid	$	8,895		$	8,025		$	8,268
Supplemental disclosures of non-cash transactions:
Acquisitions:
Financing assumed in acquisition	$	7,499		$	—		$	—
Consolidation of LLCs:
Net real estate investments	$	—		$	—		$	84,064
Cash and cash equivalents		—			—			1,581
Intangible assets		—			—			6,490
Rent receivable - other		—			—			388
Deferred charges and other assets, net		—			—			100
Investment in LLCs		—			—			(28,616	)
Mortgage notes payable, non-recourse to us		—			—			(29,758	)
Accrued interest		—			—			(116	)
Accrued expenses and other liabilities		—			—			(1,245	)
Tenant reserves, escrows, deposits and prepaid rents		—			—			(485	)
Note payable to previous third-party member		—			—			(2,250	)
Gains on purchases of minority interests in majority-owned LLCs		—			—			(25,409	)
Cash paid for purchase of minority interests in majority-owned LLCs	$	—		$	—		$	4,744
Property Exchange Transaction:
Net assets acquired in property exchange	$	—		$	9,886		$	—
Net assets relinquished in property exchange		—			(3,144	)		—

See accompanying notes to these consolidated financial statements.

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UNIVERSAL HEALTH REALTY INCOME TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Universal Health Realty Income Trust and subsidiaries (the “Trust”) is organized as a Maryland real estate investment trust. We invest in healthcare and human service related facilities currently including acute care hospitals, rehabilitation hospitals, sub-acute facilities, surgery centers, free-standing emergency departments, childcare centers and medical office buildings. As of February 28, 2017, we have sixty-seven real estate investments or commitments located in twenty states consisting of:

• six hospital facilities including three acute care, one rehabilitation and two sub-acute;

• three free-standing emergency departments (“FEDs”);

• fifty-four medical office buildings, including five owned by unconsolidated limited liability companies (“LLCs”)/limited liability partnerships (“LPs”), and;

• four preschool and childcare centers.

Our future results of operations could be unfavorably impacted by deterioration in general economic conditions which could result in increases in the number of people unemployed and/or uninsured. Should that occur, it may result in decreased occupancy rates at our medical office buildings as well as a reduction in the revenues earned by the operators of our hospital facilities which would unfavorably impact our future bonus rentals (on the three Universal Health Services, Inc. hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties.  Management is unable to predict the effect, if any, that these factors may have on the operating results of our lessees or on their ability to meet their obligations under the terms of their leases with us. Management’s estimate of future cash flows from our leased properties could be materially affected in the near term, if certain of the leases are not renewed or renewed with less favorable terms at the end of their lease terms.

Revenue Recognition

Our revenues consist primarily of rentals received from tenants, which are comprised of minimum rent (base rentals), bonus rentals and reimbursements from tenants for their pro-rata share of expenses such as common area maintenance costs, real estate taxes and utilities.

The minimum rent for our six hospital facilities, which is paid monthly, is fixed over the term of the respective leases which are scheduled to expire in 2019 (2 hospitals) or 2021 (4 hospitals). In addition, for the three hospital facilities leased to subsidiaries of UHS, bonus rents are paid on a quarterly basis, based upon a computation that compares the hospitals’ current quarter net revenues to the corresponding quarter in the base year. Rental income recorded by our other properties, including our consolidated and unconsolidated MOBs, relating to leases in excess of one year in length, is recognized using the straight-line method under which contractual rents are recognized evenly over the lease term regardless of when payments are due. The amount of rental revenue resulting from straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants, stipulated rent increases under existing leases, as well as the acquisitions and sales of properties that have existing in-place leases with terms in excess of one year. As a result, the straight-line adjustments to rental revenue may vary from period-to-period. Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred.

Real Estate Investments

Land, buildings and capital improvements are recorded at cost and stated at cost less accumulated depreciation.  Expenditures for maintenance and repairs are charged to operations as incurred.  Renovations or replacements, which improve or extend the life of an asset, are capitalized and depreciated over their estimated useful lives.

Purchase Accounting for Acquisition of Investments in Real Estate

Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired from third parties. In accordance with current accounting guidance, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value

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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 loans, or loan discounts, in the case of below market loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

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

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

Our intangible assets primarily consist of the value of in-place leases at December 31, 2016, and will be amortized over the remaining lease terms (aggregate weighted average of 4.3 years at December 31, 2016) and is expected to result in estimated aggregate amortization expense of $4.9 million, $3.6 million, $2.9 million $2.7 million and $2.3 million for 2017, 2018, 2019, 2020 and 2021, respectively. Amortization expense on intangible values of in place leases and above-market leases was $5.1 million for the year ended December 31, 2016, $5.5 million for the year ended December 31, 2015 and $6.1 million for the year ended December 31, 2014.  Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and capital improvements. The estimated original useful lives of our buildings ranges from 25-45 years and the estimated original useful lives of capital improvements ranges from 3-35 years. On a consolidated basis, depreciation expense was $17.4 million for the year ended December 31, 2016, $16.2 million for the year ended December 31, 2015 and $14.4 million for the year ended December 31, 2014.

Cash and Cash Equivalents

We consider all highly liquid investment instruments with original maturities of three months or less to be cash equivalents.

Asset Impairment

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 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 carrying value of the property. We consider factors such as future operating income, trends and 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 recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is 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 carrying value of a property is recoverable, our strategy of holding properties over the long-term directly decreases the likelihood of their carrying values not being

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recoverable and 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 such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to their fair value.

We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers. In 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 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 the property ceases and it is recorded at the lower of its carrying amount or fair value less cost to sell. The assets and related liabilities of the property are classified separately on the consolidated balance sheets for the most recent reporting period. 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 LLC is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value, including projected declines in cash flow. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

Investments in Limited Liability Companies (“LLCs”)

In accordance with the Financial Accounting Standards Board’s (“FASB”) standards and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting. The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent 33% to 95% non-controlling ownership interests, are recorded initially at our cost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.

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

At December 31, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. We accounted for these LLCs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities and we do not have a controlling voting interest. The majority of these LLCs are joint-ventures between us and non-related parties that manage and hold minority ownership interests in the entities. Each entity is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and service the third-party debt (if applicable) that is non-recourse to us. Although there is typically no ongoing financial support required from us to these entities since they are cash-flow sufficient, we may, from time to time, provide funding for certain purposes such as, but not limited to, significant capital expenditures, leasehold improvements and debt financing. Although we are not obligated to do so, if approved by us at our sole discretion, additional cash fundings are typically advanced as equity or member loans. These entities maintain property insurance on the properties.

Federal Income Taxes

No provision has been made for federal income tax purposes since we qualify as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, and intend to continue to remain so qualified. As such, we are exempt from federal income taxes and we are required to distribute at least 90% of our real estate investment taxable income to our shareholders.

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

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

The aggregate gross cost basis and net book value of the properties for federal income tax purposes are approximately $561 million and $385 million, respectively, at December 31, 2016.  The aggregate cost basis and net book value of the properties for federal income tax purposes were approximately $489 million and $325 million, respectively, at December 31, 2015.

Stock-Based Compensation

We expense the grant-date fair value of restricted stock awards over the vesting period. We recognize the grant-date fair value of equity-based compensation and account for these transactions using the fair-value based method.

The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities.

Fair Value

Fair value is a market-based measurement, not an entity-specific measurement and determined based upon the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). In instances when it is necessary to establish the fair value of our real estate investments and investments in LLCs we use unobservable inputs which are typically based on our own assumptions.

The fair value of our real estate investments, components of real estate investments and debt assumed in conjunction with acquisition and impairment activity, are considered to be Level 3 valuations as they are primarily based upon an income capitalization approach. Significant inputs into the models used to determine fair value of real estate investments and components of real estate investments include future cash flow projections, holding period, terminal capitalization rate and discount rates. Additionally the fair value of land takes into consideration comparable sales, as adjusted for site specific factors. The fair value of real estate investments is based upon significant judgments made by management, and accordingly, we typically obtain assistance from third party valuation specialists. Significant inputs into the models used to determine the fair value of assumed mortgages included the outstanding balance, term, stated interest rate and current market rate of the mortgage.

The carrying amounts reported in the balance sheet for cash, receivables, and short-term borrowings approximate their fair values due to the short-term nature of these instruments. Accordingly, these items are excluded from the fair value disclosures included elsewhere in these notes to the consolidated financial statements. 

Concentration of Revenues

The rental revenue earned pursuant to the lease on McAllen Medical Center generated approximately 11% during each of 2016 and 2015, and 12% during 2014, of our consolidated revenues.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.

New Accounting Standards

Except as noted below there were no new accounting pronouncements that impacted, or are expected to impact us.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, an update to the accounting standard relating to the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability. In the event that there is not an associated debt liability recorded in the consolidated financial statements, the debt issuance costs will continue to be recorded on the consolidated balance sheet as an asset until the debt liability is recorded.  The new standard became effective for the Trust on January 1, 2016. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations as the update only related to changes in financial statement presentation.  

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In February 2015, the FASB issued ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis, which amends the current consolidation guidance affecting both the variable interest entity (“VIE”) and voting interest entity (“VOE”) consolidation models. The standard does not add or remove any of the characteristics in determining if an entity is a VIE or VOE, but rather enhances the way the Company assesses some of these characteristics. The new standard became effective for the Trust on January 1, 2016 and did not have a material impact on our consolidated financial position or results of operations as none of its existing consolidation conclusions were changed.

In August, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which adds or clarifies guidance of the classification of certain cash receipts and payments in the statement of cash flows with the intent to alleviate diversity in practice for classifying various types of cash flows.  This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the impact of this ASU on our statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. We are currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on our financial position or results of operations.

In 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which is now effective for us beginning January 1, 2018. We are continuing to evaluate ASU 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

In January, 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business” to clarify the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  The future impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by us, if any.

(2) RELATIONSHIP WITH UHS AND RELATED PARTY TRANSACTIONS

Leases:    We commenced operations in 1986 by purchasing properties of certain subsidiaries from 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 six additional 5-year renewal terms. The current base rentals and lease and renewal terms for each of the three hospital facilities leased to subsidiaries of UHS are provided below. The base rents are paid monthly and each lease also provides for additional or bonus rents which are computed and paid on a quarterly basis based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The three hospital leases with subsidiaries of UHS are unconditionally guaranteed by UHS and are cross-defaulted with one another.

The combined revenues generated from the leases on the UHS hospital facilities accounted for approximately 27% of our total revenue for the five years ended December 31, 2016 (approximately 24%,  25% and 28% for the years ended December 31, 2016, 2015 and 2014, respectively). The decrease during 2016 and 2015 as compared to 2014 is due primarily to the 2016 and 2015 acquisitions, which are unrelated to UHS, as well as the divestiture of The Bridgeway which, as discussed below, occurred on December 31, 2014. Including 100% of the revenues generated at the unconsolidated LLCs in which we have various non-controlling

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equity interests ranging from 33% to 95%, the leases on the UHS hospital facilities accounted for approximately 21% of the combined consolidated and unconsolidated revenue for the five years ended December 31, 2016 (approximately 19%,  20% and 22% for the years ended December 31, 2016, 2015 and 2014). In addition, we have seventeen MOBs, orfree-standing emergency departments (“FEDs”), that are either wholly or jointly-owned by us, that include tenants which are subsidiaries of UHS.

Pursuant to the Master Lease Document by and among us and certain subsidiaries of UHS, dated December 24, 1986 (the “Master Lease”), which governs the leases of all hospital properties with subsidiaries of UHS, UHS has the option 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 at the end of the lease terms or any renewal terms at the appraised fair market value. In addition, the Master Lease, as amended during 2006, includes a change of control provision whereby UHS has the right, upon one month’s notice should a change of control of the Trust occur, to purchase any or all of the three leased hospital properties listed below at their appraised fair market value. 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. The leases related to the hospital facilities of UHS are guaranteed by UHS and cross-defaulted with one another.

In June, 2016, three wholly-owned subsidiaries of UHS provided the required notice to us, exercising the 5-year renewal options on the leases related to our acute care hospitals noted in the table below.  The renewals extended the lease terms on these facilities, at existing lease rates, to December, 2021.  

The table below details the existing lease terms and renewal options for our three acute care hospitals operated by wholly-owned subsidiaries of UHS:

Hospital Name	Annual Minimum Rent		End of Lease Term	Renewal Term (years)
McAllen Medical Center	$	5,485,000	December, 2021		10	(a)
Wellington Regional Medical Center	$	3,030,000	December, 2021		10	(b)
Southwest Healthcare System, Inland Valley Campus	$	2,648,000	December, 2021		10	(b)

(a) UHS has two 5-year renewal options at existing lease rates (through 2031).

(b) UHS has two 5-year renewal options at fair market value lease rates (2022 through 2031).

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 rental revenue currently earned pursuant to these leases.  

During the first quarter of 2016, we committed to invest up to $21.1 million in the development and construction of the Henderson Medical Plaza, an MOB located on the campus of the Henderson Hospital. Henderson Hospital, which is owned and operated by a subsidiary of UHS, is a newly constructed, 130-bed acute care hospital that was completed and opened during the fourth quarter of 2016.  Henderson Medical Plaza, which contains approximately 78,800 rentable square feet, is scheduled to be completed and opened during the first quarter of 2017.  A ground lease has been executed between the limited liability company that owns the MOB and a subsidiary of UHS, the terms of which include a seventy-five year lease term with two, ten-year renewal options at the lessee’s option at an adjusting lease rate. We have invested $9.5 million on the development and construction of this MOB as of December 31, 2016.

During the first quarter of 2015, we purchased from wholly-owned subsidiaries of UHS, the real property of two newly-constructed and recently opened FEDs located in Weslaco and Mission, Texas. Each FED consists of approximately 13,600 square feet and is operated by wholly-owned subsidiaries of UHS. In connection with these acquisitions, ten-year lease agreements with six, 5-year renewal terms were executed with UHS for each FED. The first four, 5-year renewal terms (covering years 2025 through 2044) include 2% annual lease rate increases, computed on a cumulative and compounded basis, and the last two, 5-year renewal terms (covering the years 2045 through 2054) will be at the then fair market value lease rates. These leases are cross-defaulted with one another. UHS has the option to purchase the leased properties upon the expiration of the fixed term and each five-year extended term at the fair market value at that time. The aggregate acquisition cost of these facilities was approximately $12.8 million, and the aggregate rental revenue earned by us at the commencement of the leases is approximately $900,000 annually.

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During the third quarter of 2014, a wholly-owned subsidiary of UHS provided notification to us that, upon expiration of The Bridgeway’s lease term which occurred in December, 2014, it intended to exercise its option to purchase the real property of the facility. Pursuant to the terms of the lease, we and the wholly-owned subsidiary of UHS were both required to obtain independent appraisals of the property to determine its fair market value. On December 31, 2014, The Bridgeway, a 103-bed behavioral health facility located in North Little Rock, Arkansas, was sold to UHS for $17.3 million. A gain on divestiture of real property of approximately $13.0 million is included in our results of operations for the twelve-month period ended December 31, 2014.  Prior to its divestiture in 2014, our revenues, net cash provided by operating activities and funds from operations included approximately $1.1 million earned annually in connection with The Bridgeway’s lease.

Advisory Agreement:    UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an Advisory Agreement (the “Advisory Agreement”) dated December 24, 1986. 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. Our advisory fee was 0.70% during each of 2016, 2015 and 2014 of our average invested real estate assets, as derived from our consolidated balance sheet. In December of 2016, based upon a review of our advisory fee and other general and administrative expenses as compared to an industry peer group, the Advisory Agreement was renewed for 2017 pursuant to the same terms as the Advisory Agreement in place during the last three years.

The average real estate assets for advisory fee calculation purposes exclude certain items from our consolidated balance sheet such as, among other things, accumulated depreciation, cash and cash equivalents, base and bonus rent receivables, deferred charges and other assets. The advisory fee is payable quarterly, subject to adjustment at year-end based upon our audited financial statements. In addition, the Advisor is entitled to an annual incentive fee equal to 20% of the amount by which cash available for distribution to shareholders for each year, as defined in the Advisory Agreement, exceeds 15% of our equity as shown on our consolidated balance sheet, determined in accordance with generally accepted accounting principles without reduction for return of capital dividends. The Advisory Agreement defines cash available for distribution to shareholders as net cash flow from operations less deductions for, among other things, amounts required to discharge our debt and liabilities and reserves for replacement and capital improvements to our properties and investments. No incentive fees were paid during 2016, 2015 or 2014 since the incentive fee requirements were not achieved. Advisory fees incurred and paid (or payable) to UHS amounted to $3.3 million during 2016, $2.8 million during 2015 and $2.5 million during 2014 and were based upon average invested real estate assets of $466 million, $401 million and $363 million during 2016, 2015 and 2014, respectively.

Officers and Employees:    Our officers are all employees of a wholly-owned subsidiary of UHS and although as of December 31, 2016 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 compensation awards in the form of restricted stock and/or cash bonuses.

Share Ownership:    As of December 31, 2016 and 2015, UHS owned 5.8% and 5.9%, respectively, of our outstanding shares of beneficial interest.

SEC reporting requirements of UHS:    UHS is subject to the reporting requirements of the Securities and Exchange Commission (“SEC”) and is required to file annual reports containing audited financial information and quarterly reports containing unaudited financial information. Since the leases on the hospital facilities leased to wholly-owned subsidiaries of UHS comprised approximately 24%, 25% and 28% of our consolidated revenues for the years ended December 31, 2016, 2015 and 2014, 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) NEW CONSTRUCTION, ACQUISITIONS, DISPOSITIONS AND PROPERTY EXCHANGE TRANSACTION

New Construction:

During the first quarter of 2016, we committed to invest up to $21.1 million in the development and construction of the Henderson Medical Plaza, an MOB located on the campus of the Henderson Hospital. Henderson Hospital, which is owned and operated by a subsidiary of UHS, is a newly constructed, 130-bed acute care hospital that was completed and opened during the fourth

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quarter of 2016.  Henderson Medical Plaza, which contains approximately 78,800 rentable square feet, is scheduled to be completed and opened during the first quarter of 2017.  A ground lease has been executed between the limited liability company that owns the MOB and a subsidiary of UHS, the terms of which include a seventy-five year lease term with two, ten-year renewal options at the lessee’s option at an adjusting lease rate. We have invested $9.5 million on the development and construction for this MOB as of December 31, 2016.  

2016:

Acquisitions:

During 2016, we paid approximately $60.4 million in cash, and assumed approximately $7.1 million of third-party debt that is non-recourse to us, to:

• purchase the 2704 North Tenaya Way MOB located in Las Vegas, Nevada, during the fourth quarter for a total purchase price of approximately $15.3 million, including the assumption of approximately $7.1 million of third-party debt that is non-recourse to us. The property consists of approximately 45,000 rentable square feet and is fully occupied pursuant to the terms of a triple-net lease with a remaining lease term of approximately 7.1 years at the time of acquisition.

• purchase the Frederick Memorial Hospital Crestwood, an MOB located in Frederick, Maryland, during the third quarter for approximately $24.3 million.  The property, which consists of approximately 62,300 rentable square feet, is fully occupied pursuant to the terms of triple-net leases with an average remaining lease term of approximately 12 years at the time of acquisition.

• purchase the Chandler Corporate Center III located in Chandler, Arizona, during the second quarter for approximately $18.0 million.  The property, which consists of 82,000 rentable square feet, is currently 92% occupied by one tenant pursuant to the terms of a twelve year escalating triple-net lease, with a ten year fair-market value renewal option. The lease had a remaining lease term of approximately 11.3 years at the time of acquisition.

• purchase the Madison Professional Office Building located in Madison, Alabama, during the first quarter for approximately $10.1 million, including a $150,000 deposit paid in 2015. This multi-tenant property consists of approximately 30,100 rentable square feet and is fully occupied with an average remaining lease term of approximately 6.2 years at the time of acquisition.

The aggregate purchase price for these acquisitions was allocated to the assets acquired and liabilities assumed consisting of tangible property and intangible assets and liabilities, based on the fair value estimated or finalized at acquisition as detailed in the table below. Previous reported estimated purchase price allocations that have been finalized in the fourth quarter did not have a material impact on our consolidated financial statements. The intangible assets include the value of in-place leases at the properties at the time of acquisition as well as the above market lease values. The value of the in-place leases will be amortized over the average remaining lease terms of approximately 6 to 12 years at the time of acquisition (aggregate weighted average of 8.0 years at December 31, 2016).  The above/below market leases, which are reflected below as intangible assets/below-market intangibles will be amortized over the remaining term of the respective leases. The estimated aggregate allocation is as follows:

Land	$9,914
Buildings and improvements	50,117
Intangible assets	9,211
Below-market lease intangibles	(1,287)
Deposit paid in 2015………………………………………...………………………………..	(150)
Debt (including fair value adjustment of $362)…...……..……………………………….…..	(7,499)
Financing fees paid on debt acquired……………...……..……………………………….…..	83
Net cash paid	$60,389

For these properties acquired during 2016, we recorded aggregate net revenue of approximately $2.4 million since the date of acquisition. The aggregate net losses generated by these properties since the date of acquisition, including the cost of borrowings and advisory fee expenses was approximately $134,000.

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Assuming the 2016 acquisitions occurred on January 1, 2015, our unaudited pro forma net revenues for the year ended December 31, 2015 would have been approximately $67.8 million and our unaudited pro forma net income for the year ended December 31, 2015 would have been approximately $22.4 million, or $1.68 per diluted share.  The Chandler Corporate Center III was not operational during the first nine months of 2015.  Assuming these acquisitions occurred on January 1, 2016, our unaudited pro forma net revenues for the year ended December 31, 2016, would have been approximately $70.2 million and our unaudited pro forma net income for the year ended December 31, 2016 would have been approximately $16.7 million, or $1.24 per diluted share.

As of December 31, 2016, our net intangible assets total $23.8 million (net of $27.1 million accumulated amortization) and substantially all of the amount is related to acquired, in-place leases which have a weighted average remaining amortization period of 4.3 years.

Divestitures:  

There were no divestitures during 2016.

2015:

Property Exchange Transaction:

In May, 2015, in exchange for the real property of Sheffield Medical Building (“Sheffield”), a 73,446 square foot MOB located in Atlanta, Georgia, we received $2 million in cash and the real property of two MOBs located in Sandy Springs and Vinings, Georgia, from an unrelated third party. In connection with the two MOBs acquired in this transaction, triple net, master lease agreements applicable to 100% of the combined 36,700 rentable square feet of these properties were executed with the counterparty. These master lease agreements have initial terms of 15 years and provide for 3% annual rent increases. We recorded an $8.7 million gain which is included in our Consolidated Statements of Income for the year ended December 31, 2015, representing the difference between recorded net book value of Sheffield and the fair values of the properties exchanged, combined with the cash proceeds received.  

Acquisitions:

In February, 2015, we purchased the Haas Medical Office Park, two single story buildings having an aggregate of approximately 16,000 rentable square feet, located in Ottumwa, Iowa, for approximately $4.1 million.

In January and February of 2015, we purchased from wholly-owned subsidiaries of UHS, the real property of two newly-constructed and recently opened FEDs located in Weslaco and Mission, Texas, for an aggregate acquisition cost of approximately $12.8 million. Each FED consists of approximately 13,600 square feet and is operated by wholly-owned subsidiaries of UHS. In connection with these acquisitions, ten-year lease agreements with six 5-year renewal terms were executed with UHS for each FED. In connection with the lease agreements, the lessee shall have the option to purchase the leased property upon the expiration of the fixed term and each five-year extended term at the fair market value at that time.

The aggregate purchase price for these three MOBs and two FEDs was allocated to the assets acquired and liabilities assumed consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at the MOBs at the time of acquisition which will be amortized over the average remaining lease term of approximately 15.0 years at the time of acquisition (aggregate weighted average of 13.4 years at December 31, 2016) for each of the MOBs located in Sandy Springs and Vinings, Georgia and approximately 10.4 years at the time of acquisition (aggregate weighted average of 8.6 years at December 31, 2016) for the Haas Medical Office Park.

Land	$7,050
Buildings and improvements	17,518
Intangible assets	2,182
Cash received- exchange transaction	2,000
Other liabilities	(116)
Deposit paid in 2014	(100)
Net book value of property divested in exchange transaction	(3,027)
Gain on exchange transaction	(8,742)
Net cash paid	$16,765

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2014:

Acquisitions:

In August, 2014, we purchased the Hanover Emergency Center, a 22,000 rentable square feet, free-standing, full service emergency and imaging center, located in Mechanicsville, VA, for approximately $8.6 million. The single-tenant property is occupied pursuant to the terms of a 10-year lease with HCA Health Services of Virginia, Inc.

In January, 2014, we paid an aggregate of $7.2 million, (including a $150,000 deposit made in 2013), to purchase the following in a single transaction: (i) The Children’s Clinic at Springdale – a 9,800 square foot, single-tenant medical office building located in Springdale, Arkansas, and; (ii) The Northwest Medical Center at Sugar Creek – a 13,700 square foot, multi-tenant medical office building located in Bentonville, Arkansas.

The aggregate purchase price for these clinics and MOB was allocated to the assets and liabilities acquired consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at the clinics and MOB at the time of acquisition which will be amortized over the average remaining lease term of approximately 9.8 years at the time of acquisition (aggregate weighted average of 7.5 years at December 31, 2016) for the Hanover Emergency Center and approximately 9.7 years at the time of acquisition (aggregate weighted average of 6.7 years at December 31, 2016) for the Arkansas facilities.

Land	$3,010
Buildings and improvements	10,664
Intangible assets	2,076
Deposit paid in 2013	(150)
Net cash paid	$15,600

Additionally, during January and August, 2014, we spent an aggregate of $7.0 million, including $4.7 million in cash plus an additional $2.3 million in the form of a note payable to the previous third-party member (which was fully repaid in January, 2015) to purchase the minority ownership interests held by third party members in eight LLCs (as noted in the table below) in which we previously held various non-controlling majority ownership interests ranging from 85% to 95%.

Name of LLC/LP	Ownership prior to minority interest purchase		Property Owned by LLC	Effective Date
Palmdale Medical Properties		95%	Palmdale Medical  Plaza	January1,2014
Sparks Medical Properties		95%	Vista Medical Terrace & Sparks  MOB	January1,2014
DVMC Properties		90%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95%	PhoenixChildren’sEastValleyCareCenter	August 1, 2014
3811 Bell Medical Properties		95%	3811 E. Bell	August 1, 2014

As a result of these minority ownership purchases, we now own 100% of each of these LLCs, which own medical office buildings, and began accounting for each on a consolidated basis at the effective date as noted in the table above. Pursuant to current accounting standards, at the effective date, we were required to record each property’s assets and liabilities at their fair values which resulted in the recording of a $25.4 million non-cash gain, which is included in our Consolidated Statement of Income for the twelve months ended December 31, 2014, representing the difference between the fair values and the equity method carrying value of each investment. The calculated fair value, categorized in level 3 of the fair value hierarchy and utilizing the income capitalization approach, is based upon the basis of capitalization of the net estimated earnings expectancy of the property, assuming continued use similar to the existing use of the acquired property. Each property’s continued cash flow analysis were also utilized in estimating the fair value of the property, whereby cash flows from the various tenants are calculated based upon lease commencement and termination dates. The capitalization rate and discount rate ranged from 7%-8.75% and 8%-9.75%, respectively.

The aggregate purchase price for these MOBs was allocated to net tangible property ($84.0 million), identified intangible assets ($6.5 million), and long term debt ($29.8 million). Substantially all of the intangible assets include the value of the in-place leases at these MOBs at the time of acquisition which will be amortized over the combined average remaining lease term of approximately 4.7

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years at the time of acquisition (aggregate weighted average of 4.0 years at December 31, 2016) for the August, 2014 transactions and 5.3 years at the time of acquisition (aggregate weighted average of 3.9 years at December 31, 2016) for the January, 2014 transactions. Other than the increased depreciation and amortization expense resulting from the amortization of the intangible assets recorded in connection with these transactions, there was no material impact on our net income as a result of the consolidation of these LLCs.

Divestitures:

In December, 2014, upon expiration of The Bridgeway’s lease term, a wholly-owned subsidiary of UHS exercised its option to purchase the real property of the facility. The sale of The Bridgeway, a 103-bed behavioral health facility located in North Little Rock, Arkansas, generated $17.3 million of sale proceeds. Pursuant to the terms of the lease, we and the wholly-owned subsidiary of UHS were both required to obtain independent appraisals of the property to determine its fair market value of $17.3 million. A $13.0 gain is included in our Consolidated Statement of Income for the twelve months ended December 31, 2014, representing the difference between the fair market value and the book value of this property.

(4) LEASES

All of our leases are classified as operating leases with initial terms typically ranging from 3 to 15 years with up to five additional, five-year renewal options. Under the terms of the leases, we earn fixed monthly base rents and pursuant to the leases with subsidiaries of UHS, we may earn periodic bonus rents (see Note 1). The bonus rents from the subsidiaries of UHS, which are based upon each facility’s net revenue in excess of base amounts, are computed and paid on a quarterly basis based upon a computation that compares current quarter revenue to the corresponding quarter in the base year.

Minimum future base rents from non-cancelable leases related to properties included in our financial statements on a consolidated basis, excluding increases resulting from changes in the consumer price index, bonus rents and the impact of straight line rent adjustments, are as follows (amounts in thousands):

2017	$	54,922
2018		49,885
2019		44,647
2020		39,742
2021		35,837
Thereafter		64,932
Total minimum base rents	$	289,965

Some of the leases contain gross terms where operating expenses are included in the base rent amounts. Other leases contain net terms where the operating expenses are assessed separately from the base rentals. The table above contains a mixture of both gross and net leases, and does not include any separately calculated operating expense reimbursements. Under the terms of the hospital leases, the lessees are required to pay all operating costs of the properties including property insurance and real estate taxes. Tenants of the medical office buildings generally are required to pay their pro-rata share of the property’s operating costs.

(5) DEBT AND FINANCIAL INSTRUMENTS

Debt:

Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our $250 million revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of additional equity issuances pursuant to our at-the-market 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 facility 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 March 27, 2015, we entered into a $185 million revolving credit agreement (“Credit Agreement”) which was amended on May 24, 2016 to, among other things, increase the borrowing capacity to $250 million. The amended Credit Agreement, which is scheduled to mature in March, 2019, includes a $40 million sub limit for letters of credit and a $20 million sub limit for

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swingline/short-term loans. The Credit Agreement also provides a one-time option to extend the maturity date for an additional one year period, and an option to increase the total facility borrowing capacity up to an additional $50 million, subject to lender agreement. Borrowings under the Credit Agreement are guaranteed by certain subsidiaries of the Trust. In addition, borrowings under the Credit Agreement are secured by first priority security interests in and liens on all equity interests in the Trust’s wholly-owned subsidiaries. Borrowings made pursuant to the Credit Agreement will bear interest, at our option, at one, two, three, or six month LIBOR plus an applicable margin ranging from 1.50% to 2.00% or at the Base Rate plus an applicable margin ranging from 0.50% to 1.00%. The Credit Agreement defines “Base Rate” as the greatest of: (a) the administrative agent’s prime rate; (b) the federal funds effective rate plus 1/2 of 1%, and; (c) one month LIBOR plus 1%. A commitment fee of 0.20% to 0.40% (depending on our total leverage ratio) will be charged on the average unused portion of the revolving credit commitments. The margins over LIBOR, Base Rate and the commitment fee are based upon our ratio of debt to total capital. At December 31, 2016, the applicable margin over the LIBOR rate was 1.625%, the margin over the Base Rate was 0.625%, and the commitment fee was 0.25%.

At December 31, 2016, we had $201.5 million of outstanding borrowings and $2.7 million of letters of credit outstanding against our revolving credit agreement. The carrying amount and fair value of borrowings outstanding pursuant to the Credit Agreement was $201.5 million at December 31, 2016. We had $45.8 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2016. There are no compensating balance requirements.  The average amount outstanding under our revolving credit agreement (which as amended in May, 2016 to an increased borrowing capacity of $250 million, as discussed above) was $164.2 million in 2016, with a corresponding effective interest rate, including commitment fees, of 2.3%. The average amount outstanding under our revolving credit agreement was $114.3 million in 2015 with a corresponding effective interest rate, including commitment fees, of 2.1%.  The average amount outstanding under our previous revolving credit agreement (which was replaced in March, 2015, as discussed above), was $104.6 million in 2014 with a corresponding effective interest rate, including commitment fees, of 2.4%. 

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 net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts outstanding under the Credit Agreement. We are in compliance with all of the covenants at December 31, 2016. We also believe that we would remain in compliance if the full amount of our commitment was borrowed.

The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):

		Covenant			2016
Tangible net worth		$	125,000		$	167,462
Total leverage		< 60		%		48.6	%
Secured leverage		< 30		%		18.1	%
Unencumbered leverage		< 60		%		50.3	%
Fixed charge coverage	> 1.50x			3.6x

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As indicated on the following table, we have fifteen mortgages, all of which are non-recourse to us, included on our consolidated balance sheet as of December 31, 2016  (amounts in thousands):

Facility Name	Outstanding Balance (in thousands)(a.)			Interest Rate			Maturity Date
Summerlin Hospital Medical Office Building III    floating rate mortgage loan (b.)	$	10,384			3.88	%	March, 2017
Peace Health fixed rate mortgage loan (b.)		20,309			5.64	%	April, 2017
Auburn Medical II floating rate mortgage loan (b.)		6,726			3.37	%	April, 2017
Medical Center of Western Connecticut fixed rate    mortgage loan (b.)		4,535			6.00	%	June, 2017
Summerlin Hospital Medical Office Building II fixed    rate mortgage loan (b.)		11,092			5.50	%	October, 2017
Phoenix Children’s East Valley Care Center fixed rate    mortgage loan (b.)		6,202			5.88	%	December, 2017
Centennial Hills Medical Office Building floating rate    mortgage loan		10,040			3.88	%	January, 2018
Sparks Medical Building/Vista Medical Terrace    floating rate mortgage loan		4,231			3.88	%	February, 2018
Rosenberg Children’s Medical Plaza fixed rate    mortgage loan		8,146			4.85	%	May, 2018
Vibra Hospital-Corpus Christi fixed rate mortgage loan		2,723			6.50	%	July, 2019
700 Shadow Lane and Goldring MOBs fixed rate    mortgage loan		6,248			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		6,316			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		5,081			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		7,137			4.95	%	November, 2023
Tuscan Professional Building fixed rate mortgage loan		4,992			5.56	%	June, 2025
Total, excluding net debt premium and net financing fees		114,162
Less net financing fees		(381	)
Plus net debt premium		436
Total mortgage notes payable, non-recourse to us, net	$	114,217

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

(b.) This loan is scheduled to mature within the next twelve months, at which time we will decide whether to refinance pursuant to a new mortgage loan or by utilizing borrowings under our Credit Agreement.

The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages have a combined fair value of approximately $115.7 million as of December 31, 2016. We consider these to be “Level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.  Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.

At December 31, 2015, we had fourteen mortgages, all of which were non-recourse to us, included in our consolidated balance sheet. The combined outstanding balance of these fourteen mortgages was $110.3 million (excluding net debt premium of $298,000 and net of net financing fees of $398,000 at December 31, 2015), and had a combined fair value of approximately $112.4 million at December 31, 2015.  We consider these to be “Level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.

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As of December 31, 2016, our aggregate consolidated scheduled debt repayments (including mortgages) are as follows (amounts in thousands):

2017	$	61,115
2018		23,043
2019 (a.)		205,251
2020		1,292
2021		1,356
Later		23,605
Total	$	315,662

(a.) Includes repayment of $201.5 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

Financial Instruments:

During the third quarter of 2013, we entered into an interest rate cap on a total notional amount of $10 million whereby we paid a premium of $136,000. During the first quarter of 2014, we entered into two additional interest rate cap agreements on a total notional amount of $20 million whereby we paid premiums of $134,500. In exchange for the premium payments, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap. From inception through December 31, 2016, no payments have been made to us by the counterparties pursuant to the terms of these caps which expired in January, 2017.  

During the second quarter of 2016, we entered into an interest rate cap on the total notional amount of $30 million whereby we paid a premium of $115,000.  In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap.  This interest rate cap became effective in January, 2017, coinciding with the expiration of the above-mentioned interest rate caps and expires in March, 2019.  

During the third quarter of 2016, we entered into an additional interest rate cap agreement on a total notional amount of $30 million whereby we paid a premium of $55,000.  In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.5% and one-month LIBOR if one-month LIBOR rises above 1.5% during the term of the cap.  This interest rate cap became effective in October, 2016 and expires in March, 2019.

(6) DIVIDENDS AND EQUITY ISSUANCE PROGRAM

Dividends:

During each of the last three years, dividends were declared and paid by us as follows:

• 2016:    $2.60 per share of which $2.00 per share was ordinary income and $.60 per share was a return of capital distribution.

• 2015:    $2.56 per share of which $2.17 per share was ordinary income and $.39 per share was a return of capital distribution.

• 2014:    $2.52 per share of which $1.478 per share was ordinary income and $1.042 per share was total capital gain (total capital gain amount includes Unrecaptured Section 1250 gain of $.305 per share).

Equity Issuance Program:

During the second quarter of 2016, we recommenced our 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 approximately $23.3 million to or through Merrill Lynch, Pierce, Fenner and Smith, Incorporated (“Merrill Lynch”), as sales agent and/or principal. The common shares were offered pursuant to the Registration Statement filed with the Securities and Exchange Commission, which became effective during the fourth quarter of 2015.

Pursuant to the ATM Program, during the twelve months ended December 31, 2016, there were 249,016 shares issued at an average price of $55.30 per share (all of which were issued during the second quarter), which generated approximately $13.2 million of cash net proceeds (net of approximately $558,000, consisting of compensation of $344,000 to Merrill Lynch, as well as $214,000 of other various fees and expenses). As of December 31, 2016, we had approximately $9.5 million of gross proceeds still available for issuance under the program.  Since inception of this ATM program through December 31, 2016, we have issued 829,916 shares at an

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average price of $48.77 per share, which generated approximately $38.8 million of net proceeds (net of approximately $1.7 million, consisting of compensation of $1.0 million to Merrill Lynch as well as $680,000 of other various fees and expenses).  We have, and intend, to use the proceeds generated pursuant to the ATM program to reduce amounts outstanding under our revolving credit agreement.  After such repayment of debt, we may re-borrow funds under our revolving credit agreement for general operating purposes, including working capital, capital expenditures, acquisitions, dividend payments and the refinance of third-party debt.

There were no shares issued pursuant to an ATM program during 2015. During 2014, pursuant to an ATM equity issuance program in effect at that time, which is now expired, we issued 426,187 shares at an average price of $47.51 per share, which generated approximately $19.5 million of net proceeds, approximately $1.1 million of which were received in early January, 2015 (net of approximately $700,000, consisting of compensation of $506,000 to Merrill Lynch, as well as $195,000 of other various fees and expenses).

(7) INCENTIVE PLANS

During 2007, upon the expiration of our 1997 Incentive Plan, as discussed below, our Board of Trustees and shareholders approved the Universal Health Realty Income Trust 2007 Restricted Stock Plan which was amended and restated in 2016 (the “2007 Plan”). An aggregate of 125,000 shares were authorized for issuance under this plan and a total of 77,285 shares, net of cancellations, have been issued pursuant to the terms of this plan, 57,825 of which have vested as of December 31, 2016. At December 31, 2016 there are 47,715 shares remaining for issuance under the terms of the 2007 Plan.

During 2016, there were 9,730 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant to the 2007 Plan at a weighted average grant price of $56.34 per share ($548,188 in the aggregate). These restricted shares are scheduled to vest in June of 2018 (the second anniversary of the date of grant).

During 2015, there were 9,730 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant to the 2007 Plan at a weighted average grant price of $47.75 per share ($464,608 in the aggregate). These restricted shares are scheduled to vest in June of 2017 (the second anniversary of the date of grant).

During 2014, there were 9,850 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant to the 2007 Plan at a weighted average grant price of $43.21 per share ($425,619 in the aggregate). These restricted shares vested in June of 2016 (the second anniversary of the date of grant).

We expense the grant-date fair value restricted stock awards under the straight-line method over the stated vesting period of the award. In connection with these grants, we recorded compensation expense of approximately $481,000, $427,000 and $399,000 during 2016, 2015 and 2014, respectively. The remaining expenses associated with these grants is approximately $485,000 and will be recorded over the remaining weighted average vesting period for outstanding restricted Shares of Beneficial Interest of approximately one year at December 31, 2016.

Prior to its expiration in 2007, the Universal Health Realty Income Trust 1997 Incentive Plan (the “1997 Plan”) provided for the granting of stock options and dividend equivalents rights (“DERs”) to employees of the Trust, including officers and trustees. Awards granted pursuant to the 1997 Plan prior to its termination date remained exercisable, in accordance with the terms of the outstanding agreements. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. The options granted vested ratably at 25% per year beginning one year after the date of grant, and expired in ten years. DERs on outstanding awards were earned in amounts equal to the cash or stock dividends declared subsequent to the date of grant. As of December 31, 2016, there were no options outstanding under the 1997 Plan. The net expense recorded in connection with the DERs did not have a material impact on our consolidated financial statements during each of the years ended December 31, 2016, 2015 and 2014.

During the fourth quarter of 2008, the Board of Trustees of the Trust approved amendments to the outstanding stock option agreements made pursuant to the 1997 Plan. These original agreements provided for the deferred payment of dividend equivalents on shares covered by the options, with payment tied to the date the options were exercised or expire. In order to meet certain changes to tax law requirements, the agreements, as amended, provided for the current payment of dividend equivalents in the years in which dividends were declared and paid or, if later, when the related options became vested. There were no DERs were outstanding at December 31, 2016.  DERs with respect to 23,000 shares and 36,000 shares were outstanding at December 31, 2015 and 2014, respectively. In December of 2016, 2015 and 2014, DERs which were vested and accrued as of each respective date, were paid to officers and Trustees of the Trust amounting to approximately $30,000, $75,000 and $94,000, respectively.

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Stock options to purchase shares of beneficial interest have been granted to eligible individuals, including our officers and trustees. Information with respect to these options, before adjustment to the option price to give effect to the dividend equivalent rights, is summarized as follows:

Outstanding Options	Number of Shares			Exercise Weighted- Average Price		Grant PriceRange (High-Low)
Balance, January 1, 2014		40,000		$	35.65	$36.53/$30.06
Exercised		(4,000	)		33.07	$30.06/$34.07
Balance, January 1, 2015		36,000		$	35.94	$34.90/$36.53
Exercised		(13,000	)		34.90	$34.90/$34.90
Balance, January 1, 2016		23,000		$	36.53	$36.53/$36.53
Exercised		(23,000	)		36.53	$36.53/$36.53
Outstanding options vested and exercisable as of    December 31, 2016		—		N/A		N/A

During 2016, there were 23,000 stock options exercised with a total in-the-money value of $520,420.  During 2015, there were 13,000 stock options exercised with a total in-the-money value of $154,500. During 2014, there were 4,000 stock options exercised with a total in-the-money value of $44,160.  There are no options outstanding at December 31, 2016.

(8) SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES

In accordance with the Financial Accounting Standards Board’s (“FASB”) standards and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting.  The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent 33% to 95% non-controlling ownership interests, are recorded initially at our cost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.

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

At December 31, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. As of December 31, 2016, we accounted for these LLCs/LPs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities and we do not have a controlling voting interest. The majority of these entities are joint-ventures between us and non-related parties that manage and hold minority ownership interests in the entities. Each entity is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and service the third-party debt (if applicable) that is non-recourse to us. Although there is typically no ongoing financial support required from us to these entities since they are cash-flow sufficient, we may, from time to time, provide funding for certain purposes such as, but not limited to, significant capital expenditures, leasehold improvements and debt financing. Although we are not obligated to do so, if approved by us at our sole discretion, additional cash fundings are typically advanced as equity or member loans. These entities maintain property insurance on the properties.

Effective February 1, 2016, we purchased an additional 10% ownership interest in the Arlington Medical Properties, LLC from the third-party minority member for approximately $4.8 million in cash, subject to certain agreed upon terms and conditions. Including this additional ownership interest, we currently own 85% of this LLC which is accounted for on an unconsolidated basis pursuant to the equity method.

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

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Name of LLC/LP	Ownership prior to minority interest purchase			Property Owned by LLC	Effective Date
DVMC Properties		90	%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90	%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85	%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95	%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95	%	Phoenix Children’s East Valley Care Center	August 1, 2014
3811 Bell Medical Properties		95	%	North Valley Medical Plaza	August 1, 2014

The following property table represents the five LLCs or LPs in which we own a noncontrolling interest and were accounted for under the equity method as of December 31, 2016:

Name of LLC/LP	Ownership			Property Owned by LLC
Suburban Properties		33	%	St. Matthews Medical Plaza II
Brunswick Associates (a.)		74	%	Mid Coast Hospital MOB
Arlington Medical Properties (b.)		85	%	Saint Mary’s Professional Office Building
Grayson Properties (c.)		95	%	Texoma Medical Plaza
FTX MOB Phase II (d.)		95	%	Forney Medical Plaza II

(a.) This LLC has a third-party term loan of $8.6 million, which is non-recourse to us, outstanding as of December 31, 2016.

(b.) We have funded $5.2 million in equity as of December 31, 2016 and are committed to invest an additional $623,000. During the fourth quarter of 2015, we advanced this LLC a member loan, the funds of which were utilized to repay its $22.8 million outstanding third-party mortgage loan on its scheduled maturity date.  The member loan has an interest rate of 5.29% and is scheduled to mature in January, 2018.  Additionally, pursuant to the terms and conditions of an agreement executed in February, 2016, we purchased an additional 10% of the ownership interest in this LLC from the existing third-party member for approximately $4.8 million in cash, thereby increasing our ownership interest to 85%.

(c.) We have funded $2.8 million in equity as of December 31, 2016, and are committed to fund an additional $149,000. This building is on the campus of a UHS hospital and has tenants that include subsidiaries of UHS. This LP has a third-party term loan of $14.4 million, which is non-recourse to us, outstanding as of December 31, 2016

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

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

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

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

(b.) As mentioned above, we began to account for six LLCs (Desert Valley Medical Center, Santa Fe Professional Plaza, Rosenberg Children’s Medical Plaza, Sierra San Antonio Medical Plaza, Phoenix Children’s East Valley Care Center and North Valley Medical Plaza) on a consolidated basis as of August 1, 2014. Prior to August 1, 2014, the financial results of these entities were

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accounted for under the equity method on an unconsolidated basis. The year ended December 31, 2014 includes the financial results of the six mentioned LLCs for seven months ended July 31, 2014.

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

	December 31,
	2016			2015
	(amounts in thousands)
Net property, including CIP	$	60,970		$	61,668
Other assets		4,598			5,264
Total assets	$	65,568		$	66,932
Other liabilities	$	3,334		$	2,538
Mortgage notes payable, non-recourse to us		28,367			28,895
Advances payable to us (a.)		21,638			22,489
Equity		12,229			13,010
Total liabilities and equity	$	65,568		$	66,932
Our share of equity in and advances to LLCs reflected as:
Investments in LLCs	$	13,955		$	9,108
Advances to LLCs		21,638			22,489
Investments in and advances to LLCs before amounts included in accrued expenses and other liabilities		35,593			31,597
Amounts included in accrued expenses and other liabilities		(1,862	)		(1,105	)
Our share of equity in and advances to LLCs, net	$	33,731		$	30,492

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

As of December 31, 2016, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs, which are accounted for under the equity method and are non-recourse to us, are as follows (amounts in thousands):

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

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

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

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

Pursuant to the operating and/or partnership agreements of the five LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and the Trust, at any time, potentially subject to certain conditions, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it either agrees to: (i) sell the entire ownership interest of the Offering Member to the Non-Offering Member (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the

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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.

(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 one 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.

(10) QUARTERLY RESULTS (unaudited)

	2016
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Revenues	$	16,226	$	16,461	$	16,801	$	17,593	$	67,081
Net income	$	4,428	$	4,523	$	3,818	$	4,446	$	17,215
Total basic earnings per share	$	0.33	$	0.34	$	0.28	$	0.33	$	1.28
Total diluted earnings per share	$	0.33	$	0.34	$	0.28	$	0.33	$	1.28

	2015
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Revenues	$	16,202	$	16,049	$	15,686	$	16,013	$	63,950
Net income before gains	$	3,696	$	3,262	$	3,639	$	4,352	$	14,949
Gain on property exchange		—		8,742		—		—	$	8,742
Net income	$	3,696	$	12,004	$	3,639	$	4,352	$	23,691
Total basic earnings per share	$	0.28	$	0.90	$	0.27	$	0.33	$	1.78
Total diluted earnings per share	$	0.28	$	0.90	$	0.27	$	0.33	$	1.78

78

Schedule III

Universal Health Realty Income Trust

Real Estate and Accumulated Depreciation — December 31, 2016

(amounts in thousands)

										Gross amount at										Date of
										which carried										Completion of
	Initial Cost									at end of period								Accumulated		Construction,
Description	Encumbrance (c.)		Land		Building & Improv.		Adjustments to Basis (a.)			Land		Building & Improvements		CIP		Total		Depreciation as of Dec. 31, 2016		Acquisition or Significant improvement	Date Acquired	Average Depreciable Life
Inland Valley Regional    Medical Center    Wildomar, California		—	$	2,050	$	10,701	$	14,596		$	2,050	$	25,297			$	27,347	$	12,596	2007	1986	43 Years
McAllen Medical Center    McAllen, Texas		—		4,720		31,442		10,189			6,281		40,070				46,351		26,276	1994	1986	42 Years
Wellington Regional    Medical Center    West Palm Beach,  Florida		—		1,190		14,652		17,370			1,663		31,549				33,212		18,410	2006	1986	42 Years
HealthSouth Deaconess    Rehabilitation Hospital    Evansville, Indiana		—		500		6,945		1,062			500		8,007				8,507		5,475	1993	1989	40 Years
Kindred Chicago Central Hospital    Central Chicago, Illinois		—		158		6,404		1,838			158		8,242				8,400		8,242	1993	1986	25 Years
Family Doctor’s Medical Office Building    Shreveport, Louisiana		—		54		1,526		494			54		2,020				2,074		997	1991	1995	45 Years
Kelsey-Seybold Clinic at King's Crossing    Kingwood, Texas		—		439		1,618		878			439		2,496				2,935		1,352	1995	1995	45 Years
Professional Buildings at King's Crossing    Kingwood, Texas		—		439		1,837		251			439		2,088		9		2,536		1,008	1995	1995	45 Years
Chesterbrook Academy    Audubon, Pennsylvania		—		307		996		—			307		996				1,303		456	1996	1996	45 Years
Chesterbrook Academy    New Britain,  Pennsylvania		—		250		744		—			250		744				994		343	1991	1996	45 Years
Chesterbrook Academy    Uwchlan, Pennsylvania		—		180		815		—			180		815				995		374	1992	1996	45 Years
Chesterbrook Academy    Newtown,  Pennsylvania		—		195		749		—			195		749				944		345	1992	1996	45 Years
The Southern Crescent Center (b.)    Riverdale, Georgia		—		1,130		5,092		(2,271	)		1,130		2,821				3,951		2,419	1994	1996	45 Years
The Southern Crescent Center II (b.)    Riverdale, Georgia		—		—		—		4,981			806		4,175				4,981		2,278	2000	1998	35 Years
The Cypresswood    Professional Center    Spring, Texas		—		573		3,842		813			573		4,655				5,228		2,770	1997	1997	35 Years
701 South Tonopah  Building    Las Vegas, Nevada		—		—		1,579		68			—		1,647				1,647		1,077	1999	1999	25 Years
Medical Center of Western    Connecticut    Danbury, Connecticut		4,535		1,151		5,176		544			1,151		5,720				6,871		3,349	2000	2000	30 Years
Vibra Hospital of Corpus Christi    Corpus Christi, Texas		2,723		1,104		5,508		—			1,104		5,508				6,612		1,400	2008	2008	35 Years
Apache Junction Medical Plaza    Apache Junction, AZ		—		240		3,590		1,159			240		4,749				4,989		1,009	2004	2004	30 Years
Auburn Medical Office    Building II    Auburn, WA		6,726		—		10,200		176			—		10,376				10,376		1,716	2009	2009	36 Years
BRB Medical Office Building    Kingwood, Texas		6,316		430		8,970		32			430		9,002				9,432		1,471	2010	2010	37 Years
Centennial Hills Medical    Office Building    Las Vegas, NV		10,040		—		19,890		1,299			—		21,189		86		21,275		3,733	2006	2006	34 Years
Desert Springs Medical Plaza    Las Vegas, NV		—		1,200		9,560		1,081			1,200		10,641				11,841		2,175	1998	1998	30 Years
700 Shadow Lane &    Goldring MOBs    Las Vegas, NV		6,248		400		11,300		3,012			400		14,312		288		15,000		2,742	2003	2003	30 Years
Spring Valley Hospital MOB I    Las Vegas, NV		—		—		9,500		709			—		10,209		22		10,231		1,865	2004	2004	35 Years

79

Schedule III

Universal Health Realty Income Trust

Real Estate and Accumulated Depreciation — December 31, 2016 (continued)

(amounts in thousands)

									Gross amount at										Date of
									which carried										Completion of
	Initial Cost								at end of period								Accumulated		Construction,
Description	Encumbrance (c.)		Land		Building & Improv.		Adjustments to Basis (a.)		Land		Building & Improvements		CIP		Total		Depreciation as of Dec. 31, 2016		Acquisition or Significant improvement	Date Acquired	Average Depreciable Life
Spring Valley Hospital    MOB II    Las Vegas, NV		—		—		9,800		488		—		10,288				10,288		1,860	2006	2006	34 Years
Summerlin Hospital    MOB I    Las Vegas, NV		—		460		15,440		824		460		16,264		113		16,837		3,282	1999	1999	30 Years
Summerlin Hospital    MOB II    Las Vegas, NV		11,092		370		16,830		1,275		370		18,105		53		18,528		3,523	2000	2000	30 Years
Summerlin Hospital    MOB III    Las Vegas, NV		10,384		—		14,900		2,137		—		17,037				17,037		2,698	2009	2009	36 Years
Emory at Dunwoody    Building    Dunwoody, GA		—		782		3,455		—		782		3,455				4,237		658	2011	2011	35 Years
Forney Medical Plaza    Forney, TX		—		910		11,960		55		910		12,015	1			12,926		2,565	2011	2011	35 Years
Lake Pointe Medical Arts    Building    Rowlett, TX		—		1,100		9,000		31		1,100		9,031	1			10,132		1,687	2011	2011	35 Years
Tuscan Professional Building    Irving, TX		4,992		1,100		12,525		244		1,100		12,769				13,869		2,176	2011	2011	35 Years
Peace Health Medical    Clinic    Bellingham, WA		20,309		1,900		24,910		—		1,900		24,910				26,810		4,201	2012	2012	35 Years
Northwest Texas    Professional Office Tower    Amarillo, TX		—		—		7,180		—		—		7,180				7,180		967	2012	2012	35 Years
Ward Eagle Office Village    Farmington Hills, MI		—		220		3,220		—		220		3,220				3,440		406	2013	2013	35 Years
5004 Poole Road MOB    Denison, TX		—		96		529		—		96		529				625		63	2013	2013	35 Years
Desert Valley Medical    Center (d.)    Phoenix, AZ		5,081		2,280		4,624		400		2,280		5,024		1		7,305		506	1996	1996	30 Years
Hanover Emergency Center    Mechanicsville, VA		—		1,300		6,224		—		1,300		6,224				7,524		490	2014	2014	35 Years
Haas Medical Office Park    Ottumwa, IA		—		—		3,571		—		—		3,571				3,571		222	2015	2015	35 Years
Mission Free-standing Emergency    Department    Mission, TX		—		1,441		4,696				1,441		4,696				6,137		301	2015	2015	35 Years
North Valley Medical    Plaza (d.)    Phoenix, AZ		—		930		6,929		60		930		6,989	360			8,279		652	2010	2010	30 Years
Northwest Medical Center    at Sugar Creek    Bentonville, AR		—		1,100		2,870		—		1,100		2,870				3,970		270	2014	2014	35 Years
The Children’s Clinic at    Springdale    Springdale, AR		—		610		1,570		—		610		1,570				2,180		172	2014	2014	35 Years
Rosenberg Children’s    Medical Plaza (d.)    Phoenix, AZ		8,146		—		23,302		34		—		23,336				23,336		1,897	2001	2001	35 Years
Phoenix Children’s East (d.)    Valley Care Center    Phoenix, AZ		6,202		1,050		10,900		—		1,050		10,900				11,950		884	2006	2006	35 Years
Palmdale Medical Plaza (d.)    Palmdale, CA		—		—		10,555		1,701		—		12,256				12,256		1,175	2008	2008	34 Years
Piedmont-Roswell Physician Center    Sandy Springs, GA		—		2,338		2,128		—		2,338		2,128				4,466		151	2015	2015	30 Years

80

Schedule III

Universal Health Realty Income Trust

Real Estate and Accumulated Depreciation — December 31, 2016 (continued)

(amounts in thousands)

									Gross amount at										Date of
									which carried										Completion of
	Initial Cost								at end of period								Accumulated		Construction,
Description	Encumbrance (c.)		Land		Building & Improv.		Adjustments to Basis (a.)		Land		Building & Improvements		CIP		Total		Depreciation as of Dec. 31, 2016		Acquisition or Significant improvement	Date Acquired	Average Depreciable Life
Piedmont-Vinings Physician Center    Vinings, GA		—		1,348		2,418		—		1,348		2,418				3,766		166	2015	2015	30 Years
Santa Fe Professional    Plaza (d.)    Scottsdale, AZ		—		1,090		1,960		312		1,090		2,272		36		3,398		236	1999	1999	30 Years
Sierra San Antonio Medical    Plaza (d.)    Fontana, CA		—		—		11,538		206		—		11,744	9			11,753		1,074	2006	2006	30 Years
Vista Medical Terrace &    Sparks MOB (d.)    Sparks, NV		4,231		—		9,276		569		—		9,845		28		9,873		1,280	2008	2008	30 Years
Weslaco Free-standing    Emergency Dept    Weslaco ,TX		—		1,749		4,879		—		1,749		4,879				6,628		321	2015	2015	35 Years
Chandler Corporate Center III    Chandler, AZ		—		2,328		14,131		—		2,328		14,131				16,459		352	2016	2016	35 Years
Frederick Crestwood MOB    Frederick, MD		—		2,258		18,973		—		2,258		18,973				21,231		216	2016	2016	35 Years
Madison Professional    Office Building    Madison, AL		—		2,296		6,411		—		2,296		6,411				8,707		215	2016	2016	35 Years
Tenaya Medical    Office Building    Las Vegas, NV		7,137		3,032		10,602		—		3,032		10,602				13,634		44	2016	2016	35 Years
Henderson Medical Plaza (e.)    Henderson, NV		—		—		—		—		—		—		9,464		9,464			2017
TOTALS	$	114,162	$	48,798	$	459,942	$	66,617	$	51,638	$	523,719	$	10,471	$	585,828	$	138,588

a. Costs capitalized/divested subsequent to acquisition.

b. During 2008, a $4.6 million provision for asset impairment was recorded in connection with the real estate assets of Southern Crescent Center I & Southern Crescent Center II.

c. Consists of outstanding balances as of December 31, 2016 on third-party debt that is non-recourse to us.

d. During 2014, we purchased the third-party minority interests in these properties in which we previously held noncontrolling majority owned interests. Since that time, these properties are wholly-owned.

e. Henderson Medical Plaza is scheduled to be completed and opened during the first quarter of 2017.

81

UNIVERSAL HEALTH REALTY INCOME TRUST

NOTES TO SCHEDULE III

DECEMBER 31, 2016

(amounts in thousands)

(1) RECONCILIATION OF REAL ESTATE PROPERTIES

The following table reconciles the Real Estate Properties from January 1, 2014 to December 31, 2016:

	2016			2015			2014
Balance at January 1,	$	511,657		$	486,589		$	395,669
Impact of consolidation of eight LLCs (a.)		—			—			84,064
Additions (b.)		14,186			4,972			3,298
Acquisitions		60,031			24,568			13,674
Disposals/Divestitures		(46	)		(4,472	)		(10,116	)
Balance at December 31,	$	585,828		$	511,657		$	486,589

(2) RECONCILIATION OF ACCUMULATED DEPRECIATION

The following table reconciles the Accumulated Depreciation from January 1, 2014 to December 31, 2016:

	2016			2015			2014
Balance at January 1,	$	121,161		$	106,480		$	97,921
Disposals/Divestitures		(9	)		(1,568	)		(5,859	)
Depreciation expense		17,436			16,249			14,413
Other		—			—			5
Balance at December 31,	$	138,588		$	121,161		$	106,480

(a.) During 2014, the Trust purchased the minority ownership interests held by third-party members in eight LLCs (January and August, 2014) in which we previously held noncontrolling majority ownership interests. As a result of these minority ownership purchases, the Trust and our subsidiaries now own 100% of each of these LLCs and the financial results are included in our consolidated financial statements.

(b.) Includes $9.5 million of CIP related to Henderson Medical Plaza, which is scheduled to be completed and opened during the first quarter of 2017.

82

Exhibit Index

Exhibit No.	Exhibit
10.2	Agreement dated December 1, 2016, to renew Advisory Agreement dated as of December 24, 1986 between Universal Health Realty Income Trust and UHS of Delaware, Inc.
11	Statement re computation of per share earnings is set forth on the Consolidated Statements of Income.
21	Subsidiaries of Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Certification from the Trust’s Chief Executive Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934.
31.2	Certification from the Trust’s Chief Financial Officer Pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934.
32.1	Certification from the Trust’s 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 from the Trust’s 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	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

83

EX-10.2

Exhibit 10.2

December 1, 2016

Steve Filton

Senior Vice President & CFO

UHS of Delaware, Inc.

367 South Gulph Road

King of Prussia, PA  19406

Dear Steve,

The Board of Trustees of Universal Health Realty Income Trust, at today’s meeting, authorized the renewal of the current Advisory Agreement between Universal Health Realty Income Trust and UHS of Delaware, Inc. (“Agreement”) upon the same terms and conditions.

This letter constitutes Universal Health Realty Income Trust’s offer to renew the Agreement, through December 31, 2017, upon the same terms and conditions.  Please acknowledge UHS of Delaware’s acceptance of this offer by signing in the space provided below and returning one copy of this letter to me.  Thank you.

Sincerely,

/s/ Cheryl K. Ramagano

Cheryl K. Ramagano

Vice President and Treasurer

Agreed and Accepted:

UHS OF DELAWARE, INC.

By: /s/ Steve Filton

Steve Filton

Senior Vice President and CFO

cc:  Charles Boyle

EX-21

Exhibit 21

Subsidiaries of Registrant (2016)

Jurisdiction

3811 Bell Medical Properties, LLC	Delaware
5004 Pool Road Properties, LP	Texas
73 Medical Building, LLC	Connecticut
653 Town Center Investments, LLC	Arizona
653 Town Center Phase II, LLC	Arizona
ApaMed Properties, LLC	Arizona
Arlington Medical Properties, LLC	Arizona
Auburn Medical Properties II, LLC	Delaware
Banburry Medical Properties, LLC	Delaware
BRB/E Building One, LLC	Texas
Brunswick Associates, LLC	New York
Centennial Medical Properties, LLC	Delaware
Cimarron Medical Properties, LLC	Texas
Cobre Properties, LLC	Delaware
Cypresswood Investments, L.P	Georgia
Deerval Properties, LLC	Arizona
DesMed, LLC	Arizona
DTX Medical Properties, LLC	Texas
DVMC Properties, LLC	Arizona
Eagle Medical Properties, LLC	Michigan
Forney Deerval, LLC	Texas
Forney Willetta, LLC	Texas
FTX Healthcare GP, LLC	Texas
FTX MOB Phase II, LP	Texas
Gold Shadow Properties, LLC	Arizona
Grayson Properties, LP	Texas
Gulph Investments	Maryland
Hanover Medical Properties, LLC	Virginia
HNV Medical Properties, LLC	Nevada
Juniper Medical Properties, LLC Madison Station Medical Properties, LLC	Arizona Alabama
NSHE TX Bay City, LLC	Texas
NSHE TX Cedar Park, LLC	Texas
NTX Healthcare Properties, LLC	Texas
NWTX Medical Properties, LLC	Texas
Oneida Medical Properties, LP	Texas
Osage Medical Properties, LLC	Arkansas
Ottumwa Medical Properties, LLC	Iowa
Palmdale Medical Properties, LLC	Delaware
Paseo Medical Properties II, LLC	Arizona
PAX Medical Holdings, LLC	Delaware
PCH Medical Properties, LLC	Arizona
PCH Southern Properties, LLC	Delaware
Riverdale Realty, LLC	Georgia
Santa Fe Scottsdale, LLC	Arizona
Saratoga Hospital Properties, LP	Texas
Sheffield Properties, LLC	Georgia
Shiloh Medical Properties, LLC	Arkansas
Sierra Medical Properties, LLC	Arizona
Sparks Medical Properties, LLC	Delaware

Spring Valley Medical Properties, LLC	Arizona
Spring Valley Medical Properties II, LLC	Delaware
Suburban Properties, LLC	Kentucky
Tuscan Medical Properties, LLC	Delaware
UHT TRS, LLC	Delaware
UHT/Ensemble Properties I, LLC	Delaware
Willetta Medical Properties, LLC	Arizona

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Trustees
Universal Health Realty Income Trust:

We consent to the incorporation by reference in the registration statements (Nos. 333-211903, 333‑143944 and 333-57815) on Form S-8 and in the registration statements (Nos. 333-208264 and 333-81763) on Form S-3 of Universal Health Realty Income Trust and subsidiaries of our reports dated February 28, 2017, with respect to the consolidated balance sheets of Universal Health Realty Income Trust and subsidiaries as of December 31, 2016 and 2015, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2016, the related financial statement schedule III, real estate and accumulated depreciation-December 31, 2016, and the effectiveness of internal control over financial reporting as of December 31, 2016, which reports appear in the December 31, 2016 annual report on Form 10‑K of Universal Health Realty Income Trust.

(signed) KPMG LLP

Philadelphia, Pennsylvania
February 28, 2017

EX-31.1

Exhibit 31.1

CERTIFICATION - Chief Executive Officer

I, Alan B. Miller, certify that:

1. I have reviewed this annual report on Form 10-K of Universal Health Realty Income Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2017

/s/ Alan B. Miller

President and Chief

Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION - Chief Financial Officer

I, Charles F. Boyle, certify that:

1. I have reviewed this annual report on Form 10-K of Universal Health Realty Income Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2017

/s/ Charles F. Boyle

Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Universal Health Realty Income Trust (the “Trust”) on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan B. Miller, President and Chief Executive Officer of the Trust, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust at the end of, and for the period covered by, the Report.

/s/ Alan B. Miller

President and Chief Executive Officer

February 28, 2017

A signed original of this written statement required by Section 906 has been provided to the Trust and will be retained and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Universal Health Realty Income Trust (the “Trust”) on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles F. Boyle, Vice President and Chief Financial Officer of the Trust, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust at the end of, and for the period covered by, the Report.

/s/ Charles F. Boyle

Vice President and Chief Financial Officer

February 28, 2017

A signed original of this written statement required by Section 906 has been provided to the Trust and will be retained and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Jan. 31, 2017	Jun. 30, 2016
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Trading Symbol	UHT
Entity Registrant Name	UNIVERSAL HEALTH REALTY INCOME TRUST
Entity Central Index Key	0000798783
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		13,599,104
Entity Public Float			$ 721,622,979

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2016		Dec. 31, 2015
Real Estate Investments:
Buildings and improvements and construction in progress	$ 534,190		$ 469,933
Accumulated depreciation	(138,588)		(121,161)
Real Estate Investment Property, Net, Total	395,602		348,772
Land	51,638		41,724
Net Real Estate Investments	447,240		390,496
Investments in and advances to limited liability companies ("LLCs")	35,593		31,597
Other Assets:
Cash and cash equivalents	3,930		3,894
Base and bonus rent receivable from UHS	2,321		2,116
Rent receivable - other	5,291		4,292
Intangible assets (net of accumulated amortization of $27.1 million and $25.1 million at December 31, 2016 and December 31, 2015, respectively)	23,815		19,757
Deferred charges and other assets, net	6,560		6,351
Total Assets	524,750		458,503
Liabilities:
Line of credit borrowings	201,500		142,150
Mortgage notes payable, non-recourse to us, net	114,217	[1]	110,156
Accrued interest	626		504
Accrued expenses and other liabilities	11,809		6,807
Tenant reserves, deposits and prepaid rents	5,321		3,844
Total Liabilities	333,473		263,461
Equity:
Preferred shares of beneficial interest, $.01 par value; 5,000,000 shares authorized; none issued and outstanding
Common shares, $.01 par value; 95,000,000 shares authorized; issued and outstanding: 2016 - 13,599,055; 2015 - 13,327,020	136		133
Capital in excess of par value	255,656		241,700
Cumulative net income	572,501		555,286
Cumulative dividends	(637,121)		(601,983)
Accumulated other comprehensive income/(loss)	105		(94)
Total Equity	191,277		195,042
Total Liabilities and Equity	$ 524,750		$ 458,503

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

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Intangible assets, accumulated amortization	$ 27.1	$ 25.1
Preferred shares of beneficial interest, par value	$ 0.01	$ 0.01
Preferred shares of beneficial interest, shares authorized	5,000,000	5,000,000
Preferred shares of beneficial interest, issued	0	0
Preferred shares of beneficial interest, outstanding	0	0
Common shares, par value	$ 0.01	$ 0.01
Common shares, shares authorized	95,000,000	95,000,000
Common shares, issued	13,599,055	13,327,020
Common shares, outstanding	13,599,055	13,327,020

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenues:
Base rental - UHS facilities		$ 16,299	$ 15,955	$ 15,601
Base rental - Non-related parties		37,060	35,157	31,386
Bonus rental - UHS facilities		4,723	4,565	4,607
Tenant reimbursements and other - Non-related parties		8,113	7,490	7,490
Tenant reimbursements and other - UHS facilities		886	783	702
Revenues, Total		67,081	63,950	59,786
Expenses:
Depreciation and amortization		22,956	22,108	20,885
Advisory fees to UHS		3,263	2,810	2,545
Other operating expenses		18,220	18,152	16,882
Transaction costs		528	243	427
Costs and Expenses, Total		44,967	43,313	40,739
Income before equity in income of unconsolidated limited liability companies ("LLCs"), interest expense and gains		22,114	20,637	19,047
Equity in income of unconsolidated LLCs	[1]	4,456	2,536	2,428	[2]
Gain on property exchange			8,742
Gains on fair value recognition resulting from the purchase of minority interests in majority-owned LLCs				25,409
Gain on divestiture of real property				13,043
Interest expense, net		(9,355)	(8,224)	(8,376)
Net income		$ 17,215	$ 23,691	$ 51,551
Basic earnings per share		$ 1.28	$ 1.78	$ 3.99
Diluted earnings per share		$ 1.28	$ 1.78	$ 3.99
Weighted average number of shares outstanding - Basic		13,464	13,293	12,927
Weighted average number of share equivalents		4	8	7
Weighted average number of shares and equivalents outstanding - Diluted		13,468	13,301	12,934

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

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

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement Of Income And Comprehensive Income [Abstract]
Net Income	$ 17,215	$ 23,691	$ 51,551
Other comprehensive income/(loss):
Unrealized derivative gains/(losses) on interest rate caps	199	(6)	(31)
Total other comprehensive income/(loss):	199	(6)	(31)
Total comprehensive income	$ 17,414	$ 23,685	$ 51,520

XML

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) shares in Thousands, $ in Thousands	Total	Common stock	Capital in excess of par value	Cumulative net income	Cumulative dividends	Accumulated other comprehensive income/(loss)	UHT Shareholders' Equity
Balance at Dec. 31, 2013	$ 165,630	$ 128	$ 220,691	$ 480,044	$ (535,176)	$ (57)	$ 165,630
Balance, Shares at Dec. 31, 2013		12,859
Shares of Beneficial Interest:
Issued (in shares)		443
Issued	19,844	$ 5	19,839				19,844
Partial settlement of dividend equivalent rights	(94)		(94)				(94)
Restricted stock-based compensation expense	399		399				399
Dividends ($2.60/share) in 2016, and ($2.56/share) in 2015 ($2.52/share) in 2014	(32,718)				(32,718)		(32,718)
Comprehensive income:
Net income	51,551			51,551			51,551
Unrealized gain (loss) on interest rate cap	(31)					(31)	(31)
Subtotal - comprehensive income	51,520			51,551		(31)	51,520
Balance at Dec. 31, 2014	204,581	$ 133	240,835	531,595	(567,894)	(88)	204,581
Balance, Shares at Dec. 31, 2014		13,302
Shares of Beneficial Interest:
Issued (in shares)		25
Issued	513		513				513
Partial settlement of dividend equivalent rights	(75)		(75)				(75)
Restricted stock-based compensation expense	427		427				427
Dividends ($2.60/share) in 2016, and ($2.56/share) in 2015 ($2.52/share) in 2014	(34,089)				(34,089)		(34,089)
Comprehensive income:
Net income	23,691			23,691			23,691
Unrealized gain (loss) on interest rate cap	(6)					(6)	(6)
Subtotal - comprehensive income	23,685			23,691		(6)	23,685
Balance at Dec. 31, 2015	195,042	$ 133	241,700	555,286	(601,983)	(94)	195,042
Balance, Shares at Dec. 31, 2015		13,327
Shares of Beneficial Interest:
Issued (in shares)		272
Issued	13,508	$ 3	13,505				13,508
Partial settlement of dividend equivalent rights	(30)		(30)				(30)
Restricted stock-based compensation expense	481		481				481
Dividends ($2.60/share) in 2016, and ($2.56/share) in 2015 ($2.52/share) in 2014	(35,138)				(35,138)		(35,138)
Comprehensive income:
Net income	17,215			17,215			17,215
Unrealized gain (loss) on interest rate cap	199					199	199
Subtotal - comprehensive income	17,414			17,215		199	17,414
Balance at Dec. 31, 2016	$ 191,277	$ 136	$ 255,656	$ 572,501	$ (637,121)	$ 105	$ 191,277
Balance, Shares at Dec. 31, 2016		13,599

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement Of Stockholders Equity [Abstract]
Dividend, per share	$ 2.60	$ 2.56	$ 2.52

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Cash flows from operating activities:
Net Income	$ 17,215,000	$ 23,691,000	$ 51,551,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,008,000	22,198,000	20,975,000
Amortization of debt premium	(225,000)	(225,000)	(312,000)
Stock-based compensation expense	481,000	427,000	399,000
Gain on property exchange		(8,742,000)
Gain on divestiture of real property			(13,043,000)
Gains on purchase of minority interests in majority-owned LLCs			(25,409,000)
Changes in assets and liabilities:
Rent receivable	(1,204,000)	(290,000)	(555,000)
Accrued expenses and other liabilities	3,000	(184,000)	(509,000)
Tenant reserves, deposits and prepaid rents	1,377,000	1,781,000	(303,000)
Accrued interest	122,000	(41,000)	(62,000)
Leasing costs	(627,000)	(556,000)	(787,000)
Other, net	583,000	119,000	851,000
Net cash provided by operating activities	40,733,000	38,178,000	32,796,000
Cash flows from investing activities:
Investments in LLCs	(5,454,000)	(667,000)	(1,337,000)
Repayments of advances made to LLCs	851,000	306,000
Advances made to LLCs		(22,795,000)
Cash distributions in excess of income from LLCs	1,362,000	224,000	1,029,000
Cash distribution of refinancing proceeds from LLCs		1,045,000	2,280,000
Additions to real estate investments, net	(11,204,000)	(5,257,000)	(2,866,000)
Cash received for property exchange	0	2,000,000	17,300,000
Deposits on real estate assets		(150,000)	(100,000)
Net cash paid for acquisition of properties	(60,389,000)	(16,765,000)	(15,600,000)
Cash paid to acquire minority interests in majority-owned LLCs		(2,250,000)	(4,744,000)
Net cash used in investing activities	(74,834,000)	(44,309,000)	(4,038,000)
Cash flows from financing activities:
Net borrowings on line of credit	59,350,000	52,400,000
Net repayments on line of credit			(3,950,000)
Proceeds from mortgage notes payable		5,200,000
Repayments of mortgage notes payable	3,230,000	17,826,000	12,327,000
Financing costs paid	(307,000)	(1,114,000)
Dividends paid	(35,138,000)	(34,089,000)	(32,718,000)
Partial settlement of dividends equivalent rights	(30,000)	(75,000)	(94,000)
Issuance of shares of beneficial interest, net	13,492,000	1,668,000	19,274,000
Net cash provided by/(used in) financing activities	34,137,000	6,164,000	(29,815,000)
Increase/(decrease) in cash and cash equivalents	36,000	33,000	(1,057,000)
Increase in cash due to recording of LLCs on a consolidated/unconsolidated basis			1,581,000
Cash and cash equivalents, beginning of period	3,894,000	3,861,000	3,337,000
Cash and cash equivalents, end of period	3,930,000	3,894,000	3,861,000
Supplemental disclosures of cash flow information:
Interest paid	8,895,000	8,025,000	8,268,000
Supplemental disclosures of non-cash transactions:
Financing assumed in acquisition	$ 7,499,000
Property Exchange Transaction:
Net assets acquired in property exchange		9,886,000
Net assets relinquished in property exchange		$ (3,144,000)
Consolidation Of Limited Liability Companies
Supplemental disclosures of non-cash transactions:
Net real estate investments			84,064,000
Cash and cash equivalents			1,581,000
Intangible assets			6,490,000
Rent receivable - other			388,000
Deferred charges and other assets, net			100,000
Investment in LLCs			(28,616,000)
Mortgage notes payable, non-recourse to us			(29,758,000)
Accrued interest			(116,000)
Accrued expenses and other liabilities			(1,245,000)
Tenant reserves, escrows, deposits and prepaid rents			(485,000)
Note payable to previous third-party member			(2,250,000)
Gains on purchases of minority interests in majority-owned LLCs			(25,409,000)
Cash paid for purchase of minority interests in majority-owned LLCs			$ 4,744,000

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Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Universal Health Realty Income Trust and subsidiaries (the “Trust”) is organized as a Maryland real estate investment trust. We invest in healthcare and human service related facilities currently including acute care hospitals, rehabilitation hospitals, sub-acute facilities, surgery centers, free-standing emergency departments, childcare centers and medical office buildings. As of February 28, 2017, we have sixty-seven real estate investments or commitments located in twenty states consisting of:

• six hospital facilities including three acute care, one rehabilitation and two sub-acute;

• three free-standing emergency departments (“FEDs”);

• fifty-four medical office buildings, including five owned by unconsolidated limited liability companies (“LLCs”)/limited liability partnerships (“LPs”), and;

• four preschool and childcare centers.

Our future results of operations could be unfavorably impacted by deterioration in general economic conditions which could result in increases in the number of people unemployed and/or uninsured. Should that occur, it may result in decreased occupancy rates at our medical office buildings as well as a reduction in the revenues earned by the operators of our hospital facilities which would unfavorably impact our future bonus rentals (on the three Universal Health Services, Inc. hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties.  Management is unable to predict the effect, if any, that these factors may have on the operating results of our lessees or on their ability to meet their obligations under the terms of their leases with us. Management’s estimate of future cash flows from our leased properties could be materially affected in the near term, if certain of the leases are not renewed or renewed with less favorable terms at the end of their lease terms.

Revenue Recognition

Our revenues consist primarily of rentals received from tenants, which are comprised of minimum rent (base rentals), bonus rentals and reimbursements from tenants for their pro-rata share of expenses such as common area maintenance costs, real estate taxes and utilities.

The minimum rent for our six hospital facilities, which is paid monthly, is fixed over the term of the respective leases which are scheduled to expire in 2019 (2 hospitals) or 2021 (4 hospitals). In addition, for the three hospital facilities leased to subsidiaries of UHS, bonus rents are paid on a quarterly basis, based upon a computation that compares the hospitals’ current quarter net revenues to the corresponding quarter in the base year. Rental income recorded by our other properties, including our consolidated and unconsolidated MOBs, relating to leases in excess of one year in length, is recognized using the straight-line method under which contractual rents are recognized evenly over the lease term regardless of when payments are due. The amount of rental revenue resulting from straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants, stipulated rent increases under existing leases, as well as the acquisitions and sales of properties that have existing in-place leases with terms in excess of one year. As a result, the straight-line adjustments to rental revenue may vary from period-to-period. Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred.

Real Estate Investments

Land, buildings and capital improvements are recorded at cost and stated at cost less accumulated depreciation.  Expenditures for maintenance and repairs are charged to operations as incurred.  Renovations or replacements, which improve or extend the life of an asset, are capitalized and depreciated over their estimated useful lives.

Purchase Accounting for Acquisition of Investments in Real Estate

Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired from third parties. In accordance with current accounting guidance, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, and acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above market rate loans, or loan discounts, in the case of below market loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

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

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

Our intangible assets primarily consist of the value of in-place leases at December 31, 2016, and will be amortized over the remaining lease terms (aggregate weighted average of 4.3 years at December 31, 2016) and is expected to result in estimated aggregate amortization expense of $4.9 million, $3.6 million, $2.9 million $2.7 million and $2.3 million for 2017, 2018, 2019, 2020 and 2021, respectively. Amortization expense on intangible values of in place leases and above-market leases was $5.1 million for the year ended December 31, 2016, $5.5 million for the year ended December 31, 2015 and $6.1 million for the year ended December 31, 2014.  Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and capital improvements. The estimated original useful lives of our buildings ranges from 25-45 years and the estimated original useful lives of capital improvements ranges from 3-35 years. On a consolidated basis, depreciation expense was $17.4 million for the year ended December 31, 2016, $16.2 million for the year ended December 31, 2015 and $14.4 million for the year ended December 31, 2014.

Cash and Cash Equivalents

We consider all highly liquid investment instruments with original maturities of three months or less to be cash equivalents.

Asset Impairment

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 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 carrying value of the property. We consider factors such as future operating income, trends and 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 recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is 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 carrying value of 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 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 such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to their fair value.

We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers. In 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 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 the property ceases and it is recorded at the lower of its carrying amount or fair value less cost to sell. The assets and related liabilities of the property are classified separately on the consolidated balance sheets for the most recent reporting period. 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 LLC is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value, including projected declines in cash flow. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

Investments in Limited Liability Companies (“LLCs”)

In accordance with the Financial Accounting Standards Board’s (“FASB”) standards and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting. The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent 33% to 95% non-controlling ownership interests, are recorded initially at our cost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.

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

At December 31, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. We accounted for these LLCs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities and we do not have a controlling voting interest. The majority of these LLCs are joint-ventures between us and non-related parties that manage and hold minority ownership interests in the entities. Each entity is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and service the third-party debt (if applicable) that is non-recourse to us. Although there is typically no ongoing financial support required from us to these entities since they are cash-flow sufficient, we may, from time to time, provide funding for certain purposes such as, but not limited to, significant capital expenditures, leasehold improvements and debt financing. Although we are not obligated to do so, if approved by us at our sole discretion, additional cash fundings are typically advanced as equity or member loans. These entities maintain property insurance on the properties.

Federal Income Taxes

No provision has been made for federal income tax purposes since we qualify as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, and intend to continue to remain so qualified. As such, we are exempt from federal income taxes and we are required to distribute at least 90% of our real estate investment taxable income 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 impairment losses.

The aggregate gross cost basis and net book value of the properties for federal income tax purposes are approximately $561 million and $385 million, respectively, at December 31, 2016.  The aggregate cost basis and net book value of the properties for federal income tax purposes were approximately $489 million and $325 million, respectively, at December 31, 2015.

Stock-Based Compensation

We expense the grant-date fair value of restricted stock awards over the vesting period. We recognize the grant-date fair value of equity-based compensation and account for these transactions using the fair-value based method.

The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities.

Fair Value

Fair value is a market-based measurement, not an entity-specific measurement and determined based upon the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). In instances when it is necessary to establish the fair value of our real estate investments and investments in LLCs we use unobservable inputs which are typically based on our own assumptions.

The fair value of our real estate investments, components of real estate investments and debt assumed in conjunction with acquisition and impairment activity, are considered to be Level 3 valuations as they are primarily based upon an income capitalization approach. Significant inputs into the models used to determine fair value of real estate investments and components of real estate investments include future cash flow projections, holding period, terminal capitalization rate and discount rates. Additionally the fair value of land takes into consideration comparable sales, as adjusted for site specific factors. The fair value of real estate investments is based upon significant judgments made by management, and accordingly, we typically obtain assistance from third party valuation specialists. Significant inputs into the models used to determine the fair value of assumed mortgages included the outstanding balance, term, stated interest rate and current market rate of the mortgage.

The carrying amounts reported in the balance sheet for cash, receivables, and short-term borrowings approximate their fair values due to the short-term nature of these instruments. Accordingly, these items are excluded from the fair value disclosures included elsewhere in these notes to the consolidated financial statements. 

Concentration of Revenues

The rental revenue earned pursuant to the lease on McAllen Medical Center generated approximately 11% during each of 2016 and 2015, and 12% during 2014, of our consolidated revenues.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.

New Accounting Standards

Except as noted below there were no new accounting pronouncements that impacted, or are expected to impact us.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, an update to the accounting standard relating to the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability. In the event that there is not an associated debt liability recorded in the consolidated financial statements, the debt issuance costs will continue to be recorded on the consolidated balance sheet as an asset until the debt liability is recorded.  The new standard became effective for the Trust on January 1, 2016. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations as the update only related to changes in financial statement presentation.  

In February 2015, the FASB issued ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis, which amends the current consolidation guidance affecting both the variable interest entity (“VIE”) and voting interest entity (“VOE”) consolidation models. The standard does not add or remove any of the characteristics in determining if an entity is a VIE or VOE, but rather enhances the way the Company assesses some of these characteristics. The new standard became effective for the Trust on January 1, 2016 and did not have a material impact on our consolidated financial position or results of operations as none of its existing consolidation conclusions were changed.

In August, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which adds or clarifies guidance of the classification of certain cash receipts and payments in the statement of cash flows with the intent to alleviate diversity in practice for classifying various types of cash flows.  This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the impact of this ASU on our statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. We are currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on our financial position or results of operations.

In 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which is now effective for us beginning January 1, 2018. We are continuing to evaluate ASU 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

In January, 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business” to clarify the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  The future impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by us, if any.

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Relationship with UHS and Related Party Transactions

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Relationship with UHS and Related Party Transactions

(2) RELATIONSHIP WITH UHS AND RELATED PARTY TRANSACTIONS

Leases:    We commenced operations in 1986 by purchasing properties of certain subsidiaries from 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 six additional 5-year renewal terms. The current base rentals and lease and renewal terms for each of the three hospital facilities leased to subsidiaries of UHS are provided below. The base rents are paid monthly and each lease also provides for additional or bonus rents which are computed and paid on a quarterly basis based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The three hospital leases with subsidiaries of UHS are unconditionally guaranteed by UHS and are cross-defaulted with one another.

The combined revenues generated from the leases on the UHS hospital facilities accounted for approximately 27% of our total revenue for the five years ended December 31, 2016 (approximately 24%,  25% and 28% for the years ended December 31, 2016, 2015 and 2014, respectively). The decrease during 2016 and 2015 as compared to 2014 is due primarily to the 2016 and 2015 acquisitions, which are unrelated to UHS, as well as the divestiture of The Bridgeway which, as discussed below, occurred on December 31, 2014. Including 100% of the revenues generated at the unconsolidated LLCs in which we have various non-controlling equity interests ranging from 33% to 95%, the leases on the UHS hospital facilities accounted for approximately 21% of the combined consolidated and unconsolidated revenue for the five years ended December 31, 2016 (approximately 19%,  20% and 22% for the years ended December 31, 2016, 2015 and 2014). In addition, we have seventeen MOBs, or free-standing emergency departments (“FEDs”), that are either wholly or jointly-owned by us, that include tenants which are subsidiaries of UHS.

Pursuant to the Master Lease Document by and among us and certain subsidiaries of UHS, dated December 24, 1986 (the “Master Lease”), which governs the leases of all hospital properties with subsidiaries of UHS, UHS has the option 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 at the end of the lease terms or any renewal terms at the appraised fair market value. In addition, the Master Lease, as amended during 2006, includes a change of control provision whereby UHS has the right, upon one month’s notice should a change of control of the Trust occur, to purchase any or all of the three leased hospital properties listed below at their appraised fair market value. 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. The leases related to the hospital facilities of UHS are guaranteed by UHS and cross-defaulted with one another.

In June, 2016, three wholly-owned subsidiaries of UHS provided the required notice to us, exercising the 5-year renewal options on the leases related to our acute care hospitals noted in the table below.  The renewals extended the lease terms on these facilities, at existing lease rates, to December, 2021.  

The table below details the existing lease terms and renewal options for our three acute care hospitals operated by wholly-owned subsidiaries of UHS:

Hospital Name	Annual Minimum Rent		End of Lease Term	Renewal Term (years)
McAllen Medical Center	$	5,485,000	December, 2021		10	(a)
Wellington Regional Medical Center	$	3,030,000	December, 2021		10	(b)
Southwest Healthcare System, Inland Valley Campus	$	2,648,000	December, 2021		10	(b)

(a) UHS has two 5-year renewal options at existing lease rates (through 2031).

(b) UHS has two 5-year renewal options at fair market value lease rates (2022 through 2031).

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 rental revenue currently earned pursuant to these leases.  

During the first quarter of 2016, we committed to invest up to $21.1 million in the development and construction of the Henderson Medical Plaza, an MOB located on the campus of the Henderson Hospital. Henderson Hospital, which is owned and operated by a subsidiary of UHS, is a newly constructed, 130-bed acute care hospital that was completed and opened during the fourth quarter of 2016.  Henderson Medical Plaza, which contains approximately 78,800 rentable square feet, is scheduled to be completed and opened during the first quarter of 2017.  A ground lease has been executed between the limited liability company that owns the MOB and a subsidiary of UHS, the terms of which include a seventy-five year lease term with two, ten-year renewal options at the lessee’s option at an adjusting lease rate. We have invested $9.5 million on the development and construction of this MOB as of December 31, 2016.

During the first quarter of 2015, we purchased from wholly-owned subsidiaries of UHS, the real property of two newly-constructed and recently opened FEDs located in Weslaco and Mission, Texas. Each FED consists of approximately 13,600 square feet and is operated by wholly-owned subsidiaries of UHS. In connection with these acquisitions, ten-year lease agreements with six, 5-year renewal terms were executed with UHS for each FED. The first four, 5-year renewal terms (covering years 2025 through 2044) include 2% annual lease rate increases, computed on a cumulative and compounded basis, and the last two, 5-year renewal terms (covering the years 2045 through 2054) will be at the then fair market value lease rates. These leases are cross-defaulted with one another. UHS has the option to purchase the leased properties upon the expiration of the fixed term and each five-year extended term at the fair market value at that time. The aggregate acquisition cost of these facilities was approximately $12.8 million, and the aggregate rental revenue earned by us at the commencement of the leases is approximately $900,000 annually.

During the third quarter of 2014, a wholly-owned subsidiary of UHS provided notification to us that, upon expiration of The Bridgeway’s lease term which occurred in December, 2014, it intended to exercise its option to purchase the real property of the facility. Pursuant to the terms of the lease, we and the wholly-owned subsidiary of UHS were both required to obtain independent appraisals of the property to determine its fair market value. On December 31, 2014, The Bridgeway, a 103-bed behavioral health facility located in North Little Rock, Arkansas, was sold to UHS for $17.3 million. A gain on divestiture of real property of approximately $13.0 million is included in our results of operations for the twelve-month period ended December 31, 2014.  Prior to its divestiture in 2014, our revenues, net cash provided by operating activities and funds from operations included approximately $1.1 million earned annually in connection with The Bridgeway’s lease.

Advisory Agreement:    UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an Advisory Agreement (the “Advisory Agreement”) dated December 24, 1986. 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. Our advisory fee was 0.70% during each of 2016, 2015 and 2014 of our average invested real estate assets, as derived from our consolidated balance sheet. In December of 2016, based upon a review of our advisory fee and other general and administrative expenses as compared to an industry peer group, the Advisory Agreement was renewed for 2017 pursuant to the same terms as the Advisory Agreement in place during the last three years.

The average real estate assets for advisory fee calculation purposes exclude certain items from our consolidated balance sheet such as, among other things, accumulated depreciation, cash and cash equivalents, base and bonus rent receivables, deferred charges and other assets. The advisory fee is payable quarterly, subject to adjustment at year-end based upon our audited financial statements. In addition, the Advisor is entitled to an annual incentive fee equal to 20% of the amount by which cash available for distribution to shareholders for each year, as defined in the Advisory Agreement, exceeds 15% of our equity as shown on our consolidated balance sheet, determined in accordance with generally accepted accounting principles without reduction for return of capital dividends. The Advisory Agreement defines cash available for distribution to shareholders as net cash flow from operations less deductions for, among other things, amounts required to discharge our debt and liabilities and reserves for replacement and capital improvements to our properties and investments. No incentive fees were paid during 2016, 2015 or 2014 since the incentive fee requirements were not achieved. Advisory fees incurred and paid (or payable) to UHS amounted to $3.3 million during 2016, $2.8 million during 2015 and $2.5 million during 2014 and were based upon average invested real estate assets of $466 million, $401 million and $363 million during 2016, 2015 and 2014, respectively.

Officers and Employees:    Our officers are all employees of a wholly-owned subsidiary of UHS and although as of December 31, 2016 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 compensation awards in the form of restricted stock and/or cash bonuses.

Share Ownership:    As of December 31, 2016 and 2015, UHS owned 5.8% and 5.9%, respectively, of our outstanding shares of beneficial interest.

SEC reporting requirements of UHS:    UHS is subject to the reporting requirements of the Securities and Exchange Commission (“SEC”) and is required to file annual reports containing audited financial information and quarterly reports containing unaudited financial information. Since the leases on the hospital facilities leased to wholly-owned subsidiaries of UHS comprised approximately 24%, 25% and 28% of our consolidated revenues for the years ended December 31, 2016, 2015 and 2014, 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.

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New Construction, Acquisitions, Dispositions and Property Exchange Transaction

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

New Construction, Acquisitions, Dispositions and Property Exchange Transaction

(3) NEW CONSTRUCTION, ACQUISITIONS, DISPOSITIONS AND PROPERTY EXCHANGE TRANSACTION

New Construction:

During the first quarter of 2016, we committed to invest up to $21.1 million in the development and construction of the Henderson Medical Plaza, an MOB located on the campus of the Henderson Hospital. Henderson Hospital, which is owned and operated by a subsidiary of UHS, is a newly constructed, 130-bed acute care hospital that was completed and opened during the fourth quarter of 2016.  Henderson Medical Plaza, which contains approximately 78,800 rentable square feet, is scheduled to be completed and opened during the first quarter of 2017.  A ground lease has been executed between the limited liability company that owns the MOB and a subsidiary of UHS, the terms of which include a seventy-five year lease term with two, ten-year renewal options at the lessee’s option at an adjusting lease rate. We have invested $9.5 million on the development and construction for this MOB as of December 31, 2016.  

2016:

Acquisitions:

During 2016, we paid approximately $60.4 million in cash, and assumed approximately $7.1 million of third-party debt that is non-recourse to us, to:

• purchase the 2704 North Tenaya Way MOB located in Las Vegas, Nevada, during the fourth quarter for a total purchase price of approximately $15.3 million, including the assumption of approximately $7.1 million of third-party debt that is non-recourse to us. The property consists of approximately 45,000 rentable square feet and is fully occupied pursuant to the terms of a triple-net lease with a remaining lease term of approximately 7.1 years at the time of acquisition.

• purchase the Frederick Memorial Hospital Crestwood, an MOB located in Frederick, Maryland, during the third quarter for approximately $24.3 million.  The property, which consists of approximately 62,300 rentable square feet, is fully occupied pursuant to the terms of triple-net leases with an average remaining lease term of approximately 12 years at the time of acquisition.

• purchase the Chandler Corporate Center III located in Chandler, Arizona, during the second quarter for approximately $18.0 million.  The property, which consists of 82,000 rentable square feet, is currently 92% occupied by one tenant pursuant to the terms of a twelve year escalating triple-net lease, with a ten year fair-market value renewal option. The lease had a remaining lease term of approximately 11.3 years at the time of acquisition.

• purchase the Madison Professional Office Building located in Madison, Alabama, during the first quarter for approximately $10.1 million, including a $150,000 deposit paid in 2015. This multi-tenant property consists of approximately 30,100 rentable square feet and is fully occupied with an average remaining lease term of approximately 6.2 years at the time of acquisition.

The aggregate purchase price for these acquisitions was allocated to the assets acquired and liabilities assumed consisting of tangible property and intangible assets and liabilities, based on the fair value estimated or finalized at acquisition as detailed in the table below. Previous reported estimated purchase price allocations that have been finalized in the fourth quarter did not have a material impact on our consolidated financial statements. The intangible assets include the value of in-place leases at the properties at the time of acquisition as well as the above market lease values. The value of the in-place leases will be amortized over the average remaining lease terms of approximately 6 to 12 years at the time of acquisition (aggregate weighted average of 8.0 years at December 31, 2016).  The above/below market leases, which are reflected below as intangible assets/below-market intangibles will be amortized over the remaining term of the respective leases. The estimated aggregate allocation is as follows:

Land	$9,914
Buildings and improvements	50,117
Intangible assets	9,211
Below-market lease intangibles	(1,287)
Deposit paid in 2015………………………………………...………………………………..	(150)
Debt (including fair value adjustment of $362)…...……..……………………………….…..	(7,499)
Financing fees paid on debt acquired……………...……..……………………………….…..	83
Net cash paid	$60,389

For these properties acquired during 2016, we recorded aggregate net revenue of approximately $2.4 million since the date of acquisition. The aggregate net losses generated by these properties since the date of acquisition, including the cost of borrowings and advisory fee expenses was approximately $134,000.

Assuming the 2016 acquisitions occurred on January 1, 2015, our unaudited pro forma net revenues for the year ended December 31, 2015 would have been approximately $67.8 million and our unaudited pro forma net income for the year ended December 31, 2015 would have been approximately $22.4 million, or $1.68 per diluted share.  The Chandler Corporate Center III was not operational during the first nine months of 2015.  Assuming these acquisitions occurred on January 1, 2016, our unaudited pro forma net revenues for the year ended December 31, 2016, would have been approximately $70.2 million and our unaudited pro forma net income for the year ended December 31, 2016 would have been approximately $16.7 million, or $1.24 per diluted share.

As of December 31, 2016, our net intangible assets total $23.8 million (net of $27.1 million accumulated amortization) and substantially all of the amount is related to acquired, in-place leases which have a weighted average remaining amortization period of 4.3 years.

Divestitures:  

There were no divestitures during 2016.

2015:

Property Exchange Transaction:

In May, 2015, in exchange for the real property of Sheffield Medical Building (“Sheffield”), a 73,446 square foot MOB located in Atlanta, Georgia, we received $2 million in cash and the real property of two MOBs located in Sandy Springs and Vinings, Georgia, from an unrelated third party. In connection with the two MOBs acquired in this transaction, triple net, master lease agreements applicable to 100% of the combined 36,700 rentable square feet of these properties were executed with the counterparty. These master lease agreements have initial terms of 15 years and provide for 3% annual rent increases. We recorded an $8.7 million gain which is included in our Consolidated Statements of Income for the year ended December 31, 2015, representing the difference between recorded net book value of Sheffield and the fair values of the properties exchanged, combined with the cash proceeds received.  

Acquisitions:

In February, 2015, we purchased the Haas Medical Office Park, two single story buildings having an aggregate of approximately 16,000 rentable square feet, located in Ottumwa, Iowa, for approximately $4.1 million.

In January and February of 2015, we purchased from wholly-owned subsidiaries of UHS, the real property of two newly-constructed and recently opened FEDs located in Weslaco and Mission, Texas, for an aggregate acquisition cost of approximately $12.8 million. Each FED consists of approximately 13,600 square feet and is operated by wholly-owned subsidiaries of UHS. In connection with these acquisitions, ten-year lease agreements with six 5-year renewal terms were executed with UHS for each FED. In connection with the lease agreements, the lessee shall have the option to purchase the leased property upon the expiration of the fixed term and each five-year extended term at the fair market value at that time.

The aggregate purchase price for these three MOBs and two FEDs was allocated to the assets acquired and liabilities assumed consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at the MOBs at the time of acquisition which will be amortized over the average remaining lease term of approximately 15.0 years at the time of acquisition (aggregate weighted average of 13.4 years at December 31, 2016) for each of the MOBs located in Sandy Springs and Vinings, Georgia and approximately 10.4 years at the time of acquisition (aggregate weighted average of 8.6 years at December 31, 2016) for the Haas Medical Office Park.

Land	$7,050
Buildings and improvements	17,518
Intangible assets	2,182
Cash received- exchange transaction	2,000
Other liabilities	(116)
Deposit paid in 2014	(100)
Net book value of property divested in exchange transaction	(3,027)
Gain on exchange transaction	(8,742)
Net cash paid	$16,765

2014:

Acquisitions:

In August, 2014, we purchased the Hanover Emergency Center, a 22,000 rentable square feet, free-standing, full service emergency and imaging center, located in Mechanicsville, VA, for approximately $8.6 million. The single-tenant property is occupied pursuant to the terms of a 10-year lease with HCA Health Services of Virginia, Inc.

In January, 2014, we paid an aggregate of $7.2 million, (including a $150,000 deposit made in 2013), to purchase the following in a single transaction: (i) The Children’s Clinic at Springdale – a 9,800 square foot, single-tenant medical office building located in Springdale, Arkansas, and; (ii) The Northwest Medical Center at Sugar Creek – a 13,700 square foot, multi-tenant medical office building located in Bentonville, Arkansas.

The aggregate purchase price for these clinics and MOB was allocated to the assets and liabilities acquired consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below. Substantially all of the intangible assets include the value of the in-place leases at the clinics and MOB at the time of acquisition which will be amortized over the average remaining lease term of approximately 9.8 years at the time of acquisition (aggregate weighted average of 7.5 years at December 31, 2016) for the Hanover Emergency Center and approximately 9.7 years at the time of acquisition (aggregate weighted average of 6.7 years at December 31, 2016) for the Arkansas facilities.

Land	$3,010
Buildings and improvements	10,664
Intangible assets	2,076
Deposit paid in 2013	(150)
Net cash paid	$15,600

Additionally, during January and August, 2014, we spent an aggregate of $7.0 million, including $4.7 million in cash plus an additional $2.3 million in the form of a note payable to the previous third-party member (which was fully repaid in January, 2015) to purchase the minority ownership interests held by third party members in eight LLCs (as noted in the table below) in which we previously held various non-controlling majority ownership interests ranging from 85% to 95%.

Name of LLC/LP	Ownership prior to minority interest purchase		Property Owned by LLC	Effective Date
Palmdale Medical Properties		95%	Palmdale Medical  Plaza	January1,2014
Sparks Medical Properties		95%	Vista Medical Terrace & Sparks  MOB	January1,2014
DVMC Properties		90%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95%	PhoenixChildren’sEastValleyCareCenter	August 1, 2014
3811 Bell Medical Properties		95%	3811 E. Bell	August 1, 2014

As a result of these minority ownership purchases, we now own 100% of each of these LLCs, which own medical office buildings, and began accounting for each on a consolidated basis at the effective date as noted in the table above. Pursuant to current accounting standards, at the effective date, we were required to record each property’s assets and liabilities at their fair values which resulted in the recording of a $25.4 million non-cash gain, which is included in our Consolidated Statement of Income for the twelve months ended December 31, 2014, representing the difference between the fair values and the equity method carrying value of each investment. The calculated fair value, categorized in level 3 of the fair value hierarchy and utilizing the income capitalization approach, is based upon the basis of capitalization of the net estimated earnings expectancy of the property, assuming continued use similar to the existing use of the acquired property. Each property’s continued cash flow analysis were also utilized in estimating the fair value of the property, whereby cash flows from the various tenants are calculated based upon lease commencement and termination dates. The capitalization rate and discount rate ranged from 7%-8.75% and 8%-9.75%, respectively.

The aggregate purchase price for these MOBs was allocated to net tangible property ($84.0 million), identified intangible assets ($6.5 million), and long term debt ($29.8 million). Substantially all of the intangible assets include the value of the in-place leases at these MOBs at the time of acquisition which will be amortized over the combined average remaining lease term of approximately 4.7 years at the time of acquisition (aggregate weighted average of 4.0 years at December 31, 2016) for the August, 2014 transactions and 5.3 years at the time of acquisition (aggregate weighted average of 3.9 years at December 31, 2016) for the January, 2014 transactions. Other than the increased depreciation and amortization expense resulting from the amortization of the intangible assets recorded in connection with these transactions, there was no material impact on our net income as a result of the consolidation of these LLCs.

Divestitures:

In December, 2014, upon expiration of The Bridgeway’s lease term, a wholly-owned subsidiary of UHS exercised its option to purchase the real property of the facility. The sale of The Bridgeway, a 103-bed behavioral health facility located in North Little Rock, Arkansas, generated $17.3 million of sale proceeds. Pursuant to the terms of the lease, we and the wholly-owned subsidiary of UHS were both required to obtain independent appraisals of the property to determine its fair market value of $17.3 million. A $13.0 gain is included in our Consolidated Statement of Income for the twelve months ended December 31, 2014, representing the difference between the fair market value and the book value of this property.

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Leases

12 Months Ended

Dec. 31, 2016

Leases [Abstract]

Leases

(4) LEASES

All of our leases are classified as operating leases with initial terms typically ranging from 3 to 15 years with up to five additional, five-year renewal options. Under the terms of the leases, we earn fixed monthly base rents and pursuant to the leases with subsidiaries of UHS, we may earn periodic bonus rents (see Note 1). The bonus rents from the subsidiaries of UHS, which are based upon each facility’s net revenue in excess of base amounts, are computed and paid on a quarterly basis based upon a computation that compares current quarter revenue to the corresponding quarter in the base year.

Minimum future base rents from non-cancelable leases related to properties included in our financial statements on a consolidated basis, excluding increases resulting from changes in the consumer price index, bonus rents and the impact of straight line rent adjustments, are as follows (amounts in thousands):

2017	$	54,922
2018		49,885
2019		44,647
2020		39,742
2021		35,837
Thereafter		64,932
Total minimum base rents	$	289,965

Some of the leases contain gross terms where operating expenses are included in the base rent amounts. Other leases contain net terms where the operating expenses are assessed separately from the base rentals. The table above contains a mixture of both gross and net leases, and does not include any separately calculated operating expense reimbursements. Under the terms of the hospital leases, the lessees are required to pay all operating costs of the properties including property insurance and real estate taxes. Tenants of the medical office buildings generally are required to pay their pro-rata share of the property’s operating costs.

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Debt and Financial Instruments

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Debt and Financial Instruments

(5) DEBT AND FINANCIAL INSTRUMENTS

Debt:

Management routinely monitors and analyzes the Trust’s capital structure in an effort to maintain the targeted balance among capital resources including the level of borrowings pursuant to our $250 million revolving credit facility, the level of borrowings pursuant to non-recourse mortgage debt secured by the real property of our properties and our level of equity including consideration of additional equity issuances pursuant to our at-the-market 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 facility 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 March 27, 2015, we entered into a $185 million revolving credit agreement (“Credit Agreement”) which was amended on May 24, 2016 to, among other things, increase the borrowing capacity to $250 million. The amended Credit Agreement, which is scheduled to mature in March, 2019, includes a $40 million sub limit for letters of credit and a $20 million sub limit for swingline/short-term loans. The Credit Agreement also provides a one-time option to extend the maturity date for an additional one year period, and an option to increase the total facility borrowing capacity up to an additional $50 million, subject to lender agreement. Borrowings under the Credit Agreement are guaranteed by certain subsidiaries of the Trust. In addition, borrowings under the Credit Agreement are secured by first priority security interests in and liens on all equity interests in the Trust’s wholly-owned subsidiaries. Borrowings made pursuant to the Credit Agreement will bear interest, at our option, at one, two, three, or six month LIBOR plus an applicable margin ranging from 1.50% to 2.00% or at the Base Rate plus an applicable margin ranging from 0.50% to 1.00%. The Credit Agreement defines “Base Rate” as the greatest of: (a) the administrative agent’s prime rate; (b) the federal funds effective rate plus 1/2 of 1%, and; (c) one month LIBOR plus 1%. A commitment fee of 0.20% to 0.40% (depending on our total leverage ratio) will be charged on the average unused portion of the revolving credit commitments. The margins over LIBOR, Base Rate and the commitment fee are based upon our ratio of debt to total capital. At December 31, 2016, the applicable margin over the LIBOR rate was 1.625%, the margin over the Base Rate was 0.625%, and the commitment fee was 0.25%.

At December 31, 2016, we had $201.5 million of outstanding borrowings and $2.7 million of letters of credit outstanding against our revolving credit agreement. The carrying amount and fair value of borrowings outstanding pursuant to the Credit Agreement was $201.5 million at December 31, 2016. We had $45.8 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2016. There are no compensating balance requirements.  The average amount outstanding under our revolving credit agreement (which as amended in May, 2016 to an increased borrowing capacity of $250 million, as discussed above) was $164.2 million in 2016, with a corresponding effective interest rate, including commitment fees, of 2.3%. The average amount outstanding under our revolving credit agreement was $114.3 million in 2015 with a corresponding effective interest rate, including commitment fees, of 2.1%.  The average amount outstanding under our previous revolving credit agreement (which was replaced in March, 2015, as discussed above), was $104.6 million in 2014 with a corresponding effective interest rate, including commitment fees, of 2.4%. 

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 net worth, as well as customary events of default, the occurrence of which may trigger an acceleration of amounts outstanding under the Credit Agreement. We are in compliance with all of the covenants at December 31, 2016. We also believe that we would remain in compliance if the full amount of our commitment was borrowed.

The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):

		Covenant			2016
Tangible net worth		$	125,000		$	167,462
Total leverage		< 60		%		48.6	%
Secured leverage		< 30		%		18.1	%
Unencumbered leverage		< 60		%		50.3	%
Fixed charge coverage	> 1.50x			3.6x

As indicated on the following table, we have fifteen mortgages, all of which are non-recourse to us, included on our consolidated balance sheet as of December 31, 2016  (amounts in thousands):

Facility Name	Outstanding Balance (in thousands)(a.)			Interest Rate			Maturity Date
Summerlin Hospital Medical Office Building III    floating rate mortgage loan (b.)	$	10,384			3.88	%	March, 2017
Peace Health fixed rate mortgage loan (b.)		20,309			5.64	%	April, 2017
Auburn Medical II floating rate mortgage loan (b.)		6,726			3.37	%	April, 2017
Medical Center of Western Connecticut fixed rate    mortgage loan (b.)		4,535			6.00	%	June, 2017
Summerlin Hospital Medical Office Building II fixed    rate mortgage loan (b.)		11,092			5.50	%	October, 2017
Phoenix Children’s East Valley Care Center fixed rate    mortgage loan (b.)		6,202			5.88	%	December, 2017
Centennial Hills Medical Office Building floating rate    mortgage loan		10,040			3.88	%	January, 2018
Sparks Medical Building/Vista Medical Terrace    floating rate mortgage loan		4,231			3.88	%	February, 2018
Rosenberg Children’s Medical Plaza fixed rate    mortgage loan		8,146			4.85	%	May, 2018
Vibra Hospital-Corpus Christi fixed rate mortgage loan		2,723			6.50	%	July, 2019
700 Shadow Lane and Goldring MOBs fixed rate    mortgage loan		6,248			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		6,316			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		5,081			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		7,137			4.95	%	November, 2023
Tuscan Professional Building fixed rate mortgage loan		4,992			5.56	%	June, 2025
Total, excluding net debt premium and net financing fees		114,162
Less net financing fees		(381	)
Plus net debt premium		436
Total mortgage notes payable, non-recourse to us, net	$	114,217

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

(b.) This loan is scheduled to mature within the next twelve months, at which time we will decide whether to refinance pursuant to a new mortgage loan or by utilizing borrowings under our Credit Agreement.

The mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages have a combined fair value of approximately $115.7 million as of December 31, 2016. We consider these to be “Level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.  Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact on interest incurred or cash flow.

At December 31, 2015, we had fourteen mortgages, all of which were non-recourse to us, included in our consolidated balance sheet. The combined outstanding balance of these fourteen mortgages was $110.3 million (excluding net debt premium of $298,000 and net of net financing fees of $398,000 at December 31, 2015), and had a combined fair value of approximately $112.4 million at December 31, 2015.  We consider these to be “Level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.

As of December 31, 2016, our aggregate consolidated scheduled debt repayments (including mortgages) are as follows (amounts in thousands):

2017	$	61,115
2018		23,043
2019 (a.)		205,251
2020		1,292
2021		1,356
Later		23,605
Total	$	315,662

(a) Includes repayment of $201.5 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

Financial Instruments:

During the third quarter of 2013, we entered into an interest rate cap on a total notional amount of $10 million whereby we paid a premium of $136,000. During the first quarter of 2014, we entered into two additional interest rate cap agreements on a total notional amount of $20 million whereby we paid premiums of $134,500. In exchange for the premium payments, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap. From inception through December 31, 2016, no payments have been made to us by the counterparties pursuant to the terms of these caps which expired in January, 2017.  

During the second quarter of 2016, we entered into an interest rate cap on the total notional amount of $30 million whereby we paid a premium of $115,000.  In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.50% and one-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap.  This interest rate cap became effective in January, 2017, coinciding with the expiration of the above-mentioned interest rate caps and expires in March, 2019.  

During the third quarter of 2016, we entered into an additional interest rate cap agreement on a total notional amount of $30 million whereby we paid a premium of $55,000.  In exchange for the premium payment, the counterparties agreed to pay us the difference between 1.5% and one-month LIBOR if one-month LIBOR rises above 1.5% during the term of the cap.  This interest rate cap became effective in October, 2016 and expires in March, 2019.

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Dividends and Equity Issuance Program

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Dividends and Equity Issuance Program

(6) DIVIDENDS AND EQUITY ISSUANCE PROGRAM

Dividends:

During each of the last three years, dividends were declared and paid by us as follows:

• 2016:    $2.60 per share of which $2.00 per share was ordinary income and $.60 per share was a return of capital distribution.

• 2015:    $2.56 per share of which $2.17 per share was ordinary income and $.39 per share was a return of capital distribution.

• 2014:    $2.52 per share of which $1.478 per share was ordinary income and $1.042 per share was total capital gain (total capital gain amount includes Unrecaptured Section 1250 gain of $.305 per share).

Equity Issuance Program:

During the second quarter of 2016, we recommenced our 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 approximately $23.3 million to or through Merrill Lynch, Pierce, Fenner and Smith, Incorporated (“Merrill Lynch”), as sales agent and/or principal. The common shares were offered pursuant to the Registration Statement filed with the Securities and Exchange Commission, which became effective during the fourth quarter of 2015.

Pursuant to the ATM Program, during the twelve months ended December 31, 2016, there were 249,016 shares issued at an average price of $55.30 per share (all of which were issued during the second quarter), which generated approximately $13.2 million of cash net proceeds (net of approximately $558,000, consisting of compensation of $344,000 to Merrill Lynch, as well as $214,000 of other various fees and expenses). As of December 31, 2016, we had approximately $9.5 million of gross proceeds still available for issuance under the program.  Since inception of this ATM program through December 31, 2016, we have issued 829,916 shares at an average price of $48.77 per share, which generated approximately $38.8 million of net proceeds (net of approximately $1.7 million, consisting of compensation of $1.0 million to Merrill Lynch as well as $680,000 of other various fees and expenses).  We have, and intend, to use the proceeds generated pursuant to the ATM program to reduce amounts outstanding under our revolving credit agreement.  After such repayment of debt, we may re-borrow funds under our revolving credit agreement for general operating purposes, including working capital, capital expenditures, acquisitions, dividend payments and the refinance of third-party debt.

There were no shares issued pursuant to an ATM program during 2015. During 2014, pursuant to an ATM equity issuance program in effect at that time, which is now expired, we issued 426,187 shares at an average price of $47.51 per share, which generated approximately $19.5 million of net proceeds, approximately $1.1 million of which were received in early January, 2015 (net of approximately $700,000, consisting of compensation of $506,000 to Merrill Lynch, as well as $195,000 of other various fees and expenses).

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Incentive Plans

12 Months Ended

Dec. 31, 2016

Postemployment Benefits [Abstract]

Incentive Plans

(7) INCENTIVE PLANS

During 2007, upon the expiration of our 1997 Incentive Plan, as discussed below, our Board of Trustees and shareholders approved the Universal Health Realty Income Trust 2007 Restricted Stock Plan which was amended and restated in 2016 (the “2007 Plan”). An aggregate of 125,000 shares were authorized for issuance under this plan and a total of 77,285 shares, net of cancellations, have been issued pursuant to the terms of this plan, 57,825 of which have vested as of December 31, 2016. At December 31, 2016 there are 47,715 shares remaining for issuance under the terms of the 2007 Plan.

During 2016, there were 9,730 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant to the 2007 Plan at a weighted average grant price of $56.34 per share ($548,188 in the aggregate). These restricted shares are scheduled to vest in June of 2018 (the second anniversary of the date of grant).

During 2015, there were 9,730 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant to the 2007 Plan at a weighted average grant price of $47.75 per share ($464,608 in the aggregate). These restricted shares are scheduled to vest in June of 2017 (the second anniversary of the date of grant).

During 2014, there were 9,850 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant to the 2007 Plan at a weighted average grant price of $43.21 per share ($425,619 in the aggregate). These restricted shares vested in June of 2016 (the second anniversary of the date of grant).

We expense the grant-date fair value restricted stock awards under the straight-line method over the stated vesting period of the award. In connection with these grants, we recorded compensation expense of approximately $481,000, $427,000 and $399,000 during 2016, 2015 and 2014, respectively. The remaining expenses associated with these grants is approximately $485,000 and will be recorded over the remaining weighted average vesting period for outstanding restricted Shares of Beneficial Interest of approximately one year at December 31, 2016.

Prior to its expiration in 2007, the Universal Health Realty Income Trust 1997 Incentive Plan (the “1997 Plan”) provided for the granting of stock options and dividend equivalents rights (“DERs”) to employees of the Trust, including officers and trustees. Awards granted pursuant to the 1997 Plan prior to its termination date remained exercisable, in accordance with the terms of the outstanding agreements. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. The options granted vested ratably at 25% per year beginning one year after the date of grant, and expired in ten years. DERs on outstanding awards were earned in amounts equal to the cash or stock dividends declared subsequent to the date of grant. As of December 31, 2016, there were no options outstanding under the 1997 Plan. The net expense recorded in connection with the DERs did not have a material impact on our consolidated financial statements during each of the years ended December 31, 2016, 2015 and 2014.

During the fourth quarter of 2008, the Board of Trustees of the Trust approved amendments to the outstanding stock option agreements made pursuant to the 1997 Plan. These original agreements provided for the deferred payment of dividend equivalents on shares covered by the options, with payment tied to the date the options were exercised or expire. In order to meet certain changes to tax law requirements, the agreements, as amended, provided for the current payment of dividend equivalents in the years in which dividends were declared and paid or, if later, when the related options became vested. There were no DERs were outstanding at December 31, 2016.  DERs with respect to 23,000 shares and 36,000 shares were outstanding at December 31, 2015 and 2014, respectively. In December of 2016, 2015 and 2014, DERs which were vested and accrued as of each respective date, were paid to officers and Trustees of the Trust amounting to approximately $30,000, $75,000 and $94,000, respectively.

Stock options to purchase shares of beneficial interest have been granted to eligible individuals, including our officers and trustees. Information with respect to these options, before adjustment to the option price to give effect to the dividend equivalent rights, is summarized as follows:

Outstanding Options	Number of Shares			Exercise Weighted- Average Price		Grant PriceRange (High-Low)
Balance, January 1, 2014		40,000		$	35.65	$36.53/$30.06
Exercised		(4,000	)		33.07	$30.06/$34.07
Balance, January 1, 2015		36,000		$	35.94	$34.90/$36.53
Exercised		(13,000	)		34.90	$34.90/$34.90
Balance, January 1, 2016		23,000		$	36.53	$36.53/$36.53
Exercised		(23,000	)		36.53	$36.53/$36.53
Outstanding options vested and exercisable as of    December 31, 2016		—		N/A		N/A

During 2016, there were 23,000 stock options exercised with a total in-the-money value of $520,420.  During 2015, there were 13,000 stock options exercised with a total in-the-money value of $154,500. During 2014, there were 4,000 stock options exercised with a total in-the-money value of $44,160.  There are no options outstanding at December 31, 2016.

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Summarized Financial Information of Equity Affiliates

12 Months Ended

Dec. 31, 2016

Equity Method Investments And Joint Ventures [Abstract]

Summarized Financial Information of Equity Affiliates

(8) SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES

In accordance with the Financial Accounting Standards Board’s (“FASB”) standards and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting.  The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent 33% to 95% non-controlling ownership interests, are recorded initially at our cost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.

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

At December 31, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. As of December 31, 2016, we accounted for these LLCs/LPs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities and we do not have a controlling voting interest. The majority of these entities are joint-ventures between us and non-related parties that manage and hold minority ownership interests in the entities. Each entity is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and service the third-party debt (if applicable) that is non-recourse to us. Although there is typically no ongoing financial support required from us to these entities since they are cash-flow sufficient, we may, from time to time, provide funding for certain purposes such as, but not limited to, significant capital expenditures, leasehold improvements and debt financing. Although we are not obligated to do so, if approved by us at our sole discretion, additional cash fundings are typically advanced as equity or member loans. These entities maintain property insurance on the properties.

Effective February 1, 2016, we purchased an additional 10% ownership interest in the Arlington Medical Properties, LLC from the third-party minority member for approximately $4.8 million in cash, subject to certain agreed upon terms and conditions. Including this additional ownership interest, we currently own 85% of this LLC which is accounted for on an unconsolidated basis pursuant to the equity method.

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

Name of LLC/LP	Ownership prior to minority interest purchase			Property Owned by LLC	Effective Date
DVMC Properties		90	%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90	%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85	%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95	%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95	%	Phoenix Children’s East Valley Care Center	August 1, 2014
3811 Bell Medical Properties		95	%	North Valley Medical Plaza	August 1, 2014

The following property table represents the five LLCs or LPs in which we own a noncontrolling interest and were accounted for under the equity method as of December 31, 2016:

Name of LLC/LP	Ownership			Property Owned by LLC
Suburban Properties		33	%	St. Matthews Medical Plaza II
Brunswick Associates (a.)		74	%	Mid Coast Hospital MOB
Arlington Medical Properties (b.)		85	%	Saint Mary’s Professional Office Building
Grayson Properties (c.)		95	%	Texoma Medical Plaza
FTX MOB Phase II (d.)		95	%	Forney Medical Plaza II

(a.) This LLC has a third-party term loan of $8.6 million, which is non-recourse to us, outstanding as of December 31, 2016.

(b.) We have funded $5.2 million in equity as of December 31, 2016 and are committed to invest an additional $623,000. During the fourth quarter of 2015, we advanced this LLC a member loan, the funds of which were utilized to repay its $22.8 million outstanding third-party mortgage loan on its scheduled maturity date.  The member loan has an interest rate of 5.29% and is scheduled to mature in January, 2018.  Additionally, pursuant to the terms and conditions of an agreement executed in February, 2016, we purchased an additional 10% of the ownership interest in this LLC from the existing third-party member for approximately $4.8 million in cash, thereby increasing our ownership interest to 85%.

(c.) We have funded $2.8 million in equity as of December 31, 2016, and are committed to fund an additional $149,000. This building is on the campus of a UHS hospital and has tenants that include subsidiaries of UHS. This LP has a third-party term loan of $14.4 million, which is non-recourse to us, outstanding as of December 31, 2016

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

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

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

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

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

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

	December 31,
	2016			2015
	(amounts in thousands)
Net property, including CIP	$	60,970		$	61,668
Other assets		4,598			5,264
Total assets	$	65,568		$	66,932
Other liabilities	$	3,334		$	2,538
Mortgage notes payable, non-recourse to us		28,367			28,895
Advances payable to us (a.)		21,638			22,489
Equity		12,229			13,010
Total liabilities and equity	$	65,568		$	66,932
Our share of equity in and advances to LLCs reflected as:
Investments in LLCs	$	13,955		$	9,108
Advances to LLCs		21,638			22,489
Investments in and advances to LLCs before amounts included in accrued expenses and other liabilities		35,593			31,597
Amounts included in accrued expenses and other liabilities		(1,862	)		(1,105	)
Our share of equity in and advances to LLCs, net	$	33,731		$	30,492

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

As of December 31, 2016, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs, which are accounted for under the equity method and are non-recourse to us, are as follows (amounts in thousands):

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

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

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

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

Pursuant to the operating and/or partnership agreements of the five LLCs/LPs in which we continue to hold non-controlling ownership interests, the third-party member and the Trust, at any time, potentially subject to certain conditions, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it either agrees to: (i) sell the entire ownership interest of the Offering Member to the Non-Offering Member (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has 60 to 90 days to either: (i) purchase the entire ownership interest of the Offering Member at the Transfer Price, or; (ii) sell its entire ownership interest to the Offering Member at the equivalent proportionate Transfer Price. The closing of the transfer must occur within 60 to 90 days of the acceptance by the Non-Offering Member.

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Segment Reporting

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Segment Reporting

(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 one 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.

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Quarterly Results

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Quarterly Results

(10) QUARTERLY RESULTS (unaudited)

	2016
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Revenues	$	16,226	$	16,461	$	16,801	$	17,593	$	67,081
Net income	$	4,428	$	4,523	$	3,818	$	4,446	$	17,215
Total basic earnings per share	$	0.33	$	0.34	$	0.28	$	0.33	$	1.28
Total diluted earnings per share	$	0.33	$	0.34	$	0.28	$	0.33	$	1.28

	2015
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Revenues	$	16,202	$	16,049	$	15,686	$	16,013	$	63,950
Net income before gains	$	3,696	$	3,262	$	3,639	$	4,352	$	14,949
Gain on property exchange		—		8,742		—		—	$	8,742
Net income	$	3,696	$	12,004	$	3,639	$	4,352	$	23,691
Total basic earnings per share	$	0.28	$	0.90	$	0.27	$	0.33	$	1.78
Total diluted earnings per share	$	0.28	$	0.90	$	0.27	$	0.33	$	1.78

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Real Estate and Accumulated Depreciation

12 Months Ended

Dec. 31, 2016

Real Estate And Accumulated Depreciation Disclosure [Abstract]

Real Estate and Accumulated Depreciation

Schedule III

Universal Health Realty Income Trust

Real Estate and Accumulated Depreciation — December 31, 2016

(amounts in thousands)

										Gross amount at										Date of
										which carried										Completion of
	Initial Cost									at end of period								Accumulated		Construction,
Description	Encumbrance (c.)		Land		Building & Improv.		Adjustments to Basis (a.)			Land		Building & Improvements		CIP		Total		Depreciation as of Dec. 31, 2016		Acquisition or Significant improvement	Date Acquired	Average Depreciable Life
Inland Valley Regional    Medical Center    Wildomar, California		—	$	2,050	$	10,701	$	14,596		$	2,050	$	25,297			$	27,347	$	12,596	2007	1986	43 Years
McAllen Medical Center    McAllen, Texas		—		4,720		31,442		10,189			6,281		40,070				46,351		26,276	1994	1986	42 Years
Wellington Regional    Medical Center    West Palm Beach,  Florida		—		1,190		14,652		17,370			1,663		31,549				33,212		18,410	2006	1986	42 Years
HealthSouth Deaconess    Rehabilitation Hospital    Evansville, Indiana		—		500		6,945		1,062			500		8,007				8,507		5,475	1993	1989	40 Years
Kindred Chicago Central Hospital    Central Chicago, Illinois		—		158		6,404		1,838			158		8,242				8,400		8,242	1993	1986	25 Years
Family Doctor’s Medical Office Building    Shreveport, Louisiana		—		54		1,526		494			54		2,020				2,074		997	1991	1995	45 Years
Kelsey-Seybold Clinic at King's Crossing    Kingwood, Texas		—		439		1,618		878			439		2,496				2,935		1,352	1995	1995	45 Years
Professional Buildings at King's Crossing    Kingwood, Texas		—		439		1,837		251			439		2,088		9		2,536		1,008	1995	1995	45 Years
Chesterbrook Academy    Audubon, Pennsylvania		—		307		996		—			307		996				1,303		456	1996	1996	45 Years
Chesterbrook Academy    New Britain,  Pennsylvania		—		250		744		—			250		744				994		343	1991	1996	45 Years
Chesterbrook Academy    Uwchlan, Pennsylvania		—		180		815		—			180		815				995		374	1992	1996	45 Years
Chesterbrook Academy    Newtown,  Pennsylvania		—		195		749		—			195		749				944		345	1992	1996	45 Years
The Southern Crescent Center (b.)    Riverdale, Georgia		—		1,130		5,092		(2,271	)		1,130		2,821				3,951		2,419	1994	1996	45 Years
The Southern Crescent Center II (b.)    Riverdale, Georgia		—		—		—		4,981			806		4,175				4,981		2,278	2000	1998	35 Years
The Cypresswood    Professional Center    Spring, Texas		—		573		3,842		813			573		4,655				5,228		2,770	1997	1997	35 Years
701 South Tonopah  Building    Las Vegas, Nevada		—		—		1,579		68			—		1,647				1,647		1,077	1999	1999	25 Years
Medical Center of Western    Connecticut    Danbury, Connecticut		4,535		1,151		5,176		544			1,151		5,720				6,871		3,349	2000	2000	30 Years
Vibra Hospital of Corpus Christi    Corpus Christi, Texas		2,723		1,104		5,508		—			1,104		5,508				6,612		1,400	2008	2008	35 Years
Apache Junction Medical Plaza    Apache Junction, AZ		—		240		3,590		1,159			240		4,749				4,989		1,009	2004	2004	30 Years
Auburn Medical Office    Building II    Auburn, WA		6,726		—		10,200		176			—		10,376				10,376		1,716	2009	2009	36 Years
BRB Medical Office Building    Kingwood, Texas		6,316		430		8,970		32			430		9,002				9,432		1,471	2010	2010	37 Years
Centennial Hills Medical    Office Building    Las Vegas, NV		10,040		—		19,890		1,299			—		21,189		86		21,275		3,733	2006	2006	34 Years
Desert Springs Medical Plaza    Las Vegas, NV		—		1,200		9,560		1,081			1,200		10,641				11,841		2,175	1998	1998	30 Years
700 Shadow Lane &    Goldring MOBs    Las Vegas, NV		6,248		400		11,300		3,012			400		14,312		288		15,000		2,742	2003	2003	30 Years
Spring Valley Hospital MOB I    Las Vegas, NV		—		—		9,500		709			—		10,209		22		10,231		1,865	2004	2004	35 Years

Schedule III

Universal Health Realty Income Trust

Real Estate and Accumulated Depreciation — December 31, 2016 (continued)

(amounts in thousands)

									Gross amount at										Date of
									which carried										Completion of
	Initial Cost								at end of period								Accumulated		Construction,
Description	Encumbrance (c.)		Land		Building & Improv.		Adjustments to Basis (a.)		Land		Building & Improvements		CIP		Total		Depreciation as of Dec. 31, 2016		Acquisition or Significant improvement	Date Acquired	Average Depreciable Life
Spring Valley Hospital    MOB II    Las Vegas, NV		—		—		9,800		488		—		10,288				10,288		1,860	2006	2006	34 Years
Summerlin Hospital    MOB I    Las Vegas, NV		—		460		15,440		824		460		16,264		113		16,837		3,282	1999	1999	30 Years
Summerlin Hospital    MOB II    Las Vegas, NV		11,092		370		16,830		1,275		370		18,105		53		18,528		3,523	2000	2000	30 Years
Summerlin Hospital    MOB III    Las Vegas, NV		10,384		—		14,900		2,137		—		17,037				17,037		2,698	2009	2009	36 Years
Emory at Dunwoody    Building    Dunwoody, GA		—		782		3,455		—		782		3,455				4,237		658	2011	2011	35 Years
Forney Medical Plaza    Forney, TX		—		910		11,960		55		910		12,015	1			12,926		2,565	2011	2011	35 Years
Lake Pointe Medical Arts    Building    Rowlett, TX		—		1,100		9,000		31		1,100		9,031	1			10,132		1,687	2011	2011	35 Years
Tuscan Professional Building    Irving, TX		4,992		1,100		12,525		244		1,100		12,769				13,869		2,176	2011	2011	35 Years
Peace Health Medical    Clinic    Bellingham, WA		20,309		1,900		24,910		—		1,900		24,910				26,810		4,201	2012	2012	35 Years
Northwest Texas    Professional Office Tower    Amarillo, TX		—		—		7,180		—		—		7,180				7,180		967	2012	2012	35 Years
Ward Eagle Office Village    Farmington Hills, MI		—		220		3,220		—		220		3,220				3,440		406	2013	2013	35 Years
5004 Poole Road MOB    Denison, TX		—		96		529		—		96		529				625		63	2013	2013	35 Years
Desert Valley Medical    Center (d.)    Phoenix, AZ		5,081		2,280		4,624		400		2,280		5,024		1		7,305		506	1996	1996	30 Years
Hanover Emergency Center    Mechanicsville, VA		—		1,300		6,224		—		1,300		6,224				7,524		490	2014	2014	35 Years
Haas Medical Office Park    Ottumwa, IA		—		—		3,571		—		—		3,571				3,571		222	2015	2015	35 Years
Mission Free-standing Emergency    Department    Mission, TX		—		1,441		4,696				1,441		4,696				6,137		301	2015	2015	35 Years
North Valley Medical    Plaza (d.)    Phoenix, AZ		—		930		6,929		60		930		6,989	360			8,279		652	2010	2010	30 Years
Northwest Medical Center    at Sugar Creek    Bentonville, AR		—		1,100		2,870		—		1,100		2,870				3,970		270	2014	2014	35 Years
The Children’s Clinic at    Springdale    Springdale, AR		—		610		1,570		—		610		1,570				2,180		172	2014	2014	35 Years
Rosenberg Children’s    Medical Plaza (d.)    Phoenix, AZ		8,146		—		23,302		34		—		23,336				23,336		1,897	2001	2001	35 Years
Phoenix Children’s East (d.)    Valley Care Center    Phoenix, AZ		6,202		1,050		10,900		—		1,050		10,900				11,950		884	2006	2006	35 Years
Palmdale Medical Plaza (d.)    Palmdale, CA		—		—		10,555		1,701		—		12,256				12,256		1,175	2008	2008	34 Years
Piedmont-Roswell Physician Center    Sandy Springs, GA		—		2,338		2,128		—		2,338		2,128				4,466		151	2015	2015	30 Years
Piedmont-Vinings Physician Center    Vinings, GA		—		1,348		2,418		—		1,348		2,418				3,766		166	2015	2015	30 Years
Santa Fe Professional    Plaza (d.)    Scottsdale, AZ		—		1,090		1,960		312		1,090		2,272		36		3,398		236	1999	1999	30 Years
Sierra San Antonio Medical    Plaza (d.)    Fontana, CA		—		—		11,538		206		—		11,744	9			11,753		1,074	2006	2006	30 Years
Vista Medical Terrace &    Sparks MOB (d.)    Sparks, NV		4,231		—		9,276		569		—		9,845		28		9,873		1,280	2008	2008	30 Years
Weslaco Free-standing    Emergency Dept    Weslaco ,TX		—		1,749		4,879		—		1,749		4,879				6,628		321	2015	2015	35 Years
Chandler Corporate Center III    Chandler, AZ		—		2,328		14,131		—		2,328		14,131				16,459		352	2016	2016	35 Years
Frederick Crestwood MOB    Frederick, MD		—		2,258		18,973		—		2,258		18,973				21,231		216	2016	2016	35 Years
Madison Professional    Office Building    Madison, AL		—		2,296		6,411		—		2,296		6,411				8,707		215	2016	2016	35 Years
Tenaya Medical    Office Building    Las Vegas, NV		7,137		3,032		10,602		—		3,032		10,602				13,634		44	2016	2016	35 Years
Henderson Medical Plaza (e.)    Henderson, NV		—		—		—		—		—		—		9,464		9,464			2017
TOTALS	$	114,162	$	48,798	$	459,942	$	66,617	$	51,638	$	523,719	$	10,471	$	585,828	$	138,588

a. Costs capitalized/divested subsequent to acquisition.

b. During 2008, a $4.6 million provision for asset impairment was recorded in connection with the real estate assets of Southern Crescent Center I & Southern Crescent Center II.

c. Consists of outstanding balances as of December 31, 2016 on third-party debt that is non-recourse to us.

d. During 2014, we purchased the third-party minority interests in these properties in which we previously held noncontrolling majority owned interests. Since that time, these properties are wholly-owned.

e. Henderson Medical Plaza is scheduled to be completed and opened during the first quarter of 2017.

UNIVERSAL HEALTH REALTY INCOME TRUST

NOTES TO SCHEDULE III

DECEMBER 31, 2016

(amounts in thousands)

(1) RECONCILIATION OF REAL ESTATE PROPERTIES

The following table reconciles the Real Estate Properties from January 1, 2014 to December 31, 2016:

	2016			2015			2014
Balance at January 1,	$	511,657		$	486,589		$	395,669
Impact of consolidation of eight LLCs (a.)		—			—			84,064
Additions (b.)		14,186			4,972			3,298
Acquisitions		60,031			24,568			13,674
Disposals/Divestitures		(46	)		(4,472	)		(10,116	)
Balance at December 31,	$	585,828		$	511,657		$	486,589

(2) RECONCILIATION OF ACCUMULATED DEPRECIATION

The following table reconciles the Accumulated Depreciation from January 1, 2014 to December 31, 2016:

	2016			2015			2014
Balance at January 1,	$	121,161		$	106,480		$	97,921
Disposals/Divestitures		(9	)		(1,568	)		(5,859	)
Depreciation expense		17,436			16,249			14,413
Other		—			—			5
Balance at December 31,	$	138,588		$	121,161		$	106,480

(a) During 2014, the Trust purchased the minority ownership interests held by third-party members in eight LLCs (January and August, 2014) in which we previously held noncontrolling majority ownership interests. As a result of these minority ownership purchases, the Trust and our subsidiaries now own 100% of each of these LLCs and the financial results are included in our consolidated financial statements.

(b) Includes $9.5 million of CIP related to Henderson Medical Plaza, which is scheduled to be completed and opened during the first quarter of 2017.

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Organization and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Nature of Operations

Nature of Operations

Universal Health Realty Income Trust and subsidiaries (the “Trust”) is organized as a Maryland real estate investment trust. We invest in healthcare and human service related facilities currently including acute care hospitals, rehabilitation hospitals, sub-acute facilities, surgery centers, free-standing emergency departments, childcare centers and medical office buildings. As of February 28, 2017, we have sixty-seven real estate investments or commitments located in twenty states consisting of:

• six hospital facilities including three acute care, one rehabilitation and two sub-acute;

• three free-standing emergency departments (“FEDs”);

• fifty-four medical office buildings, including five owned by unconsolidated limited liability companies (“LLCs”)/limited liability partnerships (“LPs”), and;

• four preschool and childcare centers.

Our future results of operations could be unfavorably impacted by deterioration in general economic conditions which could result in increases in the number of people unemployed and/or uninsured. Should that occur, it may result in decreased occupancy rates at our medical office buildings as well as a reduction in the revenues earned by the operators of our hospital facilities which would unfavorably impact our future bonus rentals (on the three Universal Health Services, Inc. hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying value of the hospital properties.  Management is unable to predict the effect, if any, that these factors may have on the operating results of our lessees or on their ability to meet their obligations under the terms of their leases with us. Management’s estimate of future cash flows from our leased properties could be materially affected in the near term, if certain of the leases are not renewed or renewed with less favorable terms at the end of their lease terms.

Revenue Recognition

Revenue Recognition

Our revenues consist primarily of rentals received from tenants, which are comprised of minimum rent (base rentals), bonus rentals and reimbursements from tenants for their pro-rata share of expenses such as common area maintenance costs, real estate taxes and utilities.

The minimum rent for our six hospital facilities, which is paid monthly, is fixed over the term of the respective leases which are scheduled to expire in 2019 (2 hospitals) or 2021 (4 hospitals). In addition, for the three hospital facilities leased to subsidiaries of UHS, bonus rents are paid on a quarterly basis, based upon a computation that compares the hospitals’ current quarter net revenues to the corresponding quarter in the base year. Rental income recorded by our other properties, including our consolidated and unconsolidated MOBs, relating to leases in excess of one year in length, is recognized using the straight-line method under which contractual rents are recognized evenly over the lease term regardless of when payments are due. The amount of rental revenue resulting from straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants, stipulated rent increases under existing leases, as well as the acquisitions and sales of properties that have existing in-place leases with terms in excess of one year. As a result, the straight-line adjustments to rental revenue may vary from period-to-period. Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred.

Real Estate Investments

Real Estate Investments

Land, buildings and capital improvements are recorded at cost and stated at cost less accumulated depreciation.  Expenditures for maintenance and repairs are charged to operations as incurred.  Renovations or replacements, which improve or extend the life of an asset, are capitalized and depreciated over their estimated useful lives.

Purchase Accounting for Acquisition of Investments in Real Estate

Purchase Accounting for Acquisition of Investments in Real Estate

Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired from third parties. In accordance with current accounting guidance, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting primarily of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, and acquired ground leases, based in each case on their fair values. Loan premiums, in the case of above market rate loans, or loan discounts, in the case of below market loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

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

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

Our intangible assets primarily consist of the value of in-place leases at December 31, 2016, and will be amortized over the remaining lease terms (aggregate weighted average of 4.3 years at December 31, 2016) and is expected to result in estimated aggregate amortization expense of $4.9 million, $3.6 million, $2.9 million $2.7 million and $2.3 million for 2017, 2018, 2019, 2020 and 2021, respectively. Amortization expense on intangible values of in place leases and above-market leases was $5.1 million for the year ended December 31, 2016, $5.5 million for the year ended December 31, 2015 and $6.1 million for the year ended December 31, 2014.  Depreciation is computed using the straight-line method over the estimated useful lives of the buildings and capital improvements. The estimated original useful lives of our buildings ranges from 25-45 years and the estimated original useful lives of capital improvements ranges from 3-35 years. On a consolidated basis, depreciation expense was $17.4 million for the year ended December 31, 2016, $16.2 million for the year ended December 31, 2015 and $14.4 million for the year ended December 31, 2014.

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all highly liquid investment instruments with original maturities of three months or less to be cash equivalents.

Asset Impairment

Asset Impairment

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 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 carrying value of the property. We consider factors such as future operating income, trends and 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 recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is 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 carrying value of 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 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 such loss could be material. If we determine that the asset fails the recoverability test, the affected assets must be reduced to their fair value.

We generally estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs that a market participant would use based on the highest and best use of the asset, which is similar to the income approach that is commonly utilized by appraisers. In 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 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 the property ceases and it is recorded at the lower of its carrying amount or fair value less cost to sell. The assets and related liabilities of the property are classified separately on the consolidated balance sheets for the most recent reporting period. 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 LLC is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value, including projected declines in cash flow. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

Investments in Limited Liability Companies ("LLCs")

Investments in Limited Liability Companies (“LLCs”)

In accordance with the Financial Accounting Standards Board’s (“FASB”) standards and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCs/LPs which we do not control using the equity method of accounting. The third-party members in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budget approval, and; (iii) financing commitments. These investments, which represent 33% to 95% non-controlling ownership interests, are recorded initially at our cost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied.

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

At December 31, 2016, we have non-controlling equity investments or commitments in five jointly-owned LLCs/LPs which own MOBs. We accounted for these LLCs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities and we do not have a controlling voting interest. The majority of these LLCs are joint-ventures between us and non-related parties that manage and hold minority ownership interests in the entities. Each entity is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and service the third-party debt (if applicable) that is non-recourse to us. Although there is typically no ongoing financial support required from us to these entities since they are cash-flow sufficient, we may, from time to time, provide funding for certain purposes such as, but not limited to, significant capital expenditures, leasehold improvements and debt financing. Although we are not obligated to do so, if approved by us at our sole discretion, additional cash fundings are typically advanced as equity or member loans. These entities maintain property insurance on the properties.

Federal Income Taxes

Federal Income Taxes

No provision has been made for federal income tax purposes since we qualify as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code of 1986, and intend to continue to remain so qualified. As such, we are exempt from federal income taxes and we are required to distribute at least 90% of our real estate investment taxable income 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 impairment losses.

The aggregate gross cost basis and net book value of the properties for federal income tax purposes are approximately $561 million and $385 million, respectively, at December 31, 2016.  The aggregate cost basis and net book value of the properties for federal income tax purposes were approximately $489 million and $325 million, respectively, at December 31, 2015.

Stock-Based Compensation

Stock-Based Compensation

We expense the grant-date fair value of restricted stock awards over the vesting period. We recognize the grant-date fair value of equity-based compensation and account for these transactions using the fair-value based method.

The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities.

Fair Value

Fair Value

Fair value is a market-based measurement, not an entity-specific measurement and determined based upon the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). In instances when it is necessary to establish the fair value of our real estate investments and investments in LLCs we use unobservable inputs which are typically based on our own assumptions.

The fair value of our real estate investments, components of real estate investments and debt assumed in conjunction with acquisition and impairment activity, are considered to be Level 3 valuations as they are primarily based upon an income capitalization approach. Significant inputs into the models used to determine fair value of real estate investments and components of real estate investments include future cash flow projections, holding period, terminal capitalization rate and discount rates. Additionally the fair value of land takes into consideration comparable sales, as adjusted for site specific factors. The fair value of real estate investments is based upon significant judgments made by management, and accordingly, we typically obtain assistance from third party valuation specialists. Significant inputs into the models used to determine the fair value of assumed mortgages included the outstanding balance, term, stated interest rate and current market rate of the mortgage.

The carrying amounts reported in the balance sheet for cash, receivables, and short-term borrowings approximate their fair values due to the short-term nature of these instruments. Accordingly, these items are excluded from the fair value disclosures included elsewhere in these notes to the consolidated financial statements. 

Concentration of Revenues

Concentration of Revenues

The rental revenue earned pursuant to the lease on McAllen Medical Center generated approximately 11% during each of 2016 and 2015, and 12% during 2014, of our consolidated revenues.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.

New Accounting Standards

New Accounting Standards

Except as noted below there were no new accounting pronouncements that impacted, or are expected to impact us.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, an update to the accounting standard relating to the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability. In the event that there is not an associated debt liability recorded in the consolidated financial statements, the debt issuance costs will continue to be recorded on the consolidated balance sheet as an asset until the debt liability is recorded.  The new standard became effective for the Trust on January 1, 2016. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations as the update only related to changes in financial statement presentation.  

In February 2015, the FASB issued ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis, which amends the current consolidation guidance affecting both the variable interest entity (“VIE”) and voting interest entity (“VOE”) consolidation models. The standard does not add or remove any of the characteristics in determining if an entity is a VIE or VOE, but rather enhances the way the Company assesses some of these characteristics. The new standard became effective for the Trust on January 1, 2016 and did not have a material impact on our consolidated financial position or results of operations as none of its existing consolidation conclusions were changed.

In August, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which adds or clarifies guidance of the classification of certain cash receipts and payments in the statement of cash flows with the intent to alleviate diversity in practice for classifying various types of cash flows.  This ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the impact of this ASU on our statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840). The standard is effective on January 1, 2019, with early adoption permitted. We are currently in the process of evaluating the impact the adoption of ASU 2016-02 will have on our financial position or results of operations.

In 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (“ASU 2014-09”), which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, which is now effective for us beginning January 1, 2018. We are continuing to evaluate ASU 2014-09 (and related clarifying guidance issued by the FASB); however, we do not expect its adoption to have a significant impact on our consolidated financial statements, as a substantial portion of our revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

In January, 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business” to clarify the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  The future impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by us, if any.

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Relationship with UHS and Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Existing Lease Terms and Renewal Options for Each of UHS Hospital Facilities

The table below details the existing lease terms and renewal options for our three acute care hospitals operated by wholly-owned subsidiaries of UHS:

Hospital Name	Annual Minimum Rent		End of Lease Term	Renewal Term (years)
McAllen Medical Center	$	5,485,000	December, 2021		10	(a)
Wellington Regional Medical Center	$	3,030,000	December, 2021		10	(b)
Southwest Healthcare System, Inland Valley Campus	$	2,648,000	December, 2021		10	(b)

(a) UHS has two 5-year renewal options at existing lease rates (through 2031).

(b) UHS has two 5-year renewal options at fair market value lease rates (2022 through 2031).

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New Construction, Acquisitions, Dispositions and Property Exchange Transaction (Tables)

12 Months Ended

Dec. 31, 2016

Purchased Minority Ownership Interests

Additionally, during January and August, 2014, we spent an aggregate of $7.0 million, including $4.7 million in cash plus an additional $2.3 million in the form of a note payable to the previous third-party member (which was fully repaid in January, 2015) to purchase the minority ownership interests held by third party members in eight LLCs (as noted in the table below) in which we previously held various non-controlling majority ownership interests ranging from 85% to 95%.

Name of LLC/LP	Ownership prior to minority interest purchase		Property Owned by LLC	Effective Date
Palmdale Medical Properties		95%	Palmdale Medical  Plaza	January1,2014
Sparks Medical Properties		95%	Vista Medical Terrace & Sparks  MOB	January1,2014
DVMC Properties		90%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95%	PhoenixChildren’sEastValleyCareCenter	August 1, 2014
3811 Bell Medical Properties		95%	3811 E. Bell	August 1, 2014

2016 Acquisitions

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The aggregate purchase price for these acquisitions was allocated to the assets acquired and liabilities assumed consisting of tangible property and intangible assets and liabilities, based on the fair value estimated or finalized at acquisition as detailed in the table below.

Land	$9,914
Buildings and improvements	50,117
Intangible assets	9,211
Below-market lease intangibles	(1,287)
Deposit paid in 2015………………………………………...………………………………..	(150)
Debt (including fair value adjustment of $362)…...……..……………………………….…..	(7,499)
Financing fees paid on debt acquired……………...……..……………………………….…..	83
Net cash paid	$60,389

2015 Acquisitions

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The aggregate purchase price for these three MOBs and two FEDs was allocated to the assets acquired and liabilities assumed consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below.

Land	$7,050
Buildings and improvements	17,518
Intangible assets	2,182
Cash received- exchange transaction	2,000
Other liabilities	(116)
Deposit paid in 2014	(100)
Net book value of property divested in exchange transaction	(3,027)
Gain on exchange transaction	(8,742)
Net cash paid	$16,765

2014 Acquisitions

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The aggregate purchase price for these clinics and MOB was allocated to the assets and liabilities acquired consisting of tangible property and identified intangible assets, based on their respective fair values at acquisition as detailed in the table below.

Land	$3,010
Buildings and improvements	10,664
Intangible assets	2,076
Deposit paid in 2013	(150)
Net cash paid	$15,600

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Leases (Tables)

12 Months Ended

Dec. 31, 2016

Leases [Abstract]

Schedule of Minimum Future Base Rents from Non-Cancelable Leases

Minimum future base rents from non-cancelable leases related to properties included in our financial statements on a consolidated basis, excluding increases resulting from changes in the consumer price index, bonus rents and the impact of straight line rent adjustments, are as follows (amounts in thousands):

2017	$	54,922
2018		49,885
2019		44,647
2020		39,742
2021		35,837
Thereafter		64,932
Total minimum base rents	$	289,965

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Debt and Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Summary of Required Compliance Ratios Giving Effect to New Covenants in Credit Agreement

The following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollar amounts in thousands):

		Covenant			2016
Tangible net worth		$	125,000		$	167,462
Total leverage		< 60		%		48.6	%
Secured leverage		< 30		%		18.1	%
Unencumbered leverage		< 60		%		50.3	%
Fixed charge coverage	> 1.50x			3.6x

Outstanding Mortgages, Excluding Net Debt Premium

Facility Name	Outstanding Balance (in thousands)(a.)			Interest Rate			Maturity Date
Summerlin Hospital Medical Office Building III    floating rate mortgage loan (b.)	$	10,384			3.88	%	March, 2017
Peace Health fixed rate mortgage loan (b.)		20,309			5.64	%	April, 2017
Auburn Medical II floating rate mortgage loan (b.)		6,726			3.37	%	April, 2017
Medical Center of Western Connecticut fixed rate    mortgage loan (b.)		4,535			6.00	%	June, 2017
Summerlin Hospital Medical Office Building II fixed    rate mortgage loan (b.)		11,092			5.50	%	October, 2017
Phoenix Children’s East Valley Care Center fixed rate    mortgage loan (b.)		6,202			5.88	%	December, 2017
Centennial Hills Medical Office Building floating rate    mortgage loan		10,040			3.88	%	January, 2018
Sparks Medical Building/Vista Medical Terrace    floating rate mortgage loan		4,231			3.88	%	February, 2018
Rosenberg Children’s Medical Plaza fixed rate    mortgage loan		8,146			4.85	%	May, 2018
Vibra Hospital-Corpus Christi fixed rate mortgage loan		2,723			6.50	%	July, 2019
700 Shadow Lane and Goldring MOBs fixed rate    mortgage loan		6,248			4.54	%	June, 2022
BRB Medical Office Building fixed rate mortgage loan		6,316			4.27	%	December, 2022
Desert Valley Medical Center fixed rate mortgage loan		5,081			3.62	%	January, 2023
2704 North Tenaya Way fixed rate mortgage loan		7,137			4.95	%	November, 2023
Tuscan Professional Building fixed rate mortgage loan		4,992			5.56	%	June, 2025
Total, excluding net debt premium and net financing fees		114,162
Less net financing fees		(381	)
Plus net debt premium		436
Total mortgage notes payable, non-recourse to us, net	$	114,217

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

(b.) This loan is scheduled to mature within the next twelve months, at which time we will decide whether to refinance pursuant to a new mortgage loan or by utilizing borrowings under our Credit Agreement.

Aggregate Consolidated Scheduled Debt Repayments

As of December 31, 2016, our aggregate consolidated scheduled debt repayments (including mortgages) are as follows (amounts in thousands):

2017	$	61,115
2018		23,043
2019 (a.)		205,251
2020		1,292
2021		1,356
Later		23,605
Total	$	315,662

(a) Includes repayment of $201.5 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

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Incentive Plans (Tables)

12 Months Ended

Dec. 31, 2016

Postemployment Benefits [Abstract]

Options Before Adjustment to Option Price to Give Effect to Dilutive Equivalent Rights

Information with respect to these options, before adjustment to the option price to give effect to the dividend equivalent rights, is summarized as follows:

Outstanding Options	Number of Shares			Exercise Weighted- Average Price		Grant PriceRange (High-Low)
Balance, January 1, 2014		40,000		$	35.65	$36.53/$30.06
Exercised		(4,000	)		33.07	$30.06/$34.07
Balance, January 1, 2015		36,000		$	35.94	$34.90/$36.53
Exercised		(13,000	)		34.90	$34.90/$34.90
Balance, January 1, 2016		23,000		$	36.53	$36.53/$36.53
Exercised		(23,000	)		36.53	$36.53/$36.53
Outstanding options vested and exercisable as of    December 31, 2016		—		N/A		N/A

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Summarized Financial Information of Equity Affiliates (Tables)

12 Months Ended

Dec. 31, 2016

Equity Method Investments And Joint Ventures [Abstract]

Limited Liability Companies Accounted for Under Equity Method

Prior to August 1, 2014, these LLCs were accounted for on an unconsolidated basis pursuant to the equity method.

Name of LLC/LP	Ownership prior to minority interest purchase			Property Owned by LLC	Effective Date
DVMC Properties		90	%	Desert Valley Medical Center	August 1, 2014
Santa Fe Scottsdale		90	%	Santa Fe Professional Plaza	August 1, 2014
PCH Medical Properties		85	%	Rosenberg Children’s Medical Plaza	August 1, 2014
Sierra Medical Properties		95	%	Sierra San Antonio Medical Plaza	August 1, 2014
PCH Southern Properties		95	%	Phoenix Children’s East Valley Care Center	August 1, 2014
3811 Bell Medical Properties		95	%	North Valley Medical Plaza	August 1, 2014

The following property table represents the five LLCs or LPs in which we own a noncontrolling interest and were accounted for under the equity method as of December 31, 2016:

Name of LLC/LP	Ownership			Property Owned by LLC
Suburban Properties		33	%	St. Matthews Medical Plaza II
Brunswick Associates (a.)		74	%	Mid Coast Hospital MOB
Arlington Medical Properties (b.)		85	%	Saint Mary’s Professional Office Building
Grayson Properties (c.)		95	%	Texoma Medical Plaza
FTX MOB Phase II (d.)		95	%	Forney Medical Plaza II

(a.) This LLC has a third-party term loan of $8.6 million, which is non-recourse to us, outstanding as of December 31, 2016.

(b.) We have funded $5.2 million in equity as of December 31, 2016 and are committed to invest an additional $623,000. During the fourth quarter of 2015, we advanced this LLC a member loan, the funds of which were utilized to repay its $22.8 million outstanding third-party mortgage loan on its scheduled maturity date.  The member loan has an interest rate of 5.29% and is scheduled to mature in January, 2018.  Additionally, pursuant to the terms and conditions of an agreement executed in February, 2016, we purchased an additional 10% of the ownership interest in this LLC from the existing third-party member for approximately $4.8 million in cash, thereby increasing our ownership interest to 85%.

(c.) We have funded $2.8 million in equity as of December 31, 2016, and are committed to fund an additional $149,000. This building is on the campus of a UHS hospital and has tenants that include subsidiaries of UHS. This LP has a third-party term loan of $14.4 million, which is non-recourse to us, outstanding as of December 31, 2016

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

Condensed Combined Statements of Income (Unaudited) for Limited Liability Companies Accounted for Under Equity Method

Below are the combined statements of income for the LLCs/LPs accounted for under the equity method at December 31, 2016, 2015 and 2014.

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

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

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

Condensed Combined Balance Sheets (Unaudited) for LLCs Accounted for Under Equity Method

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

	December 31,
	2016			2015
	(amounts in thousands)
Net property, including CIP	$	60,970		$	61,668
Other assets		4,598			5,264
Total assets	$	65,568		$	66,932
Other liabilities	$	3,334		$	2,538
Mortgage notes payable, non-recourse to us		28,367			28,895
Advances payable to us (a.)		21,638			22,489
Equity		12,229			13,010
Total liabilities and equity	$	65,568		$	66,932
Our share of equity in and advances to LLCs reflected as:
Investments in LLCs	$	13,955		$	9,108
Advances to LLCs		21,638			22,489
Investments in and advances to LLCs before amounts included in accrued expenses and other liabilities		35,593			31,597
Amounts included in accrued expenses and other liabilities		(1,862	)		(1,105	)
Our share of equity in and advances to LLCs, net	$	33,731		$	30,492

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

Aggregate Principal Amounts due on Mortgage and Construction Notes Payable by Unconsolidated LLC's Accounted Under Equity Method

As of December 31, 2016, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs, which are accounted for under the equity method and are non-recourse to us, are as follows (amounts in thousands):

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

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

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

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

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Quarterly Results (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Quarterly Results for Operating Activities

	2016
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Revenues	$	16,226	$	16,461	$	16,801	$	17,593	$	67,081
Net income	$	4,428	$	4,523	$	3,818	$	4,446	$	17,215
Total basic earnings per share	$	0.33	$	0.34	$	0.28	$	0.33	$	1.28
Total diluted earnings per share	$	0.33	$	0.34	$	0.28	$	0.33	$	1.28

	2015
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
	(amounts in thousands, except per share amounts)
Revenues	$	16,202	$	16,049	$	15,686	$	16,013	$	63,950
Net income before gains	$	3,696	$	3,262	$	3,639	$	4,352	$	14,949
Gain on property exchange		—		8,742		—		—	$	8,742
Net income	$	3,696	$	12,004	$	3,639	$	4,352	$	23,691
Total basic earnings per share	$	0.28	$	0.90	$	0.27	$	0.33	$	1.78
Total diluted earnings per share	$	0.28	$	0.90	$	0.27	$	0.33	$	1.78

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Organization and Summary of Significant Accounting Policies - Additional Information (Detail) $ in Millions	12 Months Ended			60 Months Ended
	Dec. 31, 2016 USD ($) Property	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2016 USD ($) Property	Feb. 28, 2017 Property State
Significant Accounting Policies [Line Items]
Intangible assets, estimated aggregate amortization expenses for 2017 | $	$ 4.9			$ 4.9
Intangible assets, estimated aggregate amortization expenses for 2018 | $	3.6			3.6
Intangible assets, estimated aggregate amortization expenses for 2019 | $	2.9			2.9
Intangible assets, estimated aggregate amortization expenses for 2020 | $	2.7			2.7
Intangible assets, estimated aggregate amortization expenses for 2021 | $	2.3			2.3
Amortization expense, intangible assets | $	5.1	$ 5.5	$ 6.1
Depreciation expense | $	$ 17.4	16.2	$ 14.4
Federal excise tax rate when amount of 85% of ordinary income plus 95% of any capital gain income exceeds cash distributions	4.00%
Gross cost basis of properties for federal income tax purposes | $	$ 561.0	489.0		561.0
Net book value of the properties for federal income tax purposes | $	$ 385.0	$ 325.0		$ 385.0
In Place Leases
Significant Accounting Policies [Line Items]
Intangible asset, useful life	4 years 3 months 18 days
Minimum
Significant Accounting Policies [Line Items]
Percentage of real estate investment taxable income that should be distributed to remain exempt from federal income taxes	90.00%
Minimum | 5 Unconsolidated Limited Liability Companies / Limited Partner
Significant Accounting Policies [Line Items]
Non-controlling equity interest, ownership percentage	33.00%			33.00%
Maximum | 5 Unconsolidated Limited Liability Companies / Limited Partner
Significant Accounting Policies [Line Items]
Non-controlling equity interest, ownership percentage	95.00%			95.00%
Buildings | Minimum
Significant Accounting Policies [Line Items]
Estimated original useful lives of property plant and equipment	25 years
Buildings | Maximum
Significant Accounting Policies [Line Items]
Estimated original useful lives of property plant and equipment	45 years
Capital Improvements | Minimum
Significant Accounting Policies [Line Items]
Estimated original useful lives of property plant and equipment	3 years
Capital Improvements | Maximum
Significant Accounting Policies [Line Items]
Estimated original useful lives of property plant and equipment	35 years
Universal Health Services, Inc | Customer Concentration Risk | Revenues
Significant Accounting Policies [Line Items]
Percentage of rental revenue	24.00%	25.00%	28.00%	27.00%
Universal Health Services, Inc | Hospital Facilities Leased
Significant Accounting Policies [Line Items]
Number of real estate investments	3			3
McAllen Medical Center | Customer Concentration Risk | Revenues
Significant Accounting Policies [Line Items]
Percentage of rental revenue	11.00%	11.00%	12.00%
Medical office buildings | Limited Liability Companies
Significant Accounting Policies [Line Items]
Number of real estate investments	5			5
Hospital facilities expire in 2019
Significant Accounting Policies [Line Items]
Number of real estate investments	2			2
Lease expiration year	2019
Hospital facilities expire in 2021
Significant Accounting Policies [Line Items]
Number of real estate investments	4			4
Lease expiration year	2021
Subsequent Event
Significant Accounting Policies [Line Items]
Number of real estate investments					67
Number of states that real estate investments are located | State					20
Subsequent Event | Hospitals
Significant Accounting Policies [Line Items]
Number of real estate investments					6
Subsequent Event | Hospitals | Acute Care
Significant Accounting Policies [Line Items]
Number of real estate investments					3
Subsequent Event | Hospitals | Rehabilitation
Significant Accounting Policies [Line Items]
Number of real estate investments					1
Subsequent Event | Hospitals | Sub-acute
Significant Accounting Policies [Line Items]
Number of real estate investments					2
Subsequent Event | Mission and Weslaco Freestanding Emergency Departments
Significant Accounting Policies [Line Items]
Number of real estate investments					3
Subsequent Event | Medical office buildings
Significant Accounting Policies [Line Items]
Number of real estate investments					54
Subsequent Event | Medical office buildings | Majority Owned Subsidiary Unconsolidated
Significant Accounting Policies [Line Items]
Number of real estate investments					5
Subsequent Event | Medical office buildings | Limited Liability Companies (“LLCs”)/ Limited Liability Partnerships (“LPs”)
Significant Accounting Policies [Line Items]
Number of real estate investments					5
Subsequent Event | Preschool and childcare Centers
Significant Accounting Policies [Line Items]
Number of real estate investments					4

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Relationship with UHS and Related Party Transactions - Additional Information (Detail)	1 Months Ended		2 Months Ended	3 Months Ended		12 Months Ended					60 Months Ended
	Jun. 30, 2016 Subsidiary	Dec. 31, 2014 USD ($)	Feb. 28, 2015 ft² Property Time	Mar. 31, 2016 USD ($) Time	Mar. 31, 2015 USD ($) ft² Property	Dec. 31, 2016 USD ($) Property Time Option	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2016 USD ($) Property Time Option	Mar. 31, 2017 ft²
Related Party Transaction [Line Items]
Proceeds from sale of real property						$ 0	$ 2,000,000	$ 17,300,000
Annual advisory fee as percentage of average invested real estate assets		0.70%				0.70%	0.70%	0.70%			0.70%
Advisory fee						$ 3,263,000	$ 2,810,000	$ 2,545,000
The Bridgeway
Related Party Transaction [Line Items]
Extended lease terms at existing lease rates						2014-12		2014-12
Proceeds from sale of real property		$ 17,300,000						$ 17,300,000
Gain on divestiture of property								13,000,000
Amount of annual lease earned								$ 1,100,000	$ 1,100,000	$ 1,100,000
Wholly Owned Subsidiaries Of U H S Real Property Of Two Newly Constructed And Recently Opened F E Ds Located In Weslaco And Mission Texas
Related Party Transaction [Line Items]
Number of term renewal options | Time			6
Additional renewal terms			5 years		5 years
Number of real properties purchased | Property			2		2
Lease agreement period			10 years		10 years
Wholly Owned Subsidiaries Of U H S Real Property Of Two Newly Constructed And Recently Opened F E Ds Located In Weslaco And Mission Texas | Recently Opened Free Standing Emergency Departments | Weslaco
Related Party Transaction [Line Items]
Area of acquired building | ft²			13,600		13,600
Wholly Owned Subsidiaries Of U H S Real Property Of Two Newly Constructed And Recently Opened F E Ds Located In Weslaco And Mission Texas | Recently Opened Free Standing Emergency Departments | Mission
Related Party Transaction [Line Items]
Area of acquired building | ft²			13,600		13,600
Mission and Weslaco Freestanding Emergency Departments
Related Party Transaction [Line Items]
Estimated acquisition cost of free-standing emergency departments					$ 12,800,000
Estimated rental revenues					$ 900,000
Mission and Weslaco Freestanding Emergency Departments | First four renewal options
Related Party Transaction [Line Items]
Percentage increase in annual lease rate					2.00%
Minimum | Mission and Weslaco Freestanding Emergency Departments | First four renewal options
Related Party Transaction [Line Items]
Additional renewal terms, covering year					2025
Minimum | Mission and Weslaco Freestanding Emergency Departments | Last two renewal options
Related Party Transaction [Line Items]
Additional renewal terms, covering year					2045
Minimum | 5 Unconsolidated Limited Liability Companies
Related Party Transaction [Line Items]
Non-controlling equity interest, ownership percentage						33.00%					33.00%
Maximum
Related Party Transaction [Line Items]
Number of term renewal options | Option						5					5
Maximum | Mission and Weslaco Freestanding Emergency Departments | First four renewal options
Related Party Transaction [Line Items]
Additional renewal terms, covering year					2044
Maximum | Mission and Weslaco Freestanding Emergency Departments | Last two renewal options
Related Party Transaction [Line Items]
Additional renewal terms, covering year					2054
Maximum | 5 Unconsolidated Limited Liability Companies
Related Party Transaction [Line Items]
Non-controlling equity interest, ownership percentage						95.00%					95.00%
Universal Health Services, Inc
Related Party Transaction [Line Items]
Number of term renewal options | Time						6					6
Additional renewal terms						5 years
Number of medical office buildings and free standing emergency departments | Property						17
Option to renew lease, notice period prior to termination date of current term						90 days
Period to purchase respective leased facilities at same price after lease terms						180 days
Renewal period of respective leased facilities at same price after lease terms						180 days
Number of wholly-owned subsidiaries | Subsidiary	3
Extended lease terms at existing lease rates						2021-12
Number of renewal options at existing lease rates | Time						3
Percentage ownership of outstanding shares						5.80%	5.90%				5.80%
Universal Health Services, Inc | Henderson Medical Plaza
Related Party Transaction [Line Items]
Number of term renewal options | Time				2
Additional renewal terms				10 years
Maximum amount of investment for development and construction				$ 21,100,000
Ground lease agreement period				75 years
Amount invested in MOB under construction				$ 9,500,000		$ 9,500,000					$ 9,500,000
Universal Health Services, Inc | Scenario, Forecast | Henderson Medical Plaza
Related Party Transaction [Line Items]
Net rentable area | ft²												78,800
Universal Health Services, Inc | Customer Concentration Risk | Revenues
Related Party Transaction [Line Items]
Percentage of revenues generated from leases						24.00%	25.00%	28.00%			27.00%
Universal Health Services, Inc | Customer Concentration Risk | Combined consolidated and unconsolidated revenue
Related Party Transaction [Line Items]
Percentage of revenues generated from leases						19.00%	20.00%	22.00%			21.00%
Universal Health Services, Inc | Hospital Facilities Leased
Related Party Transaction [Line Items]
Number of hospital facilities leased | Property						3					3
Universal Health Services, Inc | Minimum
Related Party Transaction [Line Items]
Initial lease terms						13 years
Universal Health Services, Inc | Maximum
Related Party Transaction [Line Items]
Initial lease terms						15 years
Universal Health Services of Delaware Inc
Related Party Transaction [Line Items]
Annual incentive fee to Advisor as percentage of cash available for distribution						20.00%					20.00%
Incentive fees						$ 0	$ 0	$ 0
Advisory fee						3,300,000	2,800,000	2,500,000
Average invested real estate assets						$ 466,000,000	$ 401,000,000	$ 363,000,000
Universal Health Services of Delaware Inc | Minimum
Related Party Transaction [Line Items]
Percentage of equity to be exceeded for incentive distribution						15.00%					15.00%

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Existing Lease Terms and Renewal Options for Each of UHS Hospital Facilities (Detail)	12 Months Ended
	Dec. 31, 2016 USD ($)
McAllen Medical Center
Operating Leased Assets [Line Items]
Annual Minimum Rent	$ 5,485,000
End of Lease Term	2021-12
Renewal Term (years)	10 years	[1]
Wellington Regional Medical Center
Operating Leased Assets [Line Items]
Annual Minimum Rent	$ 3,030,000
End of Lease Term	2021-12
Renewal Term (years)	10 years	[2]
Southwest Healthcare System, Inland Valley Campus
Operating Leased Assets [Line Items]
Annual Minimum Rent	$ 2,648,000
End of Lease Term	2021-12
Renewal Term (years)	10 years	[2]

[1] UHS has two 5-year renewal options at existing lease rates (through 2031).

[2] UHS has two 5-year renewal options at fair market value lease rates (2022 through 2031).

XML

Existing Lease Terms and Renewal Options for Each of UHS Hospital Facilities (Parenthetical) (Detail) - Universal Health Services, Inc	12 Months Ended
	Dec. 31, 2016 Time RenewalOption
Operating Leased Assets [Line Items]
Number of renewal options at existing lease rates	3
McAllen Medical Center
Operating Leased Assets [Line Items]
Number of renewal options at existing lease rates	2
Renewal options term at existing lease rates	5 years
Renewal options at existing lease rates expiration year	2031
Wellington Regional Medical Center And Southwest Healthcare System
Operating Leased Assets [Line Items]
Number of renewal options at fair market value lease rates | RenewalOption	2
Renewal options term at fair market value lease rates	5 years
Wellington Regional Medical Center And Southwest Healthcare System | Minimum
Operating Leased Assets [Line Items]
Renewal options at fair market value lease rates expiration year	2022
Wellington Regional Medical Center And Southwest Healthcare System | Maximum
Operating Leased Assets [Line Items]
Renewal options at fair market value lease rates expiration year	2031

XML

New Construction, Acquisitions, Dispositions and Property Exchange Transaction - Additional Information (Detail)	1 Months Ended					2 Months Ended	3 Months Ended						8 Months Ended	12 Months Ended
	May 31, 2015 USD ($) ft² Property	Feb. 28, 2015 USD ($) ft² Time Building	Dec. 31, 2014 USD ($)	Aug. 31, 2014 USD ($) ft² Property	Jan. 31, 2014 USD ($) ft²	Feb. 28, 2015 USD ($) ft² Property Time	Dec. 31, 2016 USD ($) ft² Time Option	Sep. 30, 2016 USD ($) ft²	Jun. 30, 2016 USD ($) ft²	Mar. 31, 2016 USD ($) ft² Time	Jun. 30, 2015 USD ($)	Mar. 31, 2015 ft² Property	Aug. 31, 2014 USD ($) ft² Property	Dec. 31, 2016 USD ($) ft² Time Option $ / shares	Dec. 31, 2015 USD ($) $ / shares	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Mar. 31, 2017 ft²	Aug. 01, 2014 Property
Business Acquisitions And Dispositions [Line Items]
Total cash paid														$ 60,400,000
Non-recourse third-party debt							$ 7,100,000							$ 7,100,000
Lessor Leasing Arrangements, Operating Leases, Renewal Term														5 years
Deposits on real estate assets															$ 150,000	$ 100,000
Acquired intangible assets include in-place leases amortization period														8 years
Business combination recorded aggregate net revenue														$ 2,400,000
Business combination aggregate net losses generated by properties including cost of borrowings and advisory fee expenses														134,000
Business acquisition, unaudited pro forma net revenues														70,200,000	67,800,000
Business Acquisition, unaudited pro forma net income														$ 16,700,000	$ 22,400,000
Business Acquisition, unaudited pro forma diluted per share | $ / shares														$ 1.24	$ 1.68
Net intangible assets							23,800,000							$ 23,800,000
Intangible assets, accumulated amortization							$ 27,100,000							27,100,000	$ 25,100,000
Cash received for property exchange transaction														$ 0	2,000,000	17,300,000
Gain on property exchange											$ 8,742,000				8,742,000
Aggregate purchase price in connection with the purchase of minority ownership interests				$ 7,000,000									$ 7,000,000
Cash paid for purchase of minority interests in majority-owned LLCs													4,700,000		2,250,000	$ 4,744,000
Payment for acquisition, notes payable				$ 2,300,000									$ 2,300,000
Maturity date, notes payable													Jan. 05, 2015
Percentage of minority ownership interests by parent			100.00%													100.00%
Gain from the remeasurement of fair value																$ 25,409,000
Purchase price allocation, tangible property			$ 84,000,000													84,000,000
Purchase price allocation, identifiable intangible assets			6,500,000													6,500,000
Purchase price allocation, long term debt			29,800,000													29,800,000
The Bridgeway
Business Acquisitions And Dispositions [Line Items]
Cash received for property exchange transaction			17,300,000													$ 17,300,000
Extended lease terms at existing lease rates														2014-12		2014-12
Property at fair value			$ 17,300,000													$ 17,300,000
Gain on divestiture of property																$ 13,000,000
Piedmont Roswell Physician Center Sandy Springs GA
Business Acquisitions And Dispositions [Line Items]
Acquired intangible assets include in-place leases amortization period		15 years												13 years 4 months 24 days
Piedmont Vinings Physician Center Vinings GA
Business Acquisitions And Dispositions [Line Items]
Acquired intangible assets include in-place leases amortization period		15 years												13 years 4 months 24 days
Minimum
Business Acquisitions And Dispositions [Line Items]
Acquired intangible assets include in-place leases amortization period														6 years
Lease agreement period														3 years
Ownership prior to minority interest purchase				85.00%									85.00%
Capitalization Rate																7.00%
Discount rate																8.00%
Maximum
Business Acquisitions And Dispositions [Line Items]
Number of term renewal options | Option							5							5
Acquired intangible assets include in-place leases amortization period														12 years
Lease agreement period														15 years
Ownership prior to minority interest purchase				95.00%									95.00%
Capitalization Rate																8.75%
Discount rate																9.75%
In Place Leases
Business Acquisitions And Dispositions [Line Items]
Renewal Term (years)														4 years 3 months 18 days
Acquired intangible assets include in-place leases amortization period														4 years 3 months 18 days
2704 North Tenaya Way
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²							45,000							45,000
Non-recourse third-party debt							$ 7,100,000							$ 7,100,000
Total purchase price							$ 15,300,000
2704 North Tenaya Way | Lease Agreements
Business Acquisitions And Dispositions [Line Items]
Renewal Term (years)							7 years 1 month 6 days
Frederick Memorial Hospital Crestwood
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²								62,300
Total purchase price								$ 24,300,000
Frederick Memorial Hospital Crestwood | Lease Agreements
Business Acquisitions And Dispositions [Line Items]
Renewal Term (years)								12 years
Chandler Corporate Center III
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²									82,000
Total purchase price									$ 18,000,000
Occupied percentage of property									92.00%
Lease rent escalation period									12 years
Lessor Leasing Arrangements, Operating Leases, Renewal Term									10 years
Chandler Corporate Center III | Lease Agreements
Business Acquisitions And Dispositions [Line Items]
Renewal Term (years)									11 years 3 months 18 days
Madison Professional Office Building
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²										30,100
Total purchase price										$ 10,100,000
Deposits on real estate assets															150,000
Madison Professional Office Building | Lease Agreements
Business Acquisitions And Dispositions [Line Items]
Renewal Term (years)										6 years 2 months 12 days
Haas Medical Office Park
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²		16,000				16,000
Total purchase price		$ 4,100,000
Acquired intangible assets include in-place leases amortization period		10 years 4 months 24 days												8 years 7 months 6 days
Number of Buildings purchased | Building		2
Wholly Owned Subsidiaries Of U H S Real Property Of Two Newly Constructed And Recently Opened F E Ds Located In Weslaco And Mission Texas
Business Acquisitions And Dispositions [Line Items]
Number of term renewal options | Time		6				6
Additional renewal terms						5 years						5 years
Total purchase price						$ 12,800,000
Number of real properties purchased | Property						2						2
Lease agreement period						10 years						10 years
Wholly Owned Subsidiaries Of U H S Real Property Of Two Newly Constructed And Recently Opened F E Ds Located In Weslaco And Mission Texas | Recently Opened Free Standing Emergency Departments | Weslaco
Business Acquisitions And Dispositions [Line Items]
Area of acquired building | ft²		13,600				13,600						13,600
Wholly Owned Subsidiaries Of U H S Real Property Of Two Newly Constructed And Recently Opened F E Ds Located In Weslaco And Mission Texas | Recently Opened Free Standing Emergency Departments | Mission
Business Acquisitions And Dispositions [Line Items]
Area of acquired building | ft²		13,600				13,600						13,600
Hanover Emergency Center
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²				22,000									22,000
Total purchase price				$ 8,600,000
Acquired intangible assets include in-place leases amortization period				9 years 9 months 18 days										7 years 6 months
Hanover Emergency Center | Lease Agreements
Business Acquisitions And Dispositions [Line Items]
Renewal Term (years)				10 years
Children's Clinic and Northwest Medical Center
Business Acquisitions And Dispositions [Line Items]
Total purchase price					$ 7,200,000
Deposits on real estate assets																	$ 150,000
Acquired intangible assets include in-place leases amortization period				9 years 8 months 12 days										6 years 8 months 12 days
Children's Clinic
Business Acquisitions And Dispositions [Line Items]
Area of acquired building | ft²					9,800
Northwest Medical Center
Business Acquisitions And Dispositions [Line Items]
Area of acquired building | ft²					13,700
August 1, 2014 Acquisitions
Business Acquisitions And Dispositions [Line Items]
Acquired intangible assets include in-place leases amortization period				4 years 8 months 12 days										4 years
January 1, 2014 Acquisitions
Business Acquisitions And Dispositions [Line Items]
Acquired intangible assets include in-place leases amortization period					5 years 3 months 18 days									3 years 10 months 24 days
Universal Health Services, Inc
Business Acquisitions And Dispositions [Line Items]
Number of term renewal options | Time							6							6
Additional renewal terms														5 years
Extended lease terms at existing lease rates														2021-12
Limited Liability Companies
Business Acquisitions And Dispositions [Line Items]
Number of real estate investments | Property				8									8						6
Henderson Medical Plaza | Universal Health Services, Inc
Business Acquisitions And Dispositions [Line Items]
Maximum amount of investment for development and construction										$ 21,100,000
Ground lease agreement period										75 years
Number of term renewal options | Time										2
Additional renewal terms										10 years
Amount invested in MOB under construction							$ 9,500,000			$ 9,500,000				$ 9,500,000
Henderson Medical Plaza | Universal Health Services, Inc | Scenario, Forecast
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²																		78,800
Sheffield Medical Building
Business Acquisitions And Dispositions [Line Items]
Net rentable area | ft²	36,700
Cash received for property exchange transaction	$ 2,000,000
Area of disposed building | ft²	73,446
Number of assets acquired | Property	2
Percentage of rentable area covered by the agreement	100.00%
Lease agreement period	15 years
Percentage of annual rent increase	3.00%
Gain on property exchange															$ 8,700,000

XML

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed (Detail) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Aug. 31, 2014
Business Acquisition [Line Items]
Intangible assets			$ 6,500
Debt (including fair value adjustment of $362)			(29,800)
Net cash paid				$ 7,000
2016 Acquisitions
Business Acquisition [Line Items]
Land	$ 9,914
Buildings and improvements	50,117
Intangible assets	9,211
Below-market lease intangibles	(1,287)
Deposit paid	(150)
Debt (including fair value adjustment of $362)	(7,499)
Financing fees paid on debt acquired	83
Net cash paid	$ 60,389
2015 Acquisitions
Business Acquisition [Line Items]
Land		$ 7,050
Buildings and improvements		17,518
Intangible assets		2,182
Cash received- exchange transaction		2,000
Other liabilities		(116)
Deposit paid		(100)
Net book value of property divested in exchange transaction		(3,027)
Gain on exchange transaction		(8,742)
Net cash paid		$ 16,765
2014 Acquisitions
Business Acquisition [Line Items]
Land			3,010
Buildings and improvements			10,664
Intangible assets			2,076
Deposit paid			(150)
Net cash paid			$ 15,600

XML

Allocation of Purchase Price to Assets Acquired and Liabilities Assumed (Parenthetical) (Detail) $ in Thousands	Dec. 31, 2016 USD ($)
2016 Acquisitions
Business Acquisition [Line Items]
Debt fair value adjustment	$ 362

XML

Purchased Minority Ownership Interest (Detail)	12 Months Ended
	Dec. 31, 2016	Aug. 01, 2014
Palmdale Medical Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	95.00%
Property Owned by LLC	Palmdale Medical Plaza
Effective Date	Jan. 01, 2014
Sparks Medical Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	95.00%
Property Owned by LLC	Vista Medical Terrace & Sparks MOB
Effective Date	Jan. 01, 2014
DVMC Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	90.00%	90.00%
Property Owned by LLC	Desert Valley Medical Center
Effective Date	Aug. 01, 2014
Santa Fe Scottsdale
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	90.00%	90.00%
Property Owned by LLC	Santa Fe Professional Plaza
Effective Date	Aug. 01, 2014
PCH Medical Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	85.00%	85.00%
Property Owned by LLC	Rosenberg Children’s Medical Plaza
Effective Date	Aug. 01, 2014
Sierra Medical Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	95.00%	95.00%
Property Owned by LLC	Sierra San Antonio Medical Plaza
Effective Date	Aug. 01, 2014
PCH Southern Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	95.00%	95.00%
Property Owned by LLC	Phoenix Children’s East Valley Care Center
Effective Date	Aug. 01, 2014
3811 Bell Medical Properties
Business Acquisition [Line Items]
Ownership prior to minority interest purchase	95.00%	95.00%
Property Owned by LLC	3811 E. Bell
Effective Date	Aug. 01, 2014

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Leases - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2016 Option
Leases Disclosure [Line Items]
Renewal option term	5 years
Minimum
Leases Disclosure [Line Items]
Operating Lease Terms	3 years
Maximum
Leases Disclosure [Line Items]
Operating Lease Terms	15 years
Number of term renewal options	5

XML

Schedule of Minimum Future Base Rents from Non-cancelable Leases (Detail) $ in Thousands	Dec. 31, 2016 USD ($)
Leases [Abstract]
2017	$ 54,922
2018	49,885
2019	44,647
2020	39,742
2021	35,837
Thereafter	64,932
Total minimum base rents	$ 289,965

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Debt and Financial Instruments - Additional Information (Detail)				3 Months Ended				12 Months Ended
		Dec. 31, 2016 USD ($) MortgageLoan	Mar. 27, 2015 USD ($) Option	Sep. 30, 2016 USD ($) Derivative	Jun. 30, 2016 USD ($) Derivative	Mar. 31, 2014 USD ($) Derivative	Sep. 30, 2013 USD ($) Derivative	Dec. 31, 2016 USD ($) MortgageLoan	Dec. 31, 2015 USD ($) MortgageLoan	Dec. 31, 2014 USD ($)	May 31, 2016 USD ($)	May 24, 2016 USD ($)
Debt Instrument [Line Items]
Outstanding borrowing											$ 250,000,000
Proceeds from Lines of Credit								$ 59,350,000	$ 52,400,000
Outstanding borrowings under revolving credit agreement		$ 201,500,000						201,500,000	142,150,000
Outstanding borrowings under letter of credit		2,700,000						2,700,000
Available borrowing capacity		$ 45,800,000						45,800,000
Average amounts outstanding under our revolving credit agreement								$ 164,200,000	$ 114,300,000	$ 104,600,000
Effective interest rate		2.30%						2.30%	2.10%	2.40%
Line of credit, fair value of borrowings outstanding		$ 201,500,000						$ 201,500,000
Number of non-recourse mortgages | MortgageLoan		15						15
Balance of Non Recourse Mortgages	[1]	$ 114,162,000						$ 114,162,000
Mortgage and other notes payable, non-recourse to us, debt premium	[1]	436,000						436,000
Financing fees net	[1]	381,000						381,000
Interest Rate Cap
Debt Instrument [Line Items]
Number of interest rate cap agreements | Derivative				1	1	2	1
Notional amount				$ 30,000,000	$ 30,000,000	$ 20,000,000	$ 10,000,000
Premium paid				$ 55,000	$ 115,000	$ 134,500	$ 136,000
Expiration date of interest rate cap				Mar. 31, 2019	Mar. 31, 2019	Jan. 31, 2017	Jan. 31, 2017
Level 2
Debt Instrument [Line Items]
Number of non-recourse mortgages | MortgageLoan									14
Mortgage loan fair value		115,700,000						115,700,000	$ 112,400,000
Balance of Non Recourse Mortgages									110,300,000
Mortgage and other notes payable, non-recourse to us, debt premium									298,000
Financing fees net									$ 398,000
LIBOR | Interest Rate Cap
Debt Instrument [Line Items]
Derivative instruments, LIBOR rate				1.50%	1.50%	1.50%	1.50%
Revolving Credit Facility
Debt Instrument [Line Items]
Outstanding borrowing		$ 250,000,000						$ 250,000,000
Credit Agreement
Debt Instrument [Line Items]
Outstanding borrowing			$ 185,000,000									$ 250,000,000
Unsecured revolving amended credit agreement terminated date			2019-03
Number of additional one year extension options | Option			1
Proceeds from Lines of Credit			$ 50,000,000
Credit facility, Interest Rate Terms								One, two, three, or six month LIBOR plus an applicable margin ranging from 1.50% to 2.00% or at the Base Rate plus an applicable margin ranging from 0.50% to 1.00%.
Base rate description								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%.
Fee payable on unused portion of commitment		0.25%
Credit Agreement | LIBOR
Debt Instrument [Line Items]
Margin points added to the reference rate		1.625%
Credit Agreement | Base Rate
Debt Instrument [Line Items]
Margin points added to the reference rate		0.625%
Credit Agreement | Swingline/Short-Term Loans
Debt Instrument [Line Items]
Outstanding borrowing			20,000,000
Credit Agreement | Letters of Credit
Debt Instrument [Line Items]
Outstanding borrowing			$ 40,000,000
Credit Agreement | Minimum
Debt Instrument [Line Items]
Fee payable on unused portion of commitment			0.20%
Credit Agreement | Minimum | LIBOR
Debt Instrument [Line Items]
Margin points added to the reference rate			1.50%
Margin points added to the base rate			1.00%
Credit Agreement | Minimum | Base Rate
Debt Instrument [Line Items]
Margin points added to the reference rate			0.50%
Credit Agreement | Minimum | Federal Funds Effective Rate
Debt Instrument [Line Items]
Margin points added to the base rate			0.50%
Credit Agreement | Maximum
Debt Instrument [Line Items]
Fee payable on unused portion of commitment			0.40%
Credit Agreement | Maximum | LIBOR
Debt Instrument [Line Items]
Margin points added to the reference rate			2.00%
Credit Agreement | Maximum | Base Rate
Debt Instrument [Line Items]
Margin points added to the reference rate			1.00%

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

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Summary of Required Compliance Ratios in Connection with Terms of Credit Agreement (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($)
Debt Instrument [Line Items]
Covenant, Tangible net worth	$ 125,000
Tangible net worth	$ 167,462
Total leverage	48.60%
Secured leverage	18.10%
Unencumbered leverage	50.30%
Fixed charge coverage	3.60%
Maximum
Debt Instrument [Line Items]
Covenant, Total leverage	60.00%
Covenant, Secured leverage	30.00%
Covenant, Unencumbered leverage	60.00%
Minimum
Debt Instrument [Line Items]
Covenant, Fixed charge coverage	1.50%

XML

Summary of Outstanding Mortgages, Excluding Net Debt Premium (Detail) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016		Dec. 31, 2015
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 114,162
Less net financing fees	[1]	(381)
Plus net debt premium	[1]	436
Total mortgage notes payable, non-recourse to us, net		114,217	[1]	$ 110,156
Summerlin Hospital Medical Office Building III floating rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1],[2]	$ 10,384
Debt Instrument Interest Rate Stated Percentage	[2]	3.88%
Maturity Date	[2]	2017-03
Peace Health fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1],[2]	$ 20,309
Debt Instrument Interest Rate Stated Percentage	[2]	5.64%
Maturity Date	[2]	2017-04
Auburn Medical II floating rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1],[2]	$ 6,726
Debt Instrument Interest Rate Stated Percentage	[2]	3.37%
Maturity Date	[2]	2017-04
Medical Center of Western Connecticut fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1],[2]	$ 4,535
Debt Instrument Interest Rate Stated Percentage	[2]	6.00%
Maturity Date	[2]	2017-06
Summerlin Hospital Medical Office Building II fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1],[2]	$ 11,092
Debt Instrument Interest Rate Stated Percentage	[2]	5.50%
Maturity Date	[2]	2017-10
Phoenix Children's East Valley Care Center Fixed Rate Mortgage Loan
Debt Instrument [Line Items]
Outstanding Balance	[1],[2]	$ 6,202
Debt Instrument Interest Rate Stated Percentage	[2]	5.88%
Maturity Date	[2]	2017-12
Centennial Hills Medical Office Building floating rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 10,040
Debt Instrument Interest Rate Stated Percentage		3.88%
Maturity Date		2018-01
Sparks Medical Building/Vista Medical Terrace Floating Rate Mortgage Loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 4,231
Debt Instrument Interest Rate Stated Percentage		3.88%
Maturity Date		2018-02
Rosenberg Children's Medical Plaza Fixed Rate Mortgage Loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 8,146
Debt Instrument Interest Rate Stated Percentage		4.85%
Maturity Date		2018-05
Vibra Hospital-Corpus Christi fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 2,723
Debt Instrument Interest Rate Stated Percentage		6.50%
Maturity Date		2019-07
700 Shadow Lane and Goldring MOBs fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 6,248
Debt Instrument Interest Rate Stated Percentage		4.54%
Maturity Date		2022-06
BRB Medical Office Building fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 6,316
Debt Instrument Interest Rate Stated Percentage		4.27%
Maturity Date		2022-12
Desert Valley Medical Center Floating Rate Mortgage Loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 5,081
Debt Instrument Interest Rate Stated Percentage		3.62%
Maturity Date		2023-01
2704 North Tenaya Way fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 7,137
Debt Instrument Interest Rate Stated Percentage		4.95%
Maturity Date		2023-11
Tuscan Professional Building fixed rate mortgage loan
Debt Instrument [Line Items]
Outstanding Balance	[1]	$ 4,992
Debt Instrument Interest Rate Stated Percentage		5.56%
Maturity Date		2025-06

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

[2] 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.

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Aggregate Consolidated Scheduled Debt Repayment (Detail) $ in Thousands	Dec. 31, 2016 USD ($)
Debt Disclosure [Abstract]
2017	$ 61,115
2018	23,043
2019	205,251	[1]
2020	1,292
2021	1,356
Later	23,605
Total	$ 315,662

[1] Includes repayment of $201.5 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

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Aggregate Consolidated Scheduled Debt Repayment (Parenthetical) (Detail) - USD ($)	Dec. 31, 2016	May 31, 2016	Dec. 31, 2015
Schedule Of Equity Method Investments [Line Items]
Line of credit borrowings	$ 201,500,000		$ 142,150,000
Outstanding borrowing		$ 250,000,000
New Revolving Credit Facility Agreement
Schedule Of Equity Method Investments [Line Items]
Outstanding borrowing	$ 250,000,000

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Dividends and Equity Issuance Program - Additional Information (Detail) - USD ($)		3 Months Ended	12 Months Ended			39 Months Ended
	Jan. 31, 2015	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2016
Dividends and Equity Issuance [Line Items]
Declared and paid dividends, per share			$ 2.60	$ 2.56	$ 2.52
Ordinary income per share			2.00	2.17	1.478
Capital gain per share			$ 0.60	$ 0.39	$ 1.042
Securities, aggregate sales price		$ 23,300,000
At-The-Market (ATM) Equity Issuance Program
Dividends and Equity Issuance [Line Items]
Share issued		249,016	249,016	0	426,187	829,916
Average sale price per share		$ 55.30	$ 55.30		$ 47.51	$ 48.77
Net cash proceeds from stock issued	$ 1,100,000		$ 13,200,000		$ 19,500,000	$ 38,800,000
Payment of stock issuance cost			558,000		700,000	1,700,000
Payments for stock issuance			344,000		506,000	1,000,000
Gross proceeds available for issuance			9,500,000			9,500,000
At-The-Market (ATM) Equity Issuance Program | Other Expense
Dividends and Equity Issuance [Line Items]
Payments for stock issuance			$ 214,000		$ 195,000	$ 680,000
Capital gain
Dividends and Equity Issuance [Line Items]
Unrecaptured Section 1250 gain dividends per share					$ 0.305

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Incentive Plans - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Equity Incentive Plan [Line Items]
Number of options outstanding	0	23,000	36,000	40,000
Dividend equivalent rights, outstanding	0	23,000	36,000
Dividend equivalent rights paid to officers and Trustees	$ 30,000	$ 75,000	$ 94,000
Number of stock options exercised during the period, shares	23,000	13,000	4,000
Value of stock options exercised during the period	$ 520,420	$ 154,500	$ 44,160
Incentive Plan 2007
Equity Incentive Plan [Line Items]
Number of shares authorized for issuance	125,000
Shares issued, net of cancellation	77,285
Number of shares vested	57,825
Number of shares remaining for issuance	47,715
Restricted shares issued, net of cancellation	9,730	9,730	9,850
Restricted shares issued, weighted average grant price	$ 56.34	$ 47.75	$ 43.21
Restricted shares of beneficial interest, net of cancellations, issued, value	$ 548,188	$ 464,608	$ 425,619
Restricted shares, Vesting Period	2018-06	2017-06	2016-06
Compensation expenses	$ 481,000	$ 427,000	$ 399,000
Compensation expenses remained to be recognized in future	$ 485,000
Compensation expenses not yet recognized, period of recognition	1 year
1997 Plan
Equity Incentive Plan [Line Items]
Options granted, vesting percentage per year starting from one year from date of grant	25.00%
Options, expiration period	10 years
Number of options outstanding	0

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Options Before Adjustment to Option Price to Give Effect to Dilutive Equivalence (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of Shares, Outstanding Options, Beginning balance	23,000	36,000	40,000
Number of Shares, Outstanding Options, Exercised	(23,000)	(13,000)	(4,000)
Number of Shares, Outstanding Options, Ending balance	0	23,000	36,000
Exercise Weighted-Average Price, Outstanding Options, Beginning balance	$ 36.53	$ 35.94	$ 35.65
Exercise Weighted-Average Price, Outstanding Options, Exercised	36.53	34.90	33.07
Exercise Weighted-Average Price, Outstanding Options, Ending balance		36.53	35.94
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant Price, Outstanding Options, Beginning balance	36.53	34.90	36.53
Grant Price, Outstanding Options, Exercised	36.53	34.90	30.06
Grant Price, Outstanding Options, Ending balance		36.53	34.90
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant Price, Outstanding Options, Beginning balance	36.53	36.53	30.06
Grant Price, Outstanding Options, Exercised	$ 36.53	34.90	34.07
Grant Price, Outstanding Options, Ending balance		$ 36.53	$ 36.53

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Summarized Financial Information of Equity Affiliates - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2016 USD ($) Property	Dec. 31, 2014	Aug. 31, 2014 Property	Aug. 01, 2014 Property
Schedule Of Equity Method Investments [Line Items]
Percentage of minority ownership interests by parent		100.00%
Limited Liability Companies | Medical office buildings
Schedule Of Equity Method Investments [Line Items]
Number of real estate investments	5
Limited Liability Companies
Schedule Of Equity Method Investments [Line Items]
Number of real estate investments			8	6
Limited Liability Companies | Palmdale Medical Properties and Sparks Medical Properties
Schedule Of Equity Method Investments [Line Items]
Percentage of minority ownership interests by parent				100.00%
Minimum
Schedule Of Equity Method Investments [Line Items]
Percentage of minority ownership purchased from third-party members				5.00%
Number of days for Non-Offering Member either to purchase or sell its entire ownership interest to or from Offering Member	60 days
Maximum
Schedule Of Equity Method Investments [Line Items]
Percentage of minority ownership purchased from third-party members				15.00%
Number of days for Non-Offering Member either to purchase or sell its entire ownership interest to or from Offering Member	90 days
5 Unconsolidated Limited Liability Companies / Limited Partner | Minimum
Schedule Of Equity Method Investments [Line Items]
Non-controlling equity interest, ownership percentage	33.00%
5 Unconsolidated Limited Liability Companies / Limited Partner | Maximum
Schedule Of Equity Method Investments [Line Items]
Non-controlling equity interest, ownership percentage	95.00%
Arlington Medical Properties
Schedule Of Equity Method Investments [Line Items]
Non-controlling equity interest, ownership percentage	85.00%
Percentage of minority ownership purchased from third-party members	10.00%
Business acquisition additional consideration | $	$ 4.8

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Limited Liability Companies Accounted for Under Equity Method (Detail)		12 Months Ended
		Dec. 31, 2016	Aug. 01, 2014
Arlington Medical Properties
Schedule Of Equity Method Investments [Line Items]
Ownership		85.00%
Equity Method Investments | Suburban Properties
Schedule Of Equity Method Investments [Line Items]
Property Owned by LLC		St. Matthews Medical Plaza II
Ownership		33.00%
Equity Method Investments | Brunswick Associates
Schedule Of Equity Method Investments [Line Items]
Property Owned by LLC	[1]	Mid Coast Hospital MOB
Ownership	[1]	74.00%
Equity Method Investments | Arlington Medical Properties
Schedule Of Equity Method Investments [Line Items]
Property Owned by LLC	[2]	Saint Mary’s Professional Office Building
Ownership	[2]	85.00%
Equity Method Investments | Grayson Properties
Schedule Of Equity Method Investments [Line Items]
Property Owned by LLC	[3]	Texoma Medical Plaza
Ownership	[3]	95.00%
Equity Method Investments | FTX MOB Phase II limited partnership
Schedule Of Equity Method Investments [Line Items]
Property Owned by LLC	[4]	Forney Medical Plaza II
Ownership	[4]	95.00%
DVMC Properties
Schedule Of Equity Method Investments [Line Items]
Ownership prior to minority interest purchase		90.00%	90.00%
Property Owned by LLC		Desert Valley Medical Center
Effective Date		Aug. 01, 2014
Santa Fe Scottsdale
Schedule Of Equity Method Investments [Line Items]
Ownership prior to minority interest purchase		90.00%	90.00%
Property Owned by LLC		Santa Fe Professional Plaza
Effective Date		Aug. 01, 2014
PCH Medical Properties
Schedule Of Equity Method Investments [Line Items]
Ownership prior to minority interest purchase		85.00%	85.00%
Property Owned by LLC		Rosenberg Children’s Medical Plaza
Effective Date		Aug. 01, 2014
Sierra Medical Properties
Schedule Of Equity Method Investments [Line Items]
Ownership prior to minority interest purchase		95.00%	95.00%
Property Owned by LLC		Sierra San Antonio Medical Plaza
Effective Date		Aug. 01, 2014
PCH Southern Properties
Schedule Of Equity Method Investments [Line Items]
Ownership prior to minority interest purchase		95.00%	95.00%
Property Owned by LLC		Phoenix Children’s East Valley Care Center
Effective Date		Aug. 01, 2014
3811 Bell Medical Properties
Schedule Of Equity Method Investments [Line Items]
Ownership prior to minority interest purchase		95.00%	95.00%
Property Owned by LLC		North Valley Medical Plaza
Effective Date		Aug. 01, 2014

[1] This LLC has a third-party term loan of $8.6 million, which is non-recourse to us, outstanding as of December 31, 2016.

[2] We have funded $5.2 million in equity as of December 31, 2016 and are committed to invest an additional $623,000. During the fourth quarter of 2015, we advanced this LLC a member loan, the funds of which were utilized to repay its $22.8 million outstanding third-party mortgage loan on its scheduled maturity date. The member loan has an interest rate of 5.29% and is scheduled to mature in January, 2018. Additionally, pursuant to the terms and conditions of an agreement executed in February, 2016, we purchased an additional 10% of the ownership interest in this LLC from the existing third-party member for approximately $4.8 million in cash, thereby increasing our ownership interest to 85%.

[3] We have funded $2.8 million in equity as of December 31, 2016, and are committed to fund an additional $149,000. This building is on the campus of a UHS hospital and has tenants that include subsidiaries of UHS. This LP has a third-party term loan of $14.4 million, which is non-recourse to us, outstanding as of December 31, 2016

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

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Limited Liability Companies Accounted for Under Equity Method (Parenthetical) (Detail) - USD ($)	3 Months Ended	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Schedule Of Equity Method Investments [Line Items]
Proceeds from Lines of Credit		$ 59,350,000	$ 52,400,000
Brunswick Associates
Schedule Of Equity Method Investments [Line Items]
Third-party term loan		8,600,000
Arlington Medical Properties
Schedule Of Equity Method Investments [Line Items]
Committed investment in equity and debt financing, funded		5,200,000
Commitment to investment		$ 623,000
Proceeds from Lines of Credit	$ 22,800,000
Loan interest rate fixed percentage		5.29%
Maturity date		2018-01
Percentage of minority ownership purchased from third-party members		10.00%
Business acquisition additional consideration		$ 4,800,000
Cash payment made purchased addition of ownership interest		85.00%
Grayson Properties
Schedule Of Equity Method Investments [Line Items]
Third-party term loan		$ 14,400,000
Committed investment in equity and debt financing, funded		2,800,000
Commitment to investment		149,000
FTX MOB Phase II limited partnership
Schedule Of Equity Method Investments [Line Items]
Third-party term loan		5,300,000
Commitment to investment		2,500,000
Additional commitment to investment		$ 369,000

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Condensed Combined Statement of Income for Limited Liabilities Accounted for under Equity Method (Detail) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	[1]
Equity Method Investments And Joint Ventures [Abstract]
Revenues		$ 15,252	$ 14,347	$ 17,292
Operating expenses		5,439	5,605	6,769
Depreciation and amortization		2,554	2,398	2,968
Interest, net		2,565	2,578	4,261
Net income		4,694	3,766	3,294
Our share of net income	[2]	$ 4,456	$ 2,536	$ 2,428

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

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

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Condensed Combined Statement of Income for Limited Liabilities Accounted for under Equity Method (Parenthetical) (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Equity Method Investments And Joint Ventures [Abstract]
Interest income earned on various advances made to LLCs	$ 1,200,000	$ 200,000	$ 834,000

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Condensed Combined Balance Sheets of Limited Liabilities Accounted for under Equity Method (Detail) - USD ($) $ in Thousands		Dec. 31, 2016	Dec. 31, 2015
Equity Method Investments And Joint Ventures [Abstract]
Net property, including CIP		$ 60,970	$ 61,668
Other assets		4,598	5,264
Total assets		65,568	66,932
Other liabilities		3,334	2,538
Mortgage notes payable, non-recourse to us		28,367	28,895
Advances payable to us	[1]	21,638	22,489
Equity		12,229	13,010
Total liabilities and equity		65,568	66,932
Our share of equity in and advances to LLCs reflected as:
Investments in LLCs		13,955	9,108
Advances to LLCs		21,638	22,489
Investments in and advances to LLCs before amounts included in accrued expenses and other liabilities		35,593	31,597
Amounts included in accrued expenses and other liabilities		(1,862)	(1,105)
Our share of equity in and advances to LLCs, net		$ 33,731	$ 30,492

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

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Condensed Combined Balance Sheets of Limited Liabilities Accounted for under Equity Method (Parenthetical) (Detail) - 5.29% Member Loan	12 Months Ended
	Dec. 31, 2016
Schedule Of Equity Method Investments [Line Items]
Loan interest rate fixed percentage	5.29%
Maturity date	2018-01

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Aggregate Principal Amounts Due on Mortgage Notes Payable by Unconsolidated LLCs, Accounted Under Equity Method (Detail) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015
Schedule Of Equity Method Investments [Line Items]
2017		$ 61,115
2018		23,043
2019	[1]	205,251
2020		1,292
2021		1,356
2022 and thereafter		23,605
Total		315,662
Mortgage Loan Balance		28,367	$ 28,895
Equity Method Investments
Schedule Of Equity Method Investments [Line Items]
2017		5,727
2018		445
2019		466
2020		484
2021		13,582
2022 and thereafter		7,663
Total		28,367
Mortgage Loan Balance	[2]	28,367	28,895
Equity Method Investments | FTX MOB Phase II
Schedule Of Equity Method Investments [Line Items]
Mortgage Loan Balance	[2]	$ 5,301	5,427
Maturity Date	[3]	2017-08
Equity Method Investments | Grayson Properties
Schedule Of Equity Method Investments [Line Items]
Mortgage Loan Balance	[2]	$ 14,438	14,670
Maturity Date		2021-09
Equity Method Investments | Brunswick Associates
Schedule Of Equity Method Investments [Line Items]
Mortgage Loan Balance	[2]	$ 8,628	$ 8,798
Maturity Date		2024-12

[1] Includes repayment of $201.5 million of outstanding borrowings under the terms of our $250 million revolving credit agreement.

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

[3] This loan is scheduled to mature within the next twelve months, at which time it will be refinanced pursuant to: (i) a new third-party mortgage loan; (ii) a member loan extended from us to the LLC, or; (iii) equity contributions to the LLC by us and the third-party member.  Funds required from us to the LLC for either the member loan or our share of an equity contribution would likely be borrowed under our Credit Agreement.

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Aggregate Principal Amounts Due on Mortgage Notes Payable by Unconsolidated LLCs, Accounted Under Equity Method (Parenthetical) (Detail)	Dec. 31, 2016
4.75% Fixed Rate Mortgage Loan | FTX MOB Phase II
Schedule Of Equity Method Investments [Line Items]
Loan interest rate fixed percentage	4.75%
5.034% Fixed Rate Mortgage Loan | Grayson Properties
Schedule Of Equity Method Investments [Line Items]
Loan interest rate fixed percentage	5.034%
3.64% Fixed Rate Mortgage Loan | Brunswick Associates
Schedule Of Equity Method Investments [Line Items]
Loan interest rate fixed percentage	3.64%

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Segment Reporting - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2016 Segment
Segment Reporting [Abstract]
Number of reportable segments	1

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Quarterly Results (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Financial Information Disclosure [Abstract]
Revenues	$ 17,593	$ 16,801	$ 16,461	$ 16,226	$ 16,013	$ 15,686	$ 16,049	$ 16,202	$ 67,081	$ 63,950	$ 59,786
Net income before gains					4,352	3,639	3,262	3,696		14,949
Gain on property exchange							8,742			8,742
Net income	$ 4,446	$ 3,818	$ 4,523	$ 4,428	$ 4,352	$ 3,639	$ 12,004	$ 3,696	$ 17,215	$ 23,691	$ 51,551
Total basic earnings per share	$ 0.33	$ 0.28	$ 0.34	$ 0.33	$ 0.33	$ 0.27	$ 0.90	$ 0.28	$ 1.28	$ 1.78	$ 3.99
Total diluted earnings per share	$ 0.33	$ 0.28	$ 0.34	$ 0.33	$ 0.33	$ 0.27	$ 0.90	$ 0.28	$ 1.28	$ 1.78	$ 3.99

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Schedule III Real Estate and Accumulated Depreciation (Detail) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 114,162
Initial Cost, Land		48,798
Initial Cost, Building & Improvements		459,942
Adjustments to Basis	[2]	66,617
Land		51,638
Buildings and Improvements		523,719
CIP		10,471
Total		585,828	$ 511,657	$ 486,589	$ 395,669
Accumulated Depreciation		138,588	$ 121,161
Inland Valley Regional Medical Center Wildomar, California
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		2,050
Initial Cost, Building & Improvements		10,701
Adjustments to Basis	[2]	14,596
Land		2,050
Buildings and Improvements		25,297
Total		27,347
Accumulated Depreciation		$ 12,596
Date of Completion of Construction, Acquisition or Significant Improvement		2007
Date Acquired		1986
Average Depreciable Life		43 years
McAllen Medical Center McAllen, Texas
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 4,720
Initial Cost, Building & Improvements		31,442
Adjustments to Basis	[2]	10,189
Land		6,281
Buildings and Improvements		40,070
Total		46,351
Accumulated Depreciation		$ 26,276
Date of Completion of Construction, Acquisition or Significant Improvement		1994
Date Acquired		1986
Average Depreciable Life		42 years
Wellington Regional Medical Center West Palm Beach, Florida
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,190
Initial Cost, Building & Improvements		14,652
Adjustments to Basis	[2]	17,370
Land		1,663
Buildings and Improvements		31,549
Total		33,212
Accumulated Depreciation		$ 18,410
Date of Completion of Construction, Acquisition or Significant Improvement		2006
Date Acquired		1986
Average Depreciable Life		42 years
HealthSouth Deaconess Rehabilitation Hospital Evansville, Indiana
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 500
Initial Cost, Building & Improvements		6,945
Adjustments to Basis	[2]	1,062
Land		500
Buildings and Improvements		8,007
Total		8,507
Accumulated Depreciation		$ 5,475
Date of Completion of Construction, Acquisition or Significant Improvement		1993
Date Acquired		1989
Average Depreciable Life		40 years
Kindred Chicago Central Hospital Central Chicago, Illinois
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 158
Initial Cost, Building & Improvements		6,404
Adjustments to Basis	[2]	1,838
Land		158
Buildings and Improvements		8,242
Total		8,400
Accumulated Depreciation		$ 8,242
Date of Completion of Construction, Acquisition or Significant Improvement		1993
Date Acquired		1986
Average Depreciable Life		25 years
Family Doctor's Medical Office Building Shreveport, Louisiana
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 54
Initial Cost, Building & Improvements		1,526
Adjustments to Basis	[2]	494
Land		54
Buildings and Improvements		2,020
Total		2,074
Accumulated Depreciation		$ 997
Date of Completion of Construction, Acquisition or Significant Improvement		1991
Date Acquired		1995
Average Depreciable Life		45 years
Kelsey-Seybold Clinic at King's Crossing Kingwood, Texas
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 439
Initial Cost, Building & Improvements		1,618
Adjustments to Basis	[2]	878
Land		439
Buildings and Improvements		2,496
Total		2,935
Accumulated Depreciation		$ 1,352
Date of Completion of Construction, Acquisition or Significant Improvement		1995
Date Acquired		1995
Average Depreciable Life		45 years
Professional Buildings at King's Crossing Kingwood, Texas
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 439
Initial Cost, Building & Improvements		1,837
Adjustments to Basis	[2]	251
Land		439
Buildings and Improvements		2,088
CIP		9
Total		2,536
Accumulated Depreciation		$ 1,008
Date of Completion of Construction, Acquisition or Significant Improvement		1995
Date Acquired		1995
Average Depreciable Life		45 years
Chesterbrook Academy Audubon, Pennsylvania
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 307
Initial Cost, Building & Improvements		996
Land		307
Buildings and Improvements		996
Total		1,303
Accumulated Depreciation		$ 456
Date of Completion of Construction, Acquisition or Significant Improvement		1996
Date Acquired		1996
Average Depreciable Life		45 years
Chesterbrook Academy New Britain, Pennsylvania
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 250
Initial Cost, Building & Improvements		744
Land		250
Buildings and Improvements		744
Total		994
Accumulated Depreciation		$ 343
Date of Completion of Construction, Acquisition or Significant Improvement		1991
Date Acquired		1996
Average Depreciable Life		45 years
Chesterbrook Academy Uwchlan, Pennsylvania
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 180
Initial Cost, Building & Improvements		815
Land		180
Buildings and Improvements		815
Total		995
Accumulated Depreciation		$ 374
Date of Completion of Construction, Acquisition or Significant Improvement		1992
Date Acquired		1996
Average Depreciable Life		45 years
Chesterbrook Academy Newtown, Pennsylvania
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 195
Initial Cost, Building & Improvements		749
Land		195
Buildings and Improvements		749
Total		944
Accumulated Depreciation		$ 345
Date of Completion of Construction, Acquisition or Significant Improvement		1992
Date Acquired		1996
Average Depreciable Life		45 years
The Southern Crescent Center Riverdale, Georgia
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land	[3]	$ 1,130
Initial Cost, Building & Improvements	[3]	5,092
Adjustments to Basis	[2],[3]	(2,271)
Land	[3]	1,130
Buildings and Improvements	[3]	2,821
Total	[3]	3,951
Accumulated Depreciation	[3]	$ 2,419
Date of Completion of Construction, Acquisition or Significant Improvement	[3]	1994
Date Acquired	[3]	1996
Average Depreciable Life	[3]	45 years
The Southern Crescent Center II Riverdale, Georgia
Real Estate and Accumulated Depreciation [Line Items]
Adjustments to Basis	[2],[3]	$ 4,981
Land	[3]	806
Buildings and Improvements	[3]	4,175
Total	[3]	4,981
Accumulated Depreciation	[3]	$ 2,278
Date of Completion of Construction, Acquisition or Significant Improvement	[3]	2000
Date Acquired	[3]	1998
Average Depreciable Life	[3]	35 years
The Cypresswood Professional Center Spring, Texas
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 573
Initial Cost, Building & Improvements		3,842
Adjustments to Basis	[2]	813
Land		573
Buildings and Improvements		4,655
Total		5,228
Accumulated Depreciation		$ 2,770
Date of Completion of Construction, Acquisition or Significant Improvement		1997
Date Acquired		1997
Average Depreciable Life		35 years
701 South Tonopah Building Las Vegas, Nevada
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements		$ 1,579
Adjustments to Basis	[2]	68
Buildings and Improvements		1,647
Total		1,647
Accumulated Depreciation		$ 1,077
Date of Completion of Construction, Acquisition or Significant Improvement		1999
Date Acquired		1999
Average Depreciable Life		25 years
Medical Center of Western Connecticut Danbury, Connecticut
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 4,535
Initial Cost, Land		1,151
Initial Cost, Building & Improvements		5,176
Adjustments to Basis	[2]	544
Land		1,151
Buildings and Improvements		5,720
Total		6,871
Accumulated Depreciation		$ 3,349
Date of Completion of Construction, Acquisition or Significant Improvement		2000
Date Acquired		2000
Average Depreciable Life		30 years
Vibra Hospital of Corpus Christi Corpus Christi, Texas
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 2,723
Initial Cost, Land		1,104
Initial Cost, Building & Improvements		5,508
Land		1,104
Buildings and Improvements		5,508
Total		6,612
Accumulated Depreciation		$ 1,400
Date of Completion of Construction, Acquisition or Significant Improvement		2008
Date Acquired		2008
Average Depreciable Life		35 years
Apache Junction Medical Plaza Apache Junction, AZ
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 240
Initial Cost, Building & Improvements		3,590
Adjustments to Basis	[2]	1,159
Land		240
Buildings and Improvements		4,749
Total		4,989
Accumulated Depreciation		$ 1,009
Date of Completion of Construction, Acquisition or Significant Improvement		2004
Date Acquired		2004
Average Depreciable Life		30 years
Auburn Medical Office Building II Auburn, WA
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 6,726
Initial Cost, Building & Improvements		10,200
Adjustments to Basis	[2]	176
Buildings and Improvements		10,376
Total		10,376
Accumulated Depreciation		$ 1,716
Date of Completion of Construction, Acquisition or Significant Improvement		2009
Date Acquired		2009
Average Depreciable Life		36 years
BRB Medical Office Building Kingwood, Texas
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 6,316
Initial Cost, Land		430
Initial Cost, Building & Improvements		8,970
Adjustments to Basis	[2]	32
Land		430
Buildings and Improvements		9,002
Total		9,432
Accumulated Depreciation		$ 1,471
Date of Completion of Construction, Acquisition or Significant Improvement		2010
Date Acquired		2010
Average Depreciable Life		37 years
Centennial Hills Medical Office Building Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 10,040
Initial Cost, Building & Improvements		19,890
Adjustments to Basis	[2]	1,299
Buildings and Improvements		21,189
CIP		86
Total		21,275
Accumulated Depreciation		$ 3,733
Date of Completion of Construction, Acquisition or Significant Improvement		2006
Date Acquired		2006
Average Depreciable Life		34 years
Desert Springs Medical Plaza Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,200
Initial Cost, Building & Improvements		9,560
Adjustments to Basis	[2]	1,081
Land		1,200
Buildings and Improvements		10,641
Total		11,841
Accumulated Depreciation		$ 2,175
Date of Completion of Construction, Acquisition or Significant Improvement		1998
Date Acquired		1998
Average Depreciable Life		30 years
700 Shadow Lane & Goldring MOBs Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 6,248
Initial Cost, Land		400
Initial Cost, Building & Improvements		11,300
Adjustments to Basis	[2]	3,012
Land		400
Buildings and Improvements		14,312
CIP		288
Total		15,000
Accumulated Depreciation		$ 2,742
Date of Completion of Construction, Acquisition or Significant Improvement		2003
Date Acquired		2003
Average Depreciable Life		30 years
Spring Valley Hospital MOB I Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements		$ 9,500
Adjustments to Basis	[2]	709
Buildings and Improvements		10,209
CIP		22
Total		10,231
Accumulated Depreciation		$ 1,865
Date of Completion of Construction, Acquisition or Significant Improvement		2004
Date Acquired		2004
Average Depreciable Life		35 years
Spring Valley Hospital MOB II Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements		$ 9,800
Adjustments to Basis	[2]	488
Buildings and Improvements		10,288
Total		10,288
Accumulated Depreciation		$ 1,860
Date of Completion of Construction, Acquisition or Significant Improvement		2006
Date Acquired		2006
Average Depreciable Life		34 years
Summerlin Hospital MOB I Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 460
Initial Cost, Building & Improvements		15,440
Adjustments to Basis	[2]	824
Land		460
Buildings and Improvements		16,264
CIP		113
Total		16,837
Accumulated Depreciation		$ 3,282
Date of Completion of Construction, Acquisition or Significant Improvement		1999
Date Acquired		1999
Average Depreciable Life		30 years
Summerlin Hospital MOB II Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 11,092
Initial Cost, Land		370
Initial Cost, Building & Improvements		16,830
Adjustments to Basis	[2]	1,275
Land		370
Buildings and Improvements		18,105
CIP		53
Total		18,528
Accumulated Depreciation		$ 3,523
Date of Completion of Construction, Acquisition or Significant Improvement		2000
Date Acquired		2000
Average Depreciable Life		30 years
Summerlin Hospital MOB III Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 10,384
Initial Cost, Building & Improvements		14,900
Adjustments to Basis	[2]	2,137
Buildings and Improvements		17,037
Total		17,037
Accumulated Depreciation		$ 2,698
Date of Completion of Construction, Acquisition or Significant Improvement		2009
Date Acquired		2009
Average Depreciable Life		36 years
Emory at Dunwoody Building Dunwoody, GA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 782
Initial Cost, Building & Improvements		3,455
Land		782
Buildings and Improvements		3,455
Total		4,237
Accumulated Depreciation		$ 658
Date of Completion of Construction, Acquisition or Significant Improvement		2011
Date Acquired		2011
Average Depreciable Life		35 years
Forney Medical Plaza Forney, TX
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 910
Initial Cost, Building & Improvements		11,960
Adjustments to Basis	[2]	55
Land		910
Buildings and Improvements		12,015
CIP		1
Total		12,926
Accumulated Depreciation		$ 2,565
Date of Completion of Construction, Acquisition or Significant Improvement		2011
Date Acquired		2011
Average Depreciable Life		35 years
Lake Pointe Medical Arts Building Rowlett, TX
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,100
Initial Cost, Building & Improvements		9,000
Adjustments to Basis	[2]	31
Land		1,100
Buildings and Improvements		9,031
CIP		1
Total		10,132
Accumulated Depreciation		$ 1,687
Date of Completion of Construction, Acquisition or Significant Improvement		2011
Date Acquired		2011
Average Depreciable Life		35 years
Tuscan Professional Building Irving, TX
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 4,992
Initial Cost, Land		1,100
Initial Cost, Building & Improvements		12,525
Adjustments to Basis	[2]	244
Land		1,100
Buildings and Improvements		12,769
Total		13,869
Accumulated Depreciation		$ 2,176
Date of Completion of Construction, Acquisition or Significant Improvement		2011
Date Acquired		2011
Average Depreciable Life		35 years
Peace Health Medical Clinic Bellingham, WA
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 20,309
Initial Cost, Land		1,900
Initial Cost, Building & Improvements		24,910
Land		1,900
Buildings and Improvements		24,910
Total		26,810
Accumulated Depreciation		$ 4,201
Date of Completion of Construction, Acquisition or Significant Improvement		2012
Date Acquired		2012
Average Depreciable Life		35 years
Northwest Texas Professional Office Tower
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements		$ 7,180
Buildings and Improvements		7,180
Total		7,180
Accumulated Depreciation		$ 967
Date of Completion of Construction, Acquisition or Significant Improvement		2012
Date Acquired		2012
Average Depreciable Life		35 years
Ward Eagle Office Village Medical Office Building
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 220
Initial Cost, Building & Improvements		3,220
Land		220
Buildings and Improvements		3,220
Total		3,440
Accumulated Depreciation		$ 406
Date of Completion of Construction, Acquisition or Significant Improvement		2013
Date Acquired		2013
Average Depreciable Life		35 years
5004 Poole Road Medical Office Building Denison, TX
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 96
Initial Cost, Building & Improvements		529
Land		96
Buildings and Improvements		529
Total		625
Accumulated Depreciation		$ 63
Date of Completion of Construction, Acquisition or Significant Improvement		2013
Date Acquired		2013
Average Depreciable Life		35 years
Desert Valley Medical Center Phoenix AZ
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1],[4]	$ 5,081
Initial Cost, Land	[4]	2,280
Initial Cost, Building & Improvements	[4]	4,624
Adjustments to Basis	[2],[4]	400
Land	[4]	2,280
Buildings and Improvements	[4]	5,024
CIP	[4]	1
Total	[4]	7,305
Accumulated Depreciation	[4]	$ 506
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	1996
Date Acquired	[4]	1996
Average Depreciable Life	[4]	30 years
Hanover Emergency Center Mechanicsville, VA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,300
Initial Cost, Building & Improvements		6,224
Land		1,300
Buildings and Improvements		6,224
Total		7,524
Accumulated Depreciation		$ 490
Date of Completion of Construction, Acquisition or Significant Improvement		2014
Date Acquired		2014
Average Depreciable Life		35 years
Haas Medical Office Park Ottumwa, IA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements		$ 3,571
Buildings and Improvements		3,571
Total		3,571
Accumulated Depreciation		$ 222
Date of Completion of Construction, Acquisition or Significant Improvement		2015
Date Acquired		2015
Average Depreciable Life		35 years
Mission Free standing Emergency Department Mission, TX
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,441
Initial Cost, Building & Improvements		4,696
Land		1,441
Buildings and Improvements		4,696
Total		6,137
Accumulated Depreciation		$ 301
Date of Completion of Construction, Acquisition or Significant Improvement		2015
Date Acquired		2015
Average Depreciable Life		35 years
North Valley Medical Plaza Phoenix, AZ
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land	[4]	$ 930
Initial Cost, Building & Improvements	[4]	6,929
Adjustments to Basis	[2],[4]	60
Land	[4]	930
Buildings and Improvements	[4]	6,989
CIP	[4]	360
Total	[4]	8,279
Accumulated Depreciation	[4]	$ 652
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	2010
Date Acquired	[4]	2010
Average Depreciable Life	[4]	30 years
Northwest Medical Center at Sugar Creek, Bentonville, AR
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,100
Initial Cost, Building & Improvements		2,870
Land		1,100
Buildings and Improvements		2,870
Total		3,970
Accumulated Depreciation		$ 270
Date of Completion of Construction, Acquisition or Significant Improvement		2014
Date Acquired		2014
Average Depreciable Life		35 years
The Children's Clinic at Springdale, Springdale, AR
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 610
Initial Cost, Building & Improvements		1,570
Land		610
Buildings and Improvements		1,570
Total		2,180
Accumulated Depreciation		$ 172
Date of Completion of Construction, Acquisition or Significant Improvement		2014
Date Acquired		2014
Average Depreciable Life		35 years
Rosenberg Children's Medical Plaza, Phoenix, AZ
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1],[4]	$ 8,146
Initial Cost, Building & Improvements	[4]	23,302
Adjustments to Basis	[2],[4]	34
Buildings and Improvements	[4]	23,336
Total	[4]	23,336
Accumulated Depreciation	[4]	$ 1,897
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	2001
Date Acquired	[4]	2001
Average Depreciable Life	[4]	35 years
Phoenix Children's East Valley Care Center, Phoenix, AZ
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1],[4]	$ 6,202
Initial Cost, Land	[4]	1,050
Initial Cost, Building & Improvements	[4]	10,900
Land	[4]	1,050
Buildings and Improvements	[4]	10,900
Total	[4]	11,950
Accumulated Depreciation	[4]	$ 884
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	2006
Date Acquired	[4]	2006
Average Depreciable Life	[4]	35 years
Palmdale Medical Plaza, Palmdale, CA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements	[4]	$ 10,555
Adjustments to Basis	[2],[4]	1,701
Buildings and Improvements	[4]	12,256
Total	[4]	12,256
Accumulated Depreciation	[4]	$ 1,175
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	2008
Date Acquired	[4]	2008
Average Depreciable Life	[4]	34 years
Piedmont-Roswell Physician Center Sandy Springs, GA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 2,338
Initial Cost, Building & Improvements		2,128
Land		2,338
Buildings and Improvements		2,128
Total		4,466
Accumulated Depreciation		$ 151
Date of Completion of Construction, Acquisition or Significant Improvement		2015
Date Acquired		2015
Average Depreciable Life		30 years
Piedmont-Vinings Physician Center Vinings, GA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,348
Initial Cost, Building & Improvements		2,418
Land		1,348
Buildings and Improvements		2,418
Total		3,766
Accumulated Depreciation		$ 166
Date of Completion of Construction, Acquisition or Significant Improvement		2015
Date Acquired		2015
Average Depreciable Life		30 years
Santa Fe Professional Plaza Scottsdale, AZ
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land	[4]	$ 1,090
Initial Cost, Building & Improvements	[4]	1,960
Adjustments to Basis	[2],[4]	312
Land	[4]	1,090
Buildings and Improvements	[4]	2,272
CIP	[4]	36
Total	[4]	3,398
Accumulated Depreciation	[4]	$ 236
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	1999
Date Acquired	[4]	1999
Average Depreciable Life	[4]	30 years
Sierra San Antonio Medical Plaza Fontana, CA
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Building & Improvements	[4]	$ 11,538
Adjustments to Basis	[2],[4]	206
Buildings and Improvements	[4]	11,744
CIP	[4]	9
Total	[4]	11,753
Accumulated Depreciation	[4]	$ 1,074
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	2006
Date Acquired	[4]	2006
Average Depreciable Life	[4]	30 years
Vista Medical Terrace & Sparks MOB Sparks, NV
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1],[4]	$ 4,231
Initial Cost, Building & Improvements	[4]	9,276
Adjustments to Basis	[2],[4]	569
Buildings and Improvements	[4]	9,845
CIP	[4]	28
Total	[4]	9,873
Accumulated Depreciation	[4]	$ 1,280
Date of Completion of Construction, Acquisition or Significant Improvement	[4]	2008
Date Acquired	[4]	2008
Average Depreciable Life	[4]	30 years
Weslaco Free-standing Emergency Dept Weslaco, TX
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 1,749
Initial Cost, Building & Improvements		4,879
Land		1,749
Buildings and Improvements		4,879
Total		6,628
Accumulated Depreciation		$ 321
Date of Completion of Construction, Acquisition or Significant Improvement		2015
Date Acquired		2015
Average Depreciable Life		35 years
Chandler Corporate Center III Chandler, AZ
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 2,328
Initial Cost, Building & Improvements		14,131
Land		2,328
Buildings and Improvements		14,131
Total		16,459
Accumulated Depreciation		$ 352
Date of Completion of Construction, Acquisition or Significant Improvement		2016
Date Acquired		2016
Average Depreciable Life		35 years
Frederick Crestwood MOB Frederick, MD
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 2,258
Initial Cost, Building & Improvements		18,973
Land		2,258
Buildings and Improvements		18,973
Total		21,231
Accumulated Depreciation		$ 216
Date of Completion of Construction, Acquisition or Significant Improvement		2016
Date Acquired		2016
Average Depreciable Life		35 years
Madison Professional Office Building Madison, AL
Real Estate and Accumulated Depreciation [Line Items]
Initial Cost, Land		$ 2,296
Initial Cost, Building & Improvements		6,411
Land		2,296
Buildings and Improvements		6,411
Total		8,707
Accumulated Depreciation		$ 215
Date of Completion of Construction, Acquisition or Significant Improvement		2016
Date Acquired		2016
Average Depreciable Life		35 years
Tenaya Medical Office Building Las Vegas, NV
Real Estate and Accumulated Depreciation [Line Items]
Encumbrance	[1]	$ 7,137
Initial Cost, Land		3,032
Initial Cost, Building & Improvements		10,602
Land		3,032
Buildings and Improvements		10,602
Total		13,634
Accumulated Depreciation		$ 44
Date of Completion of Construction, Acquisition or Significant Improvement		2016
Date Acquired		2016
Average Depreciable Life		35 years
Henderson Medical Plaza Henderson, NV
Real Estate and Accumulated Depreciation [Line Items]
CIP	[5]	$ 9,464
Total	[5]	$ 9,464
Date of Completion of Construction, Acquisition or Significant Improvement	[5]	2017

[1] Consists of outstanding balances as of December 31, 2016 on third-party debt that is non-recourse to us.

[2] Costs capitalized/divested subsequent to acquisition.

[3] During 2008, a $4.6 million provision for asset impairment was recorded in connection with the real estate assets of Southern Crescent Center I & Southern Crescent Center II.

[4] During 2014, we purchased the third-party minority interests in these properties in which we previously held noncontrolling majority owned interests. Since that time, these properties are wholly-owned.

[5] Henderson Medical Plaza is scheduled to be completed and opened during the first quarter of 2017.

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Schedule III Real Estate and Accumulated Depreciation (Parenthetical) (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2008 USD ($)
Real Estate And Accumulated Depreciation Disclosure [Abstract]
Provision for asset impairment	$ 4.6

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Reconciliation of Real Estate Properties and Accumulated Depreciation (Detail) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Real Estate And Accumulated Depreciation Disclosure [Abstract]
Beginning balance		$ 511,657	$ 486,589	$ 395,669
Impact of consolidation of eight LLCs	[1]			84,064
Additions	[2]	14,186	4,972	3,298
Acquisitions		60,031	24,568	13,674
Disposals/Divestitures		(46)	(4,472)	(10,116)
Ending balance		585,828	511,657	486,589
Beginning balance		121,161	106,480	97,921
Disposals/Divestitures		(9)	(1,568)	(5,859)
Depreciation expense		17,436	16,249	14,413
Other				5
Ending balance		$ 138,588	$ 121,161	$ 106,480

[1] During 2014, the Trust purchased the minority ownership interests held by third-party members in eight LLCs (January and August, 2014) in which we previously held noncontrolling majority ownership interests. As a result of these minority ownership purchases, the Trust and our subsidiaries now own 100% of each of these LLCs and the financial results are included in our consolidated financial statements.

[2] Includes $9.5 million of CIP related to Henderson Medical Plaza, which is scheduled to be completed and opened during the first quarter of 2017.

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Reconciliation of Real Estate Properties and Accumulated Depreciation (Parenthetical) (Detail) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2014
Real Estate and Accumulated Depreciation [Line Items]
Percentage of minority ownership interests by parent			100.00%
CIP		$ 10,471
Henderson Medical Plaza | Scenario, Forecast
Real Estate and Accumulated Depreciation [Line Items]
CIP	$ 9,500
Universal Health Services
Real Estate and Accumulated Depreciation [Line Items]
Percentage of minority ownership interests by parent			100.00%