UNIVERSAL HEALTH REALTY INCOME TRUST

Previous wording

The increase in interest rates has significantly increased our interest expense thereby reducing our net income, cash provided by operating activities and funds from operations, as well as unfavorably impacting our ability to access the capital markets on favorable terms. Additionally, as discussed below in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Other Operating Results-Interest Expense, our aggregate interest expense during the three and six-month periods ended June 30, 2024, was favorably impacted by four interest rate swaps with a combined notional amount of $165 million, while our aggregate interest expense during the three and six-month periods ended June 30, 2023, was favorably impacted by three interest rate swaps with a combined notional amount of $140 million. Two of these interest rate swaps, with a combined notional amount of $85 million, are scheduled to expire on September 16, 2024. As discussed herein, although we can provide no assurance we will ultimately do so, at a future date in 2024, we are considering replacing the two interest rate swaps that are scheduled to expire in September, 2024, with either interest rate swaps and/or interest rate cap agreements on a total notional amount of up to $85 million. The increased interest rates on our borrowings and/or the increased costs related to new construction could also affect our ability to make additional attractive investments. Given these factors, increased interest rates, including the unfavorable impact on the terms of future interest rate swap and/or cap agreements, could unfavorably impact our future rental revenue and expenses, including interest expense, and may potentially have a material unfavorable impact on our future net income, cash provided by operating activities, funds from operations, lease renewal terms, the underlying value of our properties, our ability to grow our portfolio, and the value of our common shares.

Current wording

The increase in interest rates has significantly increased our interest expense thereby reducing our net income, cash provided by operating activities and funds from operations, as well as unfavorably impacting our ability to access the capital markets on favorable terms. The increased interest rates on our borrowings and/or the increased costs related to new construction could also affect our ability to make additional attractive investments. The effects of increased interest rates on our borrowings, including the unfavorable impact on the terms of recent and future interest rate swap and/or cap agreements, could unfavorably impact our future rental revenue and expenses, including interest expense, and may potentially have a material unfavorable impact on our future net income, cash provided by operating activities, funds from operations, lease renewal terms, the underlying value of our properties, our ability to grow our portfolio, and the value of our common shares.

Previous wording

We cannot assure you that subsidiaries of UHS will renew the leases on the hospital facilities and free-standing emergency departments, upon the scheduled expirations of the existing lease terms. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital facilities and FEDs, and do not enter into a substitution arrangement upon expiration of the lease terms or otherwise, our future revenues and results of operations could decrease if we were unable to earn a favorable rate of return on the sale proceeds received, as compared to the rental revenue currently earned pursuant to these leases. Please see Note 2 to the condensed consolidated financial statements - Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions, for additional information related to a lease renewal between us and Wellington Regional Medical Center, a wholly-owned subsidiary of UHS.

Current wording

A substantial portion of our revenues are dependent upon one operator, UHS, which comprised approximately 40% and 41% of our consolidated revenues for the three-month periods ended September 30, 2024 and 2023, respectively, and approximately 41% for each of the nine-month periods ended September 30, 2024 and 2023. We cannot assure you that subsidiaries of UHS will renew the leases on the hospital facilities and free-standing emergency departments, upon the scheduled expirations of the existing lease terms. In addition, if subsidiaries of UHS exercise their options to purchase the respective leased hospital facilities and FEDs, and do not enter into a substitution arrangement upon expiration of the lease terms or otherwise, our future revenues and results of operations could decrease if we were unable to earn a favorable rate of return on the sale proceeds received, as compared to the rental revenue currently earned pursuant to these leases. Please see Note 2 to the condensed consolidated financial statements - Relationship with Universal Health Services, Inc. (“UHS”) and Related Party Transactions, for additional information related to a lease renewal between us and Wellington Regional Medical Center, a wholly-owned subsidiary of UHS.

Previous wording

The outcome and effects of known and unknown litigation, government investigations, and liabilities and other claims asserted against us, UHS or the other operators of our facilities. UHS and its subsidiaries are subject to legal actions, purported shareholder class actions and shareholder derivative cases, governmental investigations and regulatory actions and the effects of adverse publicity relating to such matters. Since UHS comprised approximately 41% of our consolidated revenues during each of the three and six months ended June 30, 2024, and since a subsidiary of UHS is our Advisor, you are encouraged to obtain and review the disclosures contained in the Legal Proceedings section of Universal Health Services, Inc.’s Forms 10-Q and 10-K, as publicly filed with the Securities and Exchange Commission. Those filings are the sole responsibility of UHS and are not incorporated by reference herein.

Current wording

The outcome and effects of known and unknown litigation, government investigations, and liabilities and other claims asserted against us, UHS or the other operators of our facilities. UHS and its subsidiaries are subject to legal actions, purported shareholder class actions and shareholder derivative cases, governmental investigations and regulatory actions and the effects of adverse publicity relating to such matters. Since UHS comprised approximately 40% and 41% of our consolidated revenues during the three and nine-months ended September 30, 2024, respectively, and since a subsidiary of UHS is our Advisor, you are encouraged to obtain and review the disclosures contained in the Legal Proceedings section of Universal Health Services, Inc.’s Forms 10-Q and 10-K, as publicly filed with the Securities and Exchange Commission. Those filings are the sole responsibility of UHS and are not incorporated by reference herein.

Previous wording

An increasing number of legislative initiatives have been passed into law that may result in major changes in the health care delivery system on a national or state level. Legislation has already been enacted that has eliminated the penalty for failing to maintain health coverage that was part of the original Patient Protection and Affordable Care Act (the “ACA”). President Biden has undertaken executive actions that will strengthen the ACA. To date, the Biden administration has issued executive orders implementing a special enrollment period permitting individuals to enroll in health plans outside of the annual open enrollment period and reexamining policies that may undermine the ACA or the Medicaid program. The American Rescue Plan Act of 2021's expansion of subsidies to purchase coverage through an exchange, which the Inflation Reduction Act of 2022, passed on August 16, 2022, continues through 2025, is anticipated to increase exchange enrollment. It is also anticipated that these policies, to the extent that they remain as implemented, may create additional cost and reimbursement pressures on hospitals, including ours. In addition, while attempts to repeal the entirety of the ACA have not been successful to date, a key provision of the ACA was eliminated as part of the Tax Cuts and Jobs Act and on December 14, 2018, a federal U.S. District Court Judge in Texas ruled the entire ACA is unconstitutional. That ruling was ultimately appealed to the United States Supreme Court, which decided in California v. Texas that the plaintiffs in the matter lacked standing to bring their constitutionality claims. On September 7, 2022, the Patient Protection and Affordable Care Act, as amended by the Health and Education Reconciliation Act (collectively, the “Legislation”) faced its most recent challenge when a Texas Federal District Court judge, in the case of Braidwood Management v. Becerra, ruled that certain Legislation provisions violate the Appointments Clause of the U.S. Constitution and the Religious Freedom Restoration Act. The decision was appealed to the U.S. Court of Appeals for the Fifth Circuit, which on June 21, 2024 affirmed the District Court’s ruling regarding preventive services recommended by United States Preventive Services Task Force being unconstitutional. However, the Fifth Circuit overturned the nationwide injunction imposed by the District Court, preserving access to the majority of preventive services in dispute for now. The matter is expected to be the subject of additional litigation, having been remanded in part to the District Court. Any future efforts to challenge, replace or replace the Legislation or expand or substantially amend its provision is unknown.

Current wording

An increasing number of legislative initiatives have been passed into law that may result in major changes in the health care delivery system on a national or state level. Legislation has already been enacted that has eliminated the penalty for failing to maintain health coverage that was part of the original Patient Protection and Affordable Care Act (the “ACA”). President Biden has undertaken executive actions that will strengthen the ACA. To date, the Biden administration has issued executive orders implementing a special enrollment period permitting individuals to enroll in health plans outside of the annual open enrollment period and reexamining policies that may undermine the ACA or the Medicaid program. The American Rescue Plan Act of 2021's expansion of subsidies to purchase coverage through an exchange, which the Inflation Reduction Act of 2022, passed on August 16, 2022, continues through 2025, is anticipated to increase exchange enrollment. It is also anticipated that these policies, to the extent that they remain as implemented, may create additional cost and reimbursement pressures on hospitals, including ours. In addition, while attempts to repeal the entirety of the ACA have not been successful to date, a key provision of the ACA was eliminated as part of the Tax Cuts and Jobs Act and on December 14, 2018, a federal U.S. District Court Judge in Texas ruled the entire ACA is unconstitutional. That ruling was ultimately appealed to the United States Supreme Court, which decided in California v. Texas that the plaintiffs in the matter lacked standing to bring their constitutionality claims. On September 7, 2022, the ACA faced its most recent challenge when a Texas Federal District Court judge, in the case of Braidwood Management v. Becerra, ruled that certain provisions violate the Appointments Clause of the U.S. Constitution and the Religious Freedom Restoration Act. The decision was appealed to the U.S. Court of Appeals for the Fifth Circuit, which on June 21, 2024 affirmed the District Court’s ruling regarding preventive services recommended by United States Preventive Services Task Force being unconstitutional. However, the Fifth Circuit overturned the nationwide injunction imposed by the District Court, preserving access to the majority of preventive services in dispute for now. The matter is expected to be the subject of additional litigation, having been remanded in part to the District Court. Any future efforts to challenge, replace or replace the ACA or expand or substantially amend its provision is unknown.

Previous wording

We hold non-controlling equity interests in four LLCs/LPs, pursuant to the operating and/or partnership agreements of which, 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.

Current wording

We hold non-controlling equity interests in four LLCs/LPs, pursuant to the operating and/or partnership agreements of which, 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 at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member 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.

Previous wording

During the three-month period ended June 30, 2024, net income was $5.3 million, as compared to $3.5 million during the second quarter of 2023. The $1.8 million increase was attributable to:

Current wording

During the three-month period ended September 30, 2024, net income was $4.0 million, as compared to $3.9 million during the third quarter of 2023. The $125,000 increase was attributable to:

Previous wording

an increase of $706,000 resulting from an aggregate net increase in the income generated at various properties, and;

Current wording

an increase of $451,000 resulting from an aggregate net increase in the income generated at various properties, and;

Previous wording

a decrease of $404,000 resulting from an increase in interest expense due primarily to increases in our average borrowing rate as well as our average outstanding borrowings.

Current wording

a decrease of $326,000 resulting from an increase in interest expense due primarily to an increase in our average outstanding borrowings as well as a slight increase in our average borrowing rate.

Previous wording

During the six-month period ended June 30, 2024, net income was $10.6 million, as compared to $7.9 million during the corresponding six-month period of 2023. The $2.6 million increase was attributable to:

Current wording

During the nine-month period ended September 30, 2024, net income was $14.6 million, as compared to $11.8 million during the corresponding nine-month period of 2023. The $2.8 million increase was attributable to:

Previous wording

an increase of $2.1 million resulting from an aggregate net increase in the income generated at various properties;

Current wording

an increase of $2.5 million resulting from an aggregate net increase in the income generated at various properties;

Previous wording

an increase of $1.8 million resulting from a reduction in the expenses related to our property located in Chicago, Illinois, including $1.1 million from demolition expenses incurred during the first six months of 2023, and $563,000 related to a property tax reduction recorded during the first six months of 2024 which related primarily to prior periods, and;

Current wording

an increase of $1.9 million resulting from a reduction in the expenses related to our property located in Chicago, Illinois, including $1.1 million from demolition expenses incurred during the first nine months of 2023, and $563,000 related to a property tax reduction recorded during the first nine months of 2024 which related primarily to prior periods, and;

Previous wording

a decrease of $1.3 million resulting from an increase in interest expense due primarily to increases in our average borrowing rate as well as our average outstanding borrowings.

Current wording

a decrease of $1.6 million resulting from an increase in interest expense due primarily to increases in our average borrowing rate as well as our average outstanding borrowings.

Previous wording

Revenues increased $928,000, or 3.9%, to $24.7 million during the three-month period ended June 30, 2024, as compared to $23.8 million during the three-month period ended June 30, 2023. The increase during the second quarter of 2024, as compared to the second quarter of 2023, was primarily due to an aggregate net increase generated at various properties, including the revenues generated at an MOB located in McAllen, Texas, that was acquired during the third quarter of 2023.

Current wording

Revenues increased $271,000, or 1.1%, to $24.5 million during the three-month period ended September 30, 2024, as compared to $24.2 million during the three-month period ended September 30, 2023. The increase during the third quarter of 2024, as compared to the third quarter of 2023, was primarily due to an aggregate net increase generated at various properties, including the revenues generated at an MOB located in McAllen, Texas, that was acquired during the third quarter of 2023.

Previous wording

Revenues increased $2.8 million, or 6.0%, to $49.9 million during the six-month period ended June 30, 2024, as compared to $47.0 million during the six-month period ended June 30, 2023. The increase during the first six months of 2024, as compared to the first six months of 2023, was primarily due to an aggregate net increase generated at various properties, including the increased revenues generated at a newly constructed MOB located in Reno, Nevada, that opened during the first quarter of 2023, and the revenues generated at an MOB located in McAllen, Texas, that was acquired during the third quarter of 2023.

Current wording

Revenues increased $3.1 million, or 4.4%, to $74.4 million during the nine-month period ended September 30, 2024, as compared to $71.3 million during the nine-month period ended September 30, 2023. The increase during the first nine months of 2024, as compared to the first nine months of 2023, was primarily due to an aggregate net increase generated at various properties, including the increased revenues generated at a newly constructed MOB located in Reno, Nevada, that opened during the first quarter of 2023, and the revenues generated at an MOB located in McAllen, Texas, that was acquired during the third quarter of 2023.

Previous wording

Other operating expenses amounted to $6.1 million during the second quarter of 2024 and $6.5 million during the second quarter of 2023 (excluding $862,000 of demolition expenses incurred during the second quarter of 2023). Included in our other operating expenses (excluding ground lease expenses) are expenses related to the consolidated medical office buildings which included two vacant properties during the second quarter of 2024 and three vacant properties during the second quarter of 2023 (the divestiture of one of these vacant properties was completed during the fourth quarter of 2023 and the demolition of one of these vacant properties was substantially completed during the second quarter of 2023). Other operating expenses amounted to $12.8 million and $12.9 million during the six-month periods ended June 30, 2024 and 2023, respectively, (excluding $1.1 million of demolition expenses incurred during the first six month of 2023). Our operating expenses during the three and six-month periods ended June 30, 2024 include a property tax reduction of approximately $563,000, which related primarily to prior periods, recorded in connection with our property located in Chicago, Illinois.

Current wording

Other operating expenses amounted to $6.8 million during the third quarter of 2024 and $7.1 million during the third quarter of 2023. Included in our other operating expenses (excluding ground lease expenses) are expenses related to the consolidated medical office buildings which included two vacant properties during the third quarter of 2024 and three vacant properties during the third quarter of 2023 (the divestiture of one of these vacant properties was completed during the fourth quarter of 2023 and the demolition of one of these vacant properties was substantially completed during the second quarter of 2023). Other operating expenses amounted to $19.5 million and $20.0 million during the nine-month periods ended September 30, 2024 and 2023, respectively, (excluding $1.1 million of demolition expenses incurred during the first nine month of 2023). Our operating expenses during the nine-month period ended September 30, 2024 include a property tax reduction of approximately $563,000, which related primarily to prior periods, recorded in connection with our property located in Chicago, Illinois.

Previous wording

Below is a reconciliation of our reported net income to FFO for the three and six-month periods ended June 30, 2024 and 2023 (in thousands):

Current wording

Below is a reconciliation of our reported net income to FFO for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands):

Previous wording

Our FFO increased $1.8 million to $12.4 million during the second quarter of 2024, as compared to $10.6 million during the second quarter of 2023. The net increase was primarily due to the $1.8 million increase in net income, as discussed above.

Current wording

Our FFO increased $124,000 to $11.3 million during the third quarter of 2024, as compared to $11.2 million during the third quarter of 2023. The net increase was primarily due to the $125,000 increase in net income, as discussed above.

Previous wording

Our FFO increased $2.8 million to $24.8 million during the first six months of 2024, as compared to $22.0 million during the first six months of 2023. The net increase was primarily due to: (i) an increase in net income of $2.6 million, as discussed above, and; (ii) an increase in depreciation and amortization expense incurred by our consolidated and unconsolidated affiliates.

Current wording

Our FFO increased $2.9 million to $36.1 million during the first nine months of 2024, as compared to $33.2 million during the first nine months of 2023. The net increase was primarily due to: (i) an increase in net income of $2.8 million, as discussed above, and; (ii) an increase in depreciation and amortization expense incurred by our consolidated and unconsolidated affiliates.

Previous wording

As reflected in the schedule below, interest expense was $4.6 million and $4.2 million during the three-month periods ended June 30, 2024 and 2023, respectively, and $9.1 million and $7.9 million during the six-month periods ended June 30, 2024 and 2023, respectively (amounts in thousands):

Current wording

As reflected in the schedule below, interest expense was $4.8 million and $4.5 million during the three-month periods ended September 30, 2024 and 2023, respectively, and $13.9 million and $12.3 million during the nine-month periods ended September 30, 2024 and 2023, respectively (amounts in thousands):

Previous wording

As disclosed below in Quantitative and Qualitative Disclosures About Market Risk-Financial Instruments, on December 1, 2023, we entered into a fourth interest rate swap with a notional amount of $25 million. During the three and six-months ended June 30, 2024, net interest was paid to us from the counterparties pursuant to four interest rate swaps with a combined notional amount of $165 million (of which two interest rate swaps with a combined notional amount of $85 million are scheduled to expire on September 16, 2024). During the three and six-months ended June 30, 2023, net interest was paid to us from the counterparties pursuant to three interest rates swaps with a combined notional amount of $140 million.

Current wording

Please see below in Quantitative and Qualitative Disclosures About Market Risk-Financial Instrumentsfor disclosure regarding our various interest rate swap agreements. During the three and nine-month periods ended September 30, 2024 and 2023, net interest was paid to us from the counterparties pursuant to the interest rate swaps that were active during each period.

Previous wording

Interest expense increased by $404,000 during the three-month period ended June 30, 2024, as compared to the comparable period of 2023, due primarily to: (i) a $826,000 increase in the interest expense on our revolving credit agreement primarily resulting from increases in our average cost of borrowings (6.92% average effective rate during the second quarter of 2024, as compared to 6.59% average effective rate during the comparable quarter of 2023) and in our average outstanding borrowings ($337.9 million during the three months ended June 30, 2024 as compared to $303.8 million in the comparable quarter of 2023); (ii) a $19,000 net increase in other combined interest expenses, partially offset by; (iii) a $224,000 favorable change in interest rate swap income, and; (iv) a $217,000 decrease in mortgage interest expense (due primarily to repayment, utilizing borrowings under our credit agreement, of a $12.2 million fixed rate mortgage loan that matured during the second quarter of 2024).

Current wording

Interest expense increased by $326,000 during the three-month period ended September 30, 2024, as compared to the comparable period of 2023, due primarily to: (i) a $510,000 increase in the interest expense on our Credit Agreement primarily resulting from slight increases in our average cost of borrowings (6.93% average effective rate during the third quarter of 2024, as compared to 6.89% average effective rate during the comparable quarter of 2023) as well as increases in our average outstanding borrowings ($339.6 million during the three months ended September 30, 2024 as compared to $311.4 million in the comparable quarter of 2023); (ii) a $5,000 net increase in other combined interest expenses; (iii) a $27,000 increase due to a net decrease in interest rate swap income, partially offset by; (iv) a $216,000 decrease in mortgage interest expense (due primarily to repayment, utilizing borrowings under our Credit Agreement, of a $12.2 million fixed rate mortgage loan that matured during the second quarter of 2024).

Previous wording

Interest expense increased by $1.3 million during the six-month period ended June 30, 2024, as compared to the comparable period of 2023, due primarily to: (i) a $2.0 million increase in the interest expense on our revolving credit agreement primarily resulting from increases in our average cost of borrowings (6.94% average effective rate during the first six months of 2024, as compared to 6.33% average effective rate during the comparable six months of 2023) and in our average outstanding borrowings ($332.5 million during the six months ended June 30, 2024 as compared to $302.4 million in the comparable six-month period of 2023); (ii) a $149,000 increase due to a decrease in capitalized interest on a major project that was substantially completed during the first quarter of 2023; (iii) a $69,000 net increase in other combined interest expenses, partially offset by; (iv) a $642,000 favorable change in interest rate swap income, and; (v) a $311,000 decrease in mortgage interest expense.

Current wording

Interest expense increased by $1.6 million during the nine-month period ended September 30, 2024, as compared to the comparable period of 2023, due primarily to: (i) a $2.5 million increase in the interest expense on our Credit Agreement primarily resulting from increases in our average cost of borrowings (6.94% average effective rate during the first nine months of 2024, as compared to 6.52% average effective rate during the comparable nine months of 2023) and in our average outstanding borrowings ($334.9 million during the nine months ended September 30, 2024 as compared to $305.4 million in the comparable nine-month period of 2023); (ii) a $149,000 increase due to a decrease in capitalized interest on a major project that was substantially completed during the first quarter of 2023; (iii) a $74,000 net increase in other combined interest expenses, partially offset by; (iv) a $615,000 favorable change in interest rate swap income, and; (v) a $527,000 decrease in mortgage interest expense (due primarily to repayment, utilizing borrowings under our Credit Agreement, of a $12.2 million fixed rate mortgage loan that matured during the second quarter of 2024).

Previous wording

Net cash provided by operating activities was $23.9 million during the six-month period ended June 30, 2024 as compared to $22.3 million during the comparable period of 2023. The $1.5 million net increase was attributable to:

Current wording

Net cash provided by operating activities was $33.8 million during the nine-month period ended September 30, 2024 as compared to $32.5 million during the comparable period of 2023. The $1.3 million net increase was attributable to:

Previous wording

a favorable change of $2.9 million due to an increase in net income plus/minus the adjustments to reconcile net income to net cash provided by operating activities (depreciation and amortization, amortization related to above/below market leases, amortization of debt premium, as applicable, amortization of deferred financing costs and stock-based compensation), as discussed above;

Current wording

a favorable change of $3.0 million due to an increase in net income plus/minus the adjustments to reconcile net income to net cash provided by operating activities (depreciation and amortization, amortization related to above/below market leases, amortization of debt premium, amortization of deferred financing costs and stock-based compensation expense), as discussed above;

Previous wording

an unfavorable change of $691,000 in accrued expenses and other liabilities;

Current wording

an unfavorable change of $618,000 in accrued expenses and other liabilities;

Previous wording

an unfavorable change of $160,000 in leasing costs paid;

Current wording

a favorable change of $270,000 in leasing costs paid;

Previous wording

other combined net unfavorable changes of $1.2 million.

Current wording

other combined net unfavorable changes of $1.0 million.

Previous wording

Net cash used in investing activities was $9.7 million during the first six months of 2024 as compared to $8.9 million during the first six months of 2023.

Current wording

Net cash used in investing activities was $11.2 million during the first nine months of 2024 as compared to $19.8 million during the first nine months of 2023.

Previous wording

During the six-month period ended June 30, 2024 we funded: (i) $5.9 million in equity investments in unconsolidated LLCs; (ii) $4.3 million in additions to real estate investments including construction costs related to the Sierra Medical Plaza I medical office building located in Reno, Nevada, that was substantially completed during the first quarter of 2023, as well as tenant improvements at various MOBs, and; (iii) $128,000 in an advance made to a third-party partner of an unconsolidated LLC, which was repaid in July, 2024, with interest. In addition, during the six months ended June 30, 2024, we received $688,000 of cash in excess of income from LLCs.

Current wording

During the nine-month period ended September 30, 2024 we funded: (i) $5.9 million in equity investments in unconsolidated LLCs, and; (ii) $6.0 million in additions to real estate investments, including tenant improvements at various MOBs. In addition, during the nine months ended September 30, 2024, we received $765,000 of cash in excess of income from LLCs.

Previous wording

During the six-month period ended June 30, 2023 we funded: (i) $8.8 million in additions to real estate investments including construction costs related to the Sierra Medical Plaza I medical office building located in Reno, Nevada, that was substantially completed during the first quarter of 2023, as well as tenant improvements at various MOBs; (ii) $3.9 million in equity investments in unconsolidated LLCs, and; (iii) $100,000 in deposits on real estate assets. In addition, during the six months ended June 30, 2023, we received: (i) $369,000 of cash in excess of income from LLCs, and; (ii) $3.5 million of repayments of an advance we provided to an unconsolidated LLC during 2021.

Current wording

During the nine-month period ended September 30, 2023 we funded: (i) $12.2 million in additions to real estate investments including construction costs related to the Sierra Medical Plaza I medical office building located in Reno, Nevada, that was substantially completed during the first quarter of 2023, as well as tenant improvements at various MOBs; (ii) $7.6 million, including transaction costs, on the August, 2023 acquisition of the McAllen Doctor's Center medical office building, as discussed in Note 4 to the consolidated financial statements–Acquisitions and Divestitures, and; (iii) $4.1 million in equity investments in unconsolidated LLCs. In addition, during the nine months ended September 30, 2023, we received: (i) $531,000 of cash in excess of income from LLCs, and; (ii) $3.5 million of repayments of an advance we had provided to an unconsolidated LLC during 2021.

Previous wording

Net cash used in financing activities was $16.8 million during the six months ended June 30, 2024, as compared to $11.6 million during the six months ended June 30, 2023.

Current wording

Net cash used in financing activities was $24.4 million during the nine months ended September 30, 2024, as compared to $11.9 million during the nine months ended September 30, 2023.

Previous wording

During the six-month period ended June 30, 2024, we paid: (i) $12.9 million on mortgage notes payable that are non-recourse to us, including a $12.2 million repayment of a fixed rate mortgage loan that matured during the second quarter of 2024; (ii) $49,000 of financing costs related to the revolving credit agreement; (iii) $20.2 million of dividends, including $78,000 of previously accrued dividends, and; (iv) $10,000, of net cash paid related to the issuance of shares of beneficial interest. Additionally, during the six months ended June 30, 2024, we received $16.3 million of net borrowings on our revolving credit agreement.

Current wording

During the nine-month period ended September 30, 2024, we paid: (i) $13.2 million on mortgage notes payable that are non-recourse to us, including a $12.2 million repayment of a fixed rate mortgage loan that matured during the second quarter of 2024; (ii) $2.1 million of financing costs, primarily related to the second amendment to the Credit Agreement, as discussed herein, and; (iii) $30.2 million of dividends, including $85,000 of previously accrued dividends. Additionally, during the nine months ended September 30, 2024, we received: (i) $21.2 million of net borrowings pursuant to our Credit Agreement, and; (ii) $17,000 of net cash from the issuance of shares of beneficial interest.

Previous wording

During the six-month period ended June 30, 2023, we paid: (i) $5.0 million on mortgage notes payable that are non-recourse to us, including a $4.2 million repayment of a fixed rate mortgage loan that matured during the first quarter of 2023; (ii) $132,000 of financing costs related to the amendment to our revolving credit agreement, and; (iii) $19.8 million of dividends, including $58,000 of previously accrued dividends. Additionally, during the six months ended June 30, 2023, we received: (i) $13.3 million of net borrowings on our revolving credit agreement, and; (ii) $76,000 of net cash from the issuance of shares of beneficial interest.

Current wording

During the nine-month period ended September 30, 2023, we paid: (i) $5.4 million on mortgage notes payable that are non-recourse to us, including a $4.2 million repayment of a fixed rate mortgage loan that matured during the first quarter of 2023; (ii) $222,000 of financing costs related to the first amendment to our Credit Agreement, and; (iii) $29.8 million of dividends, including $58,000 of previously accrued dividends. Additionally, during the nine months ended September 30, 2023, we received: (i) $23.4 million of net borrowings pursuant to our Credit Agreement, and; (ii) $118,000 of net cash from the issuance of shares of beneficial interest.

Previous wording

No shares were issued pursuant to this ATM equity program since the effective date of April 30, 2024 through June 30, 2024. Pursuant to this ATM program, as of June 30, 2024, we have paid or incurred approximately $287,000 in various fees and expenses related to our ATM program.

Current wording

No shares were issued under the Form S-3 since the effective date of April 30, 2024 through September 30, 2024. As of September 30, 2024, we have paid or incurred approximately $297,000 in various fees and expenses related to the Form S-3. The availability of the potential liquidity under this shelf registration statement depends on investor demand, market conditions and other factors. We make no assurance regarding when, or if, we will issue any securities under this registration statement.

Previous wording

Additional cash flow and dividends paid information for the six-month periods ended June 30, 2024 and 2023:

Current wording

Additional cash flow and dividends paid information for the nine-month periods ended September 30, 2024 and 2023:

Previous wording

As indicated on our condensed consolidated statement of cash flows, we generated net cash provided by operating activities of $23.9 million and $22.3 million during the six-month periods ended June 30, 2024 and 2023, respectively. As also indicated on our statement of cash flows, non-cash expenses including depreciation and amortization expense, amortization related to above/below market leases, amortization of debt premium, as applicable, amortization of deferred financing costs and stock-based compensation expense, as well as changes in certain assets and liabilities, are the primary differences between our net income and net cash provided by operating activities during each period.

Current wording

As indicated on our condensed consolidated statement of cash flows, we generated net cash provided by operating activities of $33.8 million and $32.5 million during the nine-month periods ended September 30, 2024 and 2023, respectively. As also indicated on our statement of cash flows, non-cash expenses including depreciation and amortization expense, amortization related to above/below market leases, amortization of debt premium, as applicable, amortization of deferred financing costs and stock-based compensation expense, as well as changes in certain assets and liabilities, are the primary differences between our net income and net cash provided by operating activities during each period.

Previous wording

We declared and paid dividends of $20.2 million and $19.8 million during the six-month periods ended June 30, 2024 and 2023, respectively. During the first six months of 2024, the $23.9 million of net cash provided by operating activities was approximately $3.7 million greater than the $20.2 million of dividends paid during the first six months of 2024. During the first six months of 2023, the $22.3 million of net cash provided by operating activities was approximately $2.5 million greater than the $19.8 million of dividends paid during the first six months of 2023.

Current wording

We declared and paid dividends of $30.2 million and $29.8 million during the nine-month periods ended September 30, 2024 and 2023, respectively. During the first nine months of 2024, the $33.8 million of net cash provided by operating activities was approximately $3.5 million greater than the $30.2 million of dividends paid during the first nine months of 2024. During the first nine months of 2023, the $32.5 million of net cash provided by operating activities was approximately $2.7 million greater than the $29.8 million of dividends paid during the first nine months of 2023.

Previous wording

As indicated in the cash flows from investing activities and cash flows from financing activities sections of the statements of cash flows, there were various other sources and uses of cash during the six months ended June 30, 2024 and 2023. 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.

Current wording

As indicated in the cash flows from investing activities and cash flows from financing activities sections of the statements of cash flows, there were various other sources and uses of cash during the nine months ended September 30, 2024 and 2023. 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.

Previous wording

We expect to finance all capital expenditures and acquisitions and pay dividends utilizing internally generated and additional funds. Additional funds may be obtained through: (i) borrowings under our $375 million revolving credit agreement (which had $32.1 million of available borrowing capacity, net of outstanding borrowings as of June 30, 2024); (ii) borrowings under or refinancing of existing third-party debt pursuant to mortgage loan agreements entered into by our consolidated and unconsolidated LLCs/LPs; (iii) the issuance of other long-term debt, and/or; (iv) the issuance of equity. In April 2024 we filed a shelf registration statement on Form S-3 with the

Current wording

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 $425 million Credit Agreement (which had $77.2 million of available borrowing capacity, net of outstanding borrowings as of September 30, 2024); (ii) borrowings under or refinancing of existing third-party debt pursuant to mortgage loan agreements entered into by our consolidated and unconsolidated LLCs/LPs; (iii) the issuance of other long-term debt, and/or; (iv) the issuance of equity. In April, 2024 we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission pursuant to which we many offer up to $100 million of securities pursuant to supplemental prospectuses which we may file from time to time.

Previous wording

We believe that our operating cash flows, cash and cash equivalents, available borrowing capacity under our revolving credit agreement and access to the capital markets provide us with sufficient capital resources to fund our operating, investing and financing requirements for the next twelve months, including providing sufficient capital to allow us to make distributions necessary to enable us to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on terms acceptable to us could have a material unfavorable impact on our results of operations, financial condition and liquidity.

Current wording

We believe that our operating cash flows, cash and cash equivalents, available borrowing capacity under our Credit Agreement and access to the capital markets provide us with sufficient capital resources to fund our operating, investing and financing requirements for the next twelve months, including providing sufficient capital to allow us to make distributions necessary to enable us to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on terms acceptable to us could have a material unfavorable impact on our results of operations, financial condition and liquidity.