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Community Healthcare TrustTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-Kx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 ofincorporation or organization) (I.R.S. EmployerIdentification Number)Universal Corporate Center367 South Gulph RoadP.O. Box 61558King 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 ClassShares of beneficial interest, $.01 par value Name of each exchange on which registeredNew 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 x 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 x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes x 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, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. x 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 thedefinitions 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 x Non-accelerated filer ¨ Smaller reporting company ¨ (Do not check if a smallerreporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No x Aggregate market value of voting shares and non-voting shares held by non-affiliates as of June 28, 2013: $540,970,533 (For the purpose of this calculationonly, all members of the Board of Trustees are deemed to be affiliates). Number of shares of beneficial interest outstanding of registrant as of January 31,2014: 12,858,667 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive proxy statement for our 2014 Annual Meeting of Shareholders, which will be filed with the Securities and ExchangeCommission within 120 days after December 31, 2013 (incorporated by reference under Part III). Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST2013 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS PART I Item 1 Business 1 Item 1A Risk Factors 9 Item 1B Unresolved Staff Comments 18 Item 2 Properties 19 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 50 Item 8 Financial Statements and Supplementary Data 51 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 51 Item 9A Controls and Procedures 51 Item 9B Other Information 54 PART III Item 10 Directors, Executive Officers and Corporate Governance 54 Item 11 Executive Compensation 54 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 54 Item 13 Certain Relationships and Related Transactions, and Director Independence 54 Item 14 Principal Accountant Fees and Services 54 PART IV Item 15 Exhibits and Financial Statement Schedules 55 SIGNATURES 57 Index to Financial Statements and Schedule 58 Exhibit Index 91 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 Table of ContentsThis Annual Report on Form 10-K is for the year ended December 31, 2013. This Annual Report modifies and supersedes documents filed prior to thisAnnual Report. Information that we file with the Securities and Exchange Commission (the “SEC”) in the future will automatically update and supersedeinformation contained in this Annual Report. In this Annual Report, “we,” “us,” “our” and the “Trust” refer to Universal Health Realty Income Trust and itssubsidiaries. As disclosed in this Annual Report, including in Part I, Item 1.-Relationship with Universal Health Services, Inc. (“UHS”), a wholly-ownedsubsidiary 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, four of our hospital facilities areleased to subsidiaries of UHS and twelve medical office buildings, including certain properties owned by limited liability companies in which we either hold100% of the ownership interest or various non-controlling, majority ownership interests, include or will include tenants which are subsidiaries of UHS. Anyreference 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 (“LLCs”) in which we havevarious non-controlling equity interests ranging from 33% to 95%. We currently account for our share of the income/loss from these investments by the equitymethod (see Note 8 to the Consolidated Financial Statements included herein). Table of ContentsPART 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 facilitiesincluding acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers and medicaloffice buildings (“MOBs”). As of February 28, 2014 we have fifty-eight real estate investments or commitments located in sixteen states in the United Statesconsisting of: (i) seven hospital facilities including three acute care, one behavioral healthcare, one rehabilitation and two sub-acute; (ii) forty-seven MOBs,and; (iii) 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 anyamendments to those reports, are available free of charge on our website. Additionally, we have adopted governance guidelines, a Code of Business Conductand Ethics applicable to all of our officers and directors, a Code of Ethics for Senior Officers and charters for each of the Audit Committee, CompensationCommittee 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 Kingof 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 ofany provision of our Code of Ethics for Senior Officers by promptly posting this information on our website. The information posted on our website is notincorporated 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 NewYork Stock Exchange in 2013. Additionally, contained in Exhibits 31.1 and 31.2 of this Annual Report are our CEO’s and CFO’s certifications regarding thequality of our public disclosure under Section 302 of the Sarbanes-Oxley Act of 2002. Overview of Facilities As of February 28, 2014, we have investments in fifty-eight facilities, located in sixteen states and consisting of the following: Facility Name Location Type of Facility Ownership GuarantorSouthwest 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.The Bridgeway(A) N.Little Rock, AR Behavioral Health 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 CorporationFamily Doctor’s Medical Office Bldg.(B) Shreveport, LA MOB 100% Christus Health Northern LouisianaKelsey-Seybold Clinic at Kings Crossing(B) Kingwood, TX MOB 100% Kelsey-SeyboldMedical Group, PLLCProfessional Bldgs. at Kings CrossingBuilding A(B) Kingwood, TX MOB 100% —Building B(B) Kingwood, TX MOB 100% —Chesterbrook Academy(B) Audubon, PA Preschool & Childcare 100% Nobel Learning Comm. & Subs. 1 Table of ContentsFacility Name Location Type of Facility Ownership GuarantorChesterbrook 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% —Suburban Medical Plaza II(C) Louisville, KY MOB 33% —Desert Valley Medical Center(C) Phoenix, AZ MOB 90% —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(C) Scottsdale, AZ MOB 90% —Sheffield Medical Building(B) Atlanta, GA 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(C) Phoenix, AZ MOB 85% —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 75% —Apache Junction Medical Plaza(E) Apache Junction, AZ MOB 100% —Spring Valley Medical Office Building(E) Las Vegas, NV MOB 100% —Spring Valley Hospital Medical Office Building II(E) Las Vegas, NV MOB 100% —Sierra San Antonio Medical Plaza(C) Fontana, CA MOB 95% —Phoenix Children’s East Valley Care Center(C) Phoenix, AZ MOB 95% —Centennial Hills Medical OfficeBuilding(D) Las Vegas, NV MOB 100% —Palmdale Medical Plaza(D)(L)(P) Palmdale, CA MOB 100% —Summerlin Hospital Medical Office Building III(D) Las Vegas, NV MOB 100% —Vista Medical Terrace(D)(P) Sparks, NV MOB 100% —The Sparks Medical Building(D)(P) 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% —North Valley Medical Plaza(C) Phoenix, AZ MOB 95% —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(I)(J) Forney, TX MOB 95% —Northwest Texas Professional Office Tower(E)(K) Amarillo, TX MOB 100% —5004 Poole Road MOB(E)(M) Denison, TX MOB 100% —Ward Eagle Office Village(E)(N) Farmington Hills, MI MOB 100% —The Children’s Clinic at Springdale(E)(O) Springdale, AR MOB 100% —The Northwest Medical Center at Sugar Creek(E)(O) Bentonville, AR 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”) in which we have a noncontrolling ownership interest as indicated above 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 leasewith Deaconess is scheduled to expire on May 31, 2019. 2 Table of Contents(G)Real estate assets owned by an LLC in which we have a noncontrolling ownership interest as indicated above. Tenants of this MOB include 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)Construction on this MOB began during the third quarter of 2012 and the MOB was completed and opened during April, 2013.(J)Real estate assets owned by a limited partnership (“LP”) in which we have a noncontrolling ownership interest as indicated above and include tenants who are unaffiliated third-parties.(K)This MOB was acquired during the fourth quarter of 2012.(L)This MOB had a master lease with a subsidiary of UHS through June 30, 2013. As of July 1, 2013, the master lease expired and we therefore began to account for this LLC on an unconsolidated basis pursuant tothe equity method as of July 1, 2013.(M)This MOB was acquired during the second quarter of 2013.(N)This MOB was acquired during the third quarter of 2013.(O)This MOB was acquired during the first quarter of 2014.(P)Effective January 1, 2014, we purchased the third-party minority ownership interest in the LLC which owns this MOB, in which we formerly held a noncontrolling majority ownership interest. We now hold 100% ofthe ownership interest in the LLC that owns this MOB. Other Information Included in our portfolio at December 31, 2013 are seven hospital facilities with an aggregate investment of $142.0 million. The leases with respect tothese hospital facilities comprised approximately 36% of our consolidated revenues in each of 2013 and 2012, and 65% in 2011. The decrease during 2013and 2012, as compared to 2011, is due primarily to the December, 2011 purchase of the third-party minority ownership interests in eleven LLCs in which wepreviously held noncontrolling majority ownership interests (we began recording the financial results of the entities in our financial statements on aconsolidated basis at that time) and various acquisitions of medical office buildings (“MOBs”) and clinics completed during 2011 and the first quarter of2012. As of December 31, 2013, these leases have fixed terms with an average of 3.4 years remaining and include renewal options ranging from one 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 EBITDARdivided by the sum of minimum rent plus additional rent payable to us (“Coverage Ratio”), which are non-GAAP financial measures, are helpful to us andour 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 flowgenerated from operations (before rent expense, capital additions and debt service), is used by us in evaluating a facility’s financial viability and its ability topay rent. For the hospital facilities owned by us at the end of each respective year, the combined weighted average Coverage Ratio was approximately 6.3(ranging from 2.5 to 18.5) during 2013, 5.9 (ranging from 2.1 to 14.4) during 2012 and 5.5 (ranging from 1.9 to 13.3) during 2011. The Coverage Ratio forindividual facilities varies. See “Relationship with Universal Health Services, Inc.” below for Coverage Ratio information related to the four hospital facilitiesleased to subsidiaries of UHS. Pursuant to the terms of the leases for our hospital facilities and the preschool and childcare centers, each lessee, including subsidiaries of UHS, isresponsible for building operations, maintenance, renovations and property insurance. We, or the LLCs in which we have invested, are responsible for thebuilding operations, maintenance and renovations of the MOBs, however, a portion, or in some cases all, of the expenses associated with the MOBs arepassed 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 whichwe 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 allproperties. 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 totalassets, liabilities, debt, revenues, income and other operating information. 3 Table of ContentsRelationship 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 backto 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 upto six additional 5-year renewal terms. The current base rentals and lease and rental terms for each facility are provided below. The base rents are paid monthlyand each lease also provides for additional or bonus rents which are computed and paid on a quarterly basis based upon a computation that compares currentquarter revenue to a corresponding quarter in the base year. The 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 41% of our total revenue for the five yearsended December 31, 2013 (approximately 30% for each of the years ended December 31, 2013 and 2012, and 55% for the year ended December 31, 2011).The decrease during 2013 and 2012, as compared to 2011, is due primarily to the December, 2011 purchase of the third-party minority ownership interests ineleven LLCs in which we previously held noncontrolling majority ownership interests and the various acquisitions of MOBs and clinics completed during2011 and the first quarter of 2012, as mentioned above. 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 20% of the combined consolidatedand unconsolidated revenue for the five years ended December 31, 2013 (approximately 22% for the year ended December 31, 2013, 21% for the year endedDecember 31, 2012 and 19% for the year ended December 31, 2011). In addition, twelve MOBs, that are either wholly or jointly-owned, include or willinclude 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”), whichgoverns 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 providingnotice to us at least 90 days prior to the termination of the then current term. In addition, UHS has rights of first refusal to: (i) purchase the respective leasedfacilities 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 respectiveleased 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. UHS also has the right topurchase 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, asamended 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 Trustoccur, to purchase any or all of the four leased hospital properties listed below at their appraised fair market value. The table below details the existing lease terms and renewal options for each of the UHS hospital facilities, giving effect to the above-mentioned renewals: Hospital Name Type of Facility AnnualMinimumRent End ofLease Term RenewalTerm(years) McAllen Medical Center Acute Care $5,485,000 December, 2016 15(a) Wellington Regional Medical Center Acute Care $3,030,000 December, 2016 15(b) Southwest Healthcare System, Inland Valley Campus Acute Care $2,648,000 December, 2016 15(b) The Bridgeway Behavioral Health $930,000 December, 2014 10(c) (a)UHS has three 5-year renewal options at existing lease rates (through 2031).(b)UHS has one 5-year renewal option at existing lease rates (through 2021) and two 5-year renewal options at fair market value lease rates (2022 through2031).(c)UHS has two 5-year renewal options at fair market value lease rates (2015 through 2024). Management cannot predict whether the leases with subsidiaries of UHS, which have renewal options at existing lease rates or fair market value leaserates, or any of our other leases, will be renewed at the end of their 4 Table of Contentslease 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 facilitiesand/or enter into leases on terms potentially less favorable to us than the current leases. The Bridgeway’s lease term is scheduled to expire in December, 2014and we can provide no assurance that this lease will be renewed at the fair market value lease rate. Advisory Agreement: UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an AdvisoryAgreement (the “Advisory Agreement”) dated December 24, 1986. Pursuant to the Advisory Agreement, the Advisor is obligated to present an investmentprogram to us, to use its best efforts to obtain investments suitable for such program (although it is not obligated to present any particular investmentopportunity 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 bythe Trustees who are unaffiliated with UHS (the “Independent Trustees”). In performing its services under the Advisory Agreement, the Advisor may utilizeindependent professional services, including accounting, legal, tax and other services, for which the Advisor is reimbursed directly by us. The AdvisoryAgreement may be terminated for any reason upon sixty days written notice by us or the Advisor. The Advisory Agreement expires on December 31 of eachyear; however, it is renewable by us, subject to a determination by the Independent Trustees, that the Advisor’s performance has been satisfactory. InDecember of 2013, based upon a review of our advisory fee and other general and administrative expenses, as compared to an industry peer group, theAdvisory Agreement was renewed for 2014 pursuant to the same terms as the Advisory Agreement in place during 2013. In December of 2012, based upon areview of our advisory fee and other general and administrative expenses, as compared to an industry peer group, the 2013 advisory fee, as compared to the2012 advisory fee, was increased to 0.70% (from 0.65%) of our average invested real estate assets, as derived from our consolidated balance sheet. The average real estate assets for advisory fee calculation purposes exclude certain items from our consolidated balance sheet such as, among otherthings, accumulated depreciation, cash and cash equivalents, base and bonus rent receivables, deferred charges and other assets. The advisory fee is payablequarterly, subject to adjustment at year-end based upon our audited financial statements. In addition, the Advisor is entitled to an annual incentive fee equal to20% 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 asshown on our consolidated balance sheet, determined in accordance with generally accepted accounting principles without reduction for return of capitaldividends. The Advisory Agreement defines cash available for distribution to shareholders as net cash flow from operations less deductions for, among otherthings, amounts required to discharge our debt and liabilities and reserves for replacement and capital improvements to our properties and investments. Noincentive fees were paid during 2013, 2012 or 2011 since the incentive fee requirements were not achieved. Advisory fees incurred and paid (or payable) toUHS amounted to $2.4 million during 2013, $2.1 million during 2012 and $2.0 million during 2011 and were based upon average invested real estate assetsof $338 million, $326 million and $309 million during 2013, 2012 and 2011, respectively. Officers and Employees: Our officers are all employees of a wholly-owned subsidiary of UHS and although as of December 31, 2013 we had nosalaried employees, our officers do typically receive annual stock-based compensation awards in the form of restricted stock. In special circumstances, ifwarranted and deemed appropriate by the Compensation Committee of the Board of Trustees, our officers may also receive one-time special compensationawards in the form of restricted stock and/or cash bonuses. Share Ownership: As of December 31, 2013 and 2012, UHS owned 6.1% and 6.2%, respectively, of our outstanding shares of beneficial interest. SEC reporting requirements of UHS: UHS is subject to the reporting requirements of the SEC and is required to file annual reports containingaudited 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 30% of our consolidated revenues for each of the years ended December 31, 2013 and 2012, and 55% ofour consolidated revenues for the year ended December 31, 2011, and since a subsidiary of 5 Table of ContentsUHS is our Advisor, you are encouraged to obtain the publicly available filings for Universal Health Services, Inc. from the SEC’s website at www.sec.gov.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 of1986, 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 incometaxes on our net income that is currently distributed to shareholders. This treatment substantially eliminates the “double taxation”, i.e., at the corporate andshareholder 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 regularcorporate 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 couldresult 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. Inaddition, some competing facilities are owned by tax-supported governmental agencies or by nonprofit corporations and may be supported by endowments andcharitable 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 servicesthan those available at our facilities. Certain hospitals that are located in the areas served by our facilities are specialty hospitals that provide medical, surgicaland 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 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 competitiveadvantage. Typically, physicians are responsible for making hospital admission decisions and for directing the course of patient treatment. The operators ofour 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 and behavioral health care facilities may experience the effects of a shortage of skilled nursing staffnationwide, which has caused and may continue to cause an increase in salaries, wages and benefits expense in excess of the inflation rate. Our operators mayexperience 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, couldharm 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. Theseproperties 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 officespace and market rental rates. To improve our competitive position, we anticipate that we will continue investing in additional healthcare related facilities andleasing the facilities to qualified operators, perhaps including subsidiaries of UHS. Regulation and Other Factors During each of 2013 and 2012, 28% of our revenues were earned pursuant to leases with operators of acute care services hospitals, all of which aresubsidiaries of UHS, and during 2011, 51% of our revenues were earned 6 Table of Contentspursuant to leases with operators of acute care services hospitals, all of which are subsidiaries of UHS. The decrease during 2013 and 2012, as compared to2011, is due primarily to the above-mentioned, December, 2011 purchase of the third-party minority ownership interests in eleven LLCs in which wepreviously held noncontrolling majority ownership interests and the various acquisitions MOBs and clinics completed during 2011 and the first quarter of2012. A significant portion of the revenue earned by the operators of our acute care hospitals is derived from federal and state healthcare programs, includingMedicare and Medicaid (excluding managed Medicare and Medicaid programs). Our hospital facilities derive a significant portion of their revenue from third-party payors, including the Medicare and Medicaid programs. Changes inthese government programs in recent years have resulted in limitations on reimbursement and, in some cases, reduced levels of reimbursement for healthcareservices. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations anddeterminations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease programpayments, 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 hospitalfacilities are able to predict the effect of recent and future policy changes on our respective results of operations. In addition, the uncertainty and fiscalpressures placed upon federal and state governments as a result of, among other things, the substantial deterioration in general economic conditions and thefunding requirements from the federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs. If therates paid or the scope of services covered by government payors are reduced, there could be a material adverse effect on the business, financial position andresults 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 governmentlevels relating to, among other things: hospital billing practices and prices for services; relationships with physicians and other referral sources; adequacy ofmedical 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 ofpatients 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 judicialinterpretation. In the future, it is possible that different interpretations or enforcement of these laws and regulations could subject the current or past practices ofour operators to allegations of impropriety or illegality or could require them to make changes in their facilities, equipment, personnel, services, capitalexpenditure programs and operating expenses. Although UHS and the other operators of our hospital facilities believe that their policies, procedures andpractices comply with governmental regulations, no assurance can be given that they will not be subjected to additional governmental inquiries or actions, orthat they would not be faced with sanctions, fines or penalties if so subjected. Even if they were to ultimately prevail, a significant governmental inquiry oraction 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 andcertified under the Medicare program. The effect of maintaining certified facilities is to allow such facilities to participate in the Medicare and Medicaidprograms. The operators of our hospital facilities believe that the facilities are in material compliance with applicable federal, state, local and other relevantregulations and standards. However, should any of our hospital facilities lose their deemed certified status and thereby lose certification under the Medicare orMedicaid programs, such facilities would be unable to receive reimbursement from either of those programs and their business, and in turn, ours, could bematerially adversely effected. 7 Table of ContentsThe 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 forparticipation in government programs, and government reimbursement, and; (ii)Our bonus rents are based on our lessees’ net revenues which in turn are affected by the amount of reimbursement such lessees receive from thegovernment. A significant portion of the revenue earned by the operators of our acute care hospitals is derived from federal and state healthcare programs, includingMedicare and Medicaid. Under the statutory framework of the Medicare and Medicaid programs, many of the general acute care operations are subject toadministrative rulings, interpretations and discretion that may affect payments made under either or both of such programs as well as by other third partypayors. The federal government makes payments to participating hospitals under its Medicare program based on various formulas. For inpatient services, theoperators of our acute care hospitals are subject to an inpatient prospective payment system (“IPPS”). Under IPPS, hospitals are paid a predetermined fixedpayment 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 particulardiagnosis. 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. For outpatient services, both general acute and behavioral health hospitals are paid under an outpatient prospective payment system (“PPS”) according toambulatory procedure codes. The outpatient PPS rate is a geographic adjusted national payment amount that includes the Medicare payment and thebeneficiary 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. Three of our 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 inreductions of Medicaid funding during the last few years and which could adversely affect future levels of Medicaid reimbursement received by certainoperators of our facilities, including the operators of our hospital facilities. We can provide no assurance that reductions to Medicaid revenues earned byoperators of certain of our facilities, particularly our hospital operators in the above-mentioned states, will not have a material adverse effect on the futureoperating results of those operators which, in turn, could have a material adverse effect on us. Executive Officers of the Registrant Name Age PositionAlan B. Miller 76 Chairman of the Board, Chief Executive Officer and PresidentCharles F. Boyle 54 Vice President and Chief Financial OfficerCheryl K. Ramagano 51 Vice President, Treasurer and SecretaryTimothy J. Fowler 58 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 inFebruary, 2003. He had previously served as our President until 1990. Mr. Miller has been Chairman of the Board and Chief Executive Officer of UHS sinceits 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 thefather 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 ofUHS. 8 Table of ContentsMr. Charles F. Boyle was appointed Chief Financial Officer in February, 2003 and had served as our Vice President and Controller since 1991.Mr. Boyle has held various positions at UHS since 1983 and currently serves as its Vice President and Controller. He was appointed Controller of UHS in2003 and had served as its Assistant Vice President-Corporate Accounting since 1994. Ms. Cheryl K. Ramagano was appointed Secretary in February, 2003 and has served as our Vice President and Treasurer since 1992. Ms. Ramaganohas held various positions at UHS since 1983 and currently serves as its Vice President and Treasurer. She was appointed Treasurer of UHS in 2003 and hadserved 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 in1993. 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 eventsdescribed below could have a material adverse effect on our business, financial condition and results of operations. Additional risks and uncertainties that weare 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, aresignificantly 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, insome cases, reduced levels of reimbursement for health care services. Payments from federal and state government programs are subject to statutory andregulatory 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 tofacilities. Our tenants are unable to predict the effect of recent and future policy changes on their operations. Three of our 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 inreductions of Medicaid funding during the last few years and which could adversely affect future levels of Medicaid reimbursement received by certainoperators of our facilities, including the operators of our hospital facilities. We can provide no assurance that reductions to Medicaid revenues earned byoperators of certain of our facilities, particularly our hospital operators in the above-mentioned states, will not have a material adverse effect on the futureoperating results of those operators which, in turn, could have a material adverse effect on us. In addition, the uncertainty and fiscal pressures placed uponfederal and state governments as a result of, among other things, the substantial deterioration in general economic conditions and the funding requirementsrelated to various governmental programs, may affect the availability of taxpayer funds for Medicare and Medicaid programs. If the rates paid or the scope ofservices covered by government payors are reduced, there could be a material adverse effect on our tenants’ business, financial position and results ofoperations, 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 careproviders, increasingly are demanding that hospitals accept lower rates of payment. Our hospital operators expect continued third party 9 Table of Contentsefforts to aggressively manage reimbursement levels and cost controls. Reductions in reimbursement amounts received from third party payors could have amaterial 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 ourfacilities, including UHS, which could, in turn, materially reduce our revenues and net income. On January 3, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the “2012 Act”). The 2012 Act postponed for twomonths sequestration cuts mandated under the Budget Control Act of 2011. The postponed sequestration cuts include a 2% annual reduction over ten years inMedicare spending to providers. Medicaid is exempt from sequestration. The 2012 Act provides a one-year fix to statutory reductions in physicianreimbursement and extends other Medicare provisions. In order to offset the cost of these extensions, the 2012 Act reduces payments to other providers totalingalmost $26 billion over ten years. Approximately half of those funds will come from reductions in Medicare reimbursement to hospitals. Although theBipartisan 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, President Obama signed into law H.J. Res. 59, the Bipartisan Budget Act of 2013, which includes the Pathway for SGR Reform Actof 2013 (“the Act”). In addition, on February 15, 2014, Public Law 113-082 was enacted. The Act and subsequent federal legislation achieves new savings byextending 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 adownward adjustment in annual base payment increases. These reductions are meant to recoup what Medicare authorities consider to be “overpayments” tohospitals that occurred as a result of the transition to Medicare Severity Diagnosis Related Groups. The reduction in Medicaid DSH payments is expected tosave $4.2 billion over 10 years. This provision extends the changes regarding DSH payments established by the Legislation and determines future allotmentsoff 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 ourfacilities, including UHS, which could, in turn, materially reduce our revenues and net income. In March, 2010, the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act were enacted into law andcreated 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. We cannot predict the effect, if any,these enactments will have on operators (including UHS) and, thus, our business. Increased competition in the health care industry has resulted in lower revenues and higher costs for our operators, including UHS, andmay 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 hasintensified in recent years. In most geographical areas in which our facilities are operated, there are other facilities that provide services comparable to thoseoffered by our facilities. In addition, some competing facilities are owned by tax-supported governmental agencies or by nonprofit corporations and may besupported by endowments and charitable contributions and exempt from property, sales and income taxes. Such exemptions and support are not available tocertain operators of our facilities, including UHS. 10 Table of ContentsIn some markets, certain competing facilities may have greater financial resources, be better equipped and offer a broader range of services than thoseavailable at our facilities. Certain hospitals that are located in the areas served by our facilities are specialty hospitals that provide medical, surgical andbehavioral health services that may not be provided by the operators of our hospitals. The increase in outpatient treatment and diagnostic facilities, outpatientsurgical 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 competingfacilities, including certain facilities operated by UHS but the real property of which is not owned by us. Such competition is experienced in marketsincluding, but not limited to, McAllen, Texas, the site of our McAllen Medical Center, a 430-bed acute care hospital, and Riverside County, California, thesite 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. The operators of our facilitiesalso compete with other health care providers in recruiting and retaining qualified hospital management, nurses and other medical personnel. The operators ofour acute care and behavioral health care facilities are experiencing the effects of a shortage of skilled nursing staff nationwide, which has caused and maycontinue to cause an increase in salaries, wages and benefits expense in excess of the inflation rate. Our operators may experience difficulties attracting andretaining 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 patientvolumes 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 certificationrequirements, 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 andsubstantial changes (sometimes applied retroactively) resulting from legislation, adoption of rules and regulations, and administrative and judicialinterpretations of existing law. The ultimate timing or effect of these changes cannot be predicted. Government regulation may have a dramatic effect on ouroperators’ costs of doing business and the amount of reimbursement received by both government and other third-party payors. The failure of any of ouroperators 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; qualityof medical equipment and services; qualifications of medical and support personnel; the implementation of an electronic health records application by 2015;confidentiality, maintenance and security issues associated with health-related information and patient medical records; the screening, stabilization andtransfer 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. 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 andother federal and state health care programs. The imposition of such penalties could jeopardize that operator’s ability to make lease or mortgage payments to usor 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 theamount of reimbursement that such lessees receive from the government. 11 Table of ContentsAlthough UHS and the other operators of our acute care facilities believe that their policies, procedures and practices comply with governmentalregulations, 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 ofregulatory or judicial interpretation. In the future, it is possible that different interpretations or enforcement of these laws and regulations could subject theircurrent 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 theabove 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 ofoperations 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 continued deterioration in general economic conditions which could result inincreases in the number of people unemployed and/or uninsured. Our operators’ patient volumes, revenues and financial results depend significantly on theuniverse of patients with health insurance, which to a large extent is dependent on the employment status of individuals in certain markets. A continuation orworsening of economic conditions may result in a continued high unemployment rate which will likely increase the number of individuals without healthinsurance. As a result, the operators of our facilities may experience a decrease in patient volumes. Should that occur, it may result in decreased occupancyrates at our medical office buildings as well as a reduction in the revenues earned by the operators of our hospital facilities which would unfavorably impactour future bonus rentals (on the UHS hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying valueof the hospital properties. Additionally, the general real estate market has been unfavorably impacted by the deterioration in economic and credit marketconditions which may adversely impact the underlying value of our properties. The deterioration of credit and capital markets may adversely affect our access to sources of funding and we cannot be certain of theavailability 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 incomefrom operations to fund our growth. Accordingly, our growth strategy depends, in part, upon our ability to raise additional capital at reasonable costs to fundnew investments. We believe we will be able to raise additional debt and equity capital at reasonable costs to refinance our debts (including third-party debtheld 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.Although the tightening in the credit markets has not had a material impact on us, we can provide no assurance that financing will be available to us onsatisfactory 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 asborrowings 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 couldmake us more vulnerable to competitive pressures. Our ability to meet existing and future debt obligations depends upon our future performance and ourability to secure additional financing on satisfactory terms, each of which is subject to financial, business and other factors that are beyond our control. Anyfailure by us to meet our financial obligations would harm our business. 12 Table of ContentsIn addition, global capital markets have experienced volatility that has tightened access to capital markets and other sources of funding. In the event weneed 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 orwithin 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. A substantial portion of our revenues are dependent upon one operator. If UHS experiences financial difficulties, or otherwise fails to makepayments to us, our revenues will significantly decline. For the year ended December 31, 2013, UHS accounted for 36% of our consolidated revenues. In addition, as of December 31, 2013, subsidiaries ofUHS leased four of the seven hospital facilities owned by us with terms expiring in 2014 or 2016. We cannot assure you that UHS will renew the leases atexisting lease rates or fair market value lease rates, or continue to satisfy its obligations to us. The failure or inability of UHS to satisfy its obligations to uscould materially reduce our revenues and net income, 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”), awholly-owned subsidiary of UHS, has served as our Advisor. Pursuant to our Advisory Agreement, the Advisor is obligated to present an investment programto us, to use its best efforts to obtain investments suitable for such program (although it is not obligated to present any particular investment opportunity tous), 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 ofDecember 31, 2013 we had no salaried employees although our officers do typically receive annual stock-based compensation awards in the form of restrictedstock. In special circumstances, if warranted and deemed appropriate by the Compensation Committee of the Board of Trustees, our officers may also receiveone-time special compensation awards in the form of restricted stock and/or cash bonuses. We believe that the quality and depth of the management andadvisory services provided to us by our Advisor and UHS could not be replicated by contracting with unrelated third parties or by being self-advised withoutconsiderable cost increases. We believe that these relationships have been beneficial to us in the past, but we cannot guarantee that they will not becomedetrimental to us in the future. All transactions with UHS must be approved by a majority of our Independent Trustees. We believe that our current leases and business dealings withUHS have been entered into on commercially reasonable terms. However, 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 arelationship. 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 aresolution we might achieve with a third party. We hold significant, non-controlling equity ownership interests in various LLCs. For the year ended December 31, 2013, 28% of our consolidated and unconsolidated revenues were generated by LLCs in which we hold, or held, amajority, non-controlling equity ownership interest. Our level of investment and lack of control exposes us to potential losses of our investments and revenues. Although our ownership arrangements havebeen beneficial to us in the past, we cannot guarantee that they will continue to be beneficial in the future. Pursuant to the operating agreements of most of the LLCs in which we continue to hold non-controlling majority ownership interests, the third-partymember and the Trust, at any time, have the right to make an offer (“Offering Member”) to the other member(s) (“Non-Offering Member”) in which it eitheragrees 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 OfferingMember (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionateTransfer Price. The Non-Offering 13 Table of ContentsMember has 60 days to either: (i) purchase the entire ownership interest of the Offering Member at the Transfer Price, or; (ii) sell its entire ownership interest tothe Offering Member at the equivalent proportionate Transfer Price. The closing of the transfer must occur within 60 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 aboutpurchasing or selling the interests to each other or a third party. If we were to sell our interests, we may not be able to redeploy the proceeds into assets at thesame 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 currentlevels 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 orrequire 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 anyof 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 tomeet their obligations, which may result in their bankruptcy or insolvency. Although our leases and loans provide us the right to terminate an investment, evictan operator, demand immediate repayment and other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy orreorganization. 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 othertypes of commercial operations and other types of real estate. The replacement of any tenant or operator could be delayed by the regulatory approval process ofany 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 areunable 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 tosuccessor liability or require us to indemnify subsequent operators to whom we might transfer the operating rights and licenses, all of which may materiallyadversely 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 changingeconomic 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 increasein 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; • 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 properties leased to subsidiaries ofUHS, which have options to purchase the respective leased 14 Table of Contentsfacilities at the end of the lease or renewal terms at the appraised fair market value, will be renewed at their current rates at the end of the lease terms in 2014 or2016. The Bridgeway’s lease term is scheduled to expire in December, 2014 and we can provide no assurance that this lease will be renewed at the fair marketvalue lease rate. If the leases are not renewed, we may be required to find other operators for these facilities and/or enter into leases with less favorable terms.The exercise of purchase options for our facilities 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 facilities, after the expirationof the lease term, may adversely affect our ability to sell or lease a facility, and may present a potential conflict of interest between us and UHS since the priceand 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. Iftheir ultimate liability for professional and general liability claims could change materially from current estimates, if such policy limitations should bepartially 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 theoperations of our operators and, in turn, us. Property insurance rates, particularly for earthquake insurance in California, have also continued to increase. Two LLCs that own properties inCalifornia, in which we have various non-controlling equity interests, could not obtain earthquake insurance at rates which are economically beneficial inrelation to the risks covered. Our tenants and operators, including UHS, may be unable to fulfill their insurance, indemnification and other obligations to usunder 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 ormortgage payments, which could potentially decrease our revenues and increase our collection and litigation costs. Moreover, to the extent we are required toforeclose 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 somecircumstances be named as a defendant in litigation involving the actions of our operators. Although we have no involvement in the activities of our operatorsand our standard leases generally require our operators to carry insurance to cover us in certain cases, a significant judgment against us in such litigationcould 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 wehave 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 toqualify as a REIT may subject us to income tax liabilities, including federal income tax at regular corporate rates. The additional income tax incurred maysignificantly reduce the cash flow available for distribution to shareholders and for debt service. In addition, if disqualified, we might be barred fromqualification as a REIT for four years following disqualification. Also, if disqualified, we will not be allowed a deduction for distributions to stockholders incomputing 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 taxeson 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. 15 Table of ContentsDividends paid by REITs generally do not qualify for reduced tax rates. In general, dividends paid by a U.S. corporation to individual U.S. shareholders are subject to Federal income tax at a maximum rate of 20% (subject tocertain additional taxes for certain taxpayers). In contrast, since we are a REIT, our distributions to individual U.S. shareholders are not eligible for thereduced 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 tocertain additional taxes for certain taxpayers). Should we be unable to comply with the strict income distribution requirements applicable to REITs utilizing only cash generated byoperating 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 least90% 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 besubject to a 4% excise tax on this undistributed income. To meet the distribution requirements necessary to achieve the tax benefits associated with qualifyingas 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 dilutiveeffect on the future dividends and share value of our existing shareholders, and/or; (iii) divest assets that we might have otherwise decided to retain. Securingfunds 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, thenature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be unable to pursueinvestments that would be otherwise advantageous to us in order to satisfy the source-of-income, asset-diversification or distribution requirements forqualifying 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 includecertain of the risks discussed herein, our financial condition, performance and prospects, the market for similar securities issued by REITs, demographicchanges, 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 seasonalillnesses, changes in general conditions in the economy or the financial markets, 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 withUHS may delay, defer or prevent a change in control or other transactions that could provide shareholders with a take-over premium. We aresubject 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 redeemshares 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, wouldjeopardize our REIT status. In addition, any acquisition of our common or preferred shares that would result in our disqualification as a REIT is null andvoid. The right of redemption may have the effect of delaying, deferring or preventing a change in control of our company and could adversely affect ourshareholders’ ability to realize a premium over the market price for the shares of our common stock. 16 Table of ContentsOur 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 couldestablish 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 themarket price for our common stock or otherwise be in the best interests of our shareholders. The Master Lease Document by and among us and certain subsidiaries of UHS, which governs the leases of all hospital properties with subsidiaries ofUHS, 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 ofthe Trust occur, to purchase any or all of the four leased hospital properties at their appraised fair market values. The exercise of this purchase option mayresult in a less favorable rate of return 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 couldadversely affect the market price of our securities and prevent shareholders from receiving a take-over premium. We depend heavily on key management personnel and the departure of one or more of our key executives or a significant portion of ouroperators’ 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 ofour 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 personnelcould significantly undermine our management expertise and our operators’ ability to provide efficient, quality health care services at our facilities, whichcould 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 ourprofitability. Our business is highly competitive and we expect that it may become more competitive in the future. We compete for the acquisition, leasing andfinancing of health care related facilities. Our competitors include, but are not limited to, other REITs, banks and other companies, including UHS, some ofwhich 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 spreadsover our cost of our capital, which would hurt our growth. Increased competition makes it more challenging for us to identify and successfully capitalize onopportunities 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 facilitiesat favorable prices or if we are unable to finance acquisitions on commercially favorable terms, our business, results of operations and financial conditionmay be materially adversely affected. We may be required to incur substantial renovation costs to make certain of our healthcare properties suitable for other operators andtenants. Healthcare facilities are typically highly customized and may not be easily adapted to non-healthcare-related uses. The improvements generally requiredto conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and at times tenant-specific. A new orreplacement operator or tenant may require different features in a property, depending on that operator’s or tenant’s particular operations. If a current operator ortenant 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 ortenant. 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. 17 Table of ContentsWe are subject to significant corporate regulation as a public company and failure to comply with all applicable regulations could subject usto 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 developedand instituted a corporate compliance program based on what we believe are the current best practices in corporate governance and continue to update thisprogram in response to newly implemented or changing regulatory requirements, we cannot provide assurance that we are or will be in compliance with allpotentially applicable corporate regulations. For example, we cannot provide assurance that in the future our management will not find a material weakness inconnection with its annual review of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot provideassurance that we could correct any such weakness to allow our management to assess the effectiveness of our internal control over financial reporting as of theend of our fiscal year in time to enable our independent registered public accounting firm to state that we have maintained effective internal control overfinancial 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, finesor 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 registeredpublic accounting firm and the SEC. Such varied interpretations could result from differing views related to specific facts and circumstances. Differences ininterpretation 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. 18 Table of ContentsITEM 2.Properties The following table shows our investments in hospital facilities leased to UHS and other non-related parties and also provides information related tovarious properties in which we have significant investments, some of which are accounted for by the equity method. The capacity in terms of beds (for thehospital facilities) and the five-year occupancy levels are based on information provided by the lessees. Type offacility Numberofavailablebeds @12/31/13 Lease Term % of RSFunderlease withguaranteedescalators Range ofguaranteedescalation Hospital Facility Name and Location Average Occupancy(1) Minimumrent(5) End ofinitialorrenewedterm Renewalterm(years) 2013 2012 2011 2010 2009 Southwest Healthcare System:Inland Valley Campus(2)(7)Wildomar, California Acute Care 132 58% 62% 70% 78% 77% $2,648,000 2016 15 0% — McAllen Medical Center(3)(7)McAllen, Texas Acute Care 430 43% 43% 45% 47% 50% 5,485,000 2016 15 0% — Wellington Regional Medical Center(7)West Palm Beach, Florida Acute Care 158 58% 69% 73% 70% 71% 3,030,000 2016 15 0% — The Bridgeway(7)North Little Rock, Arkansas BehavioralHealth 103 83% 82% 84% 77% 79% 930,000 2014 10 0% — HealthSouth Deaconess Rehab. Hospital(8)Evansville, Indiana Rehabilitation 85 79% 79% 75% 71% 60% 775,000 2019 5 0% — Vibra Hospital of Corpus ChristiCorpus Christi, Texas Sub-Acute Care 74 58% 53% 54% 64% 61% 738,000 2019 25 100% 3% Kindred Hospital Chicago Central(9)Chicago, Illinois Sub-Acute Care 84 51% 51% 46% 40% 45% 1,458,000 2016 10 0% — Type offacility Lease Term Facility Name and Location Average Occupancy(1) Minimumrent(5) End ofinitialorrenewedterm Renewalterm(years) % of RSFunderleasewithguaranteedescalators Range ofguaranteedescalation 2013 2012 2011 2010 2009 Desert Springs Medical Plaza(4)Las Vegas, Nevada MOB 56% 68% 69% 65% 74% 847,000 2015-2025 Various 79% 2%-3% Spring Valley MOB I(4)Las Vegas, Nevada MOB 64% 68% 75% 93% 96% 652,000 2014-2018 Various 52% 2%-3% Spring Valley MOB II(4)Las Vegas, Nevada MOB 76% 76% 67% 53% 51% 1,024,000 2016-2020 Various 18% 1%-2% Summerlin Hospital MOB I(4)Las Vegas, Nevada MOB 77% 81% 90% 91% 95% 1,304,000 2014-2018 Various 30% 2%-3% Summerlin Hospital MOB II(4)Las Vegas, Nevada MOB 74% 82% 83% 97% 100% 1,542,000 2014-2023 Various 35% 2%-3% Summerlin Hospital MOB III(4)Las Vegas, Nevada MOB 81% 71% 64% 63% 63% 1,571,000 2015-2023 Various 60% 2%-3% St. Mary’s Professional Office BuildingReno, Nevada MOB 98% 99% 100% 99% 99% 4,375,000 2015-2025 Various 29% 2%-3% Rosenberg Children’s Medical PlazaPhoenix, Arizona MOB 99% 100% 100% 100% 100% 1,916,000 2015-2019 Various 56% 2%-3% Gold Shadow—700 Shadow(4)Las Vegas, Nevada MOB 84% 82% 78% 86% 94% 975,000 2014-2020 Various 38% 2% Gold Shadow—2010 & 2020 Goldring MOBs(4)Las Vegas, Nevada MOB 92% 95% 95% 91% 91% 1,520,000 2014-2017 Various 9% 2%-3% Centennial Hills MOB(4)Las Vegas, Nevada MOB 62% 62% 63% 58% 47% 1,564,000 2014-2024 Various 28% 2%-3% Auburn II MOB(4)Auburn, Washington MOB 90% 90% 84% 79% — 1,146,000 2017-2022 Various 28% 2%-3% Suburban Medical Plaza IILouisville, Kentucky MOB 100% 100% 100% 98% 98% 2,273,000 2014-2025 Various 18% 3% Forney Medical Plaza(6)Forney, Texas MOB 94% 97% 92% — — 1,495,000 2018-2023 Various 77% 3% 19 Table of Contents Type offacility Lease Term Facility Name and Location Average Occupancy(1) Minimumrent(5) End ofinitialorrenewedterm Renewalterm(years) % of RSFunderleasewithguaranteedescalators Range ofguaranteedescalation 2013 2012 2011 2010 2009 Lake Pointe Medical Arts Building(6)Rowlett,Texas MOB 97% 96% 95% — — 1,511,000 2017-2023 Various 24% 3% Tuscan Medical Properties(6)Las Colinas, Texas MOB 99% 98% 100% — — 1,047,000 2014-2020 Various 100% 2%-3% PeaceHealth Medical Clinic(10)Bellingham, Washington MOB 100% 100% — — — 2,560,000 2021 20 100% 1% (1)Average occupancy rate for the hospital facilities is based on the average number of available beds occupied during each of the five years endedDecember 31, 2013. Average available beds is the number of beds which are actually in service at any given time for immediate patient use with thenecessary equipment and staff available for patient care. A hospital may have appropriate licenses for more beds than are in service for a number ofreasons, including lack of demand, incomplete construction and anticipation of future needs. The average occupancy rate of a hospital is affected by anumber of factors, including the number of physicians using the hospital, changes in the number of beds, the composition and size of the population ofthe community in which the hospital is located, general and local economic conditions, variations in local medical and surgical practices and the degree ofoutpatient use of the hospital services. Average occupancy rate for the multi-tenant medical office buildings is based on the occupied square footage of eachbuilding, including any applicable master leases.(2)In July, 2002, the operations of Inland Valley Regional Medical Center (“Inland Valley”) were merged with the operations of Rancho Springs MedicalCenter (“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 SouthwestHealthcare System (“Southwest Healthcare”). As a result of merging the operations of the two facilities, the revenues of Southwest Healthcare include therevenues of both Inland Valley and Rancho Springs. Although we do not own the real estate assets of the Rancho Springs facility, Southwest Healthcarebecame 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 isbased 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 bonusrent calculation the estimated net revenues generated at the Rancho Springs campus (as calculated pursuant to a percentage based allocation determined atthe time of the merger). The average occupancy rates shown for this facility for all years were based on the combined number of beds occupied at theInland 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 theacquisition by UHS, the Heart Hospital began operating under the same license as an integrated department of McAllen Medical Center. As a result ofcombining the operations of the two facilities, the revenues of McAllen Medical Center include revenues generated by the Heart Hospital, the real propertyof which is not owned by us. Accordingly, since the bonus rent calculation for McAllen Medical Center is based on the combined net revenues of the twofacilities, the McAllen Medical Center lease was amended during 2001 to exclude from the bonus rent calculation, the estimated net revenues generated atthe Heart Hospital (as calculated pursuant to a percentage based allocation determined at the time of the merger). In addition, during 2000, UHS purchasedthe South Texas Behavioral Health Center, a behavioral health care facility located in McAllen, Texas. In 2006, a newly constructed replacement facilityfor the South Texas Behavioral Health Center was completed and opened. The license for this facility, the real property of which is not owned by us, wasalso merged with the license for McAllen Medical Center. There was no amendment to the McAllen Medical Center lease related to the operations of theSouth Texas Behavioral Health Center. The revenues of South Texas Behavioral Health Center are excluded from the bonus rent calculation. No assurancecan be given as to the effect, if any, the consolidation of the facilities as mentioned above, had on the underlying value of McAllen Medical Center. Baserental commitments and the guarantee by UHS under the original lease continue for the remainder of the lease terms. The average occupancy rates arebased upon the combined occupancy and combined number of beds at McAllen Medical Center and McAllen Heart Hospital.(4)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 includetenants who are subsidiaries of UHS.(5)Minimum rent amounts contain impact of straight-line rent adjustments, if applicable.(6)These properties were acquired in 2011. 20 Table of Contents(7)See Note 2 to the consolidated financial statements-Relationship with UHS and Related Party Transactions, regarding UHS’s purchase option, right offirst refusal and change of control purchase option related to these properties.(8)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. Ifexercised, the purchase option stipulates that the purchase price be the fair market value of the facility, subject to stipulated minimum and maximumprices. As currently being utilized, we believe the estimated current fair market value of the property is between the stipulated minimum and maximumprices. 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 topurchase the property at the same terms and conditions as an accepted third-party offer.(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. Ifexercised, the purchase option stipulates that the purchase price be the fair market value of the facility, subject to a stipulated minimum price. We believethe estimated current fair market value of the property exceeds the stipulated minimum price. The lessee also has a first refusal to purchase right which, ifapplicable and subject to certain terms and conditions, grants the lessee the option to purchase the property at the same terms and conditions as anaccepted third-party offer.(10)This MOB was acquired on January, 2012. Leasing Trends at Our Significant Medical Office Buildings During 2013, we had a total of 106 new or renewed leases related to the medical office buildings indicated above, in which we have significantinvestments, some of which are accounted for by the equity method. These leases comprised approximately 13% of the aggregate rentable square feet of theseproperties (8% related to renewed leases and 5% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property toproperty based upon factors such as, but not limited to, the current occupancy and age of our buildings, local overall economic conditions, proximity tohospital campuses and the vacancy rates, rental rates and capacity of our competitors in the market. The weighted-average tenant improvement costsassociated with these new or renewed leases was approximately $17 per square foot during 2013. The weighted-average leasing commissions on the new andrenewed leases commencing during 2013 was approximately 3% of base rental revenue over the term of the leases. The average aggregate value of the tenantconcessions, generally consisting of rent abatements, provided in connection with new and renewed leases commencing during 2013 was approximately 2% ofthe future aggregate base rental revenue over the lease terms. Tenant concessions were, or will be, recognized in our results of operations under the straight-linemethod over the lease term regardless of when payments are due. In connection with lease renewals executed during 2013, the weighted-average rental rates, ascompared to rental rates on the expired leases, decreased by approximately 6%. Set forth is information detailing the rentable square feet (“RSF”) associated with each of our investments as of December 31, 2013 and the percentage ofRSF on which leases expire during the next five years and thereafter. For the MOBs that have scheduled lease expirations during 2014 of 20% or greater (ofRSF), we have included information regarding estimated market rates relative to lease rates on the expiring leases. Percentage of RSF with lease expirations Total RSF Availablefor LeaseJan. 1, 2014 2014 2015 2016 2017 2018 2019andLater Hospital Investments McAllen Medical Center 422,276 0% 0% 0% 100% 0% 0% 0% Wellington Regional Medical Center 196,489 0% 0% 0% 100% 0% 0% 0% Southwest Healthcare System—Inland Valley Campus. 124,644 0% 0% 0% 100% 0% 0% 0% Kindred Hospital Chicago Central 115,554 0% 0% 0% 100% 0% 0% 0% The Bridgeway(e) 77,901 0% 100% 0% 0% 0% 0% 0% HealthSouth Deaconess Rehab. Hospital 77,440 0% 0% 0% 0% 0% 0% 100% Vibra Hospital of Corpus Christi 69,700 0% 0% 0% 0% 0% 0% 100% Subtotal Hospitals 1,084,004 0% 7% 0% 79% 0% 0% 14% Other Investments Medical Office Buildings: Saint Mary’s Professional Office Building 190,754 0% 2% 4% 1% 11% 0% 82% Goldshadow—2010 & 2020 Goldring MOBs(b) 74,774 18% 52% 8% 5% 17% 0% 0% Goldshadow—700 Shadow Lane MOB 42,060 3% 8% 37% 6% 11% 0% 35% Texoma Medical Plaza 115,284 17% 0% 10% 0% 2% 6% 65% Suburban Medical Plaza II(a) 103,011 0% 21% 2% 9% 1% 6% 61% Desert Springs Medical Plaza 102,580 48% 3% 16% 2% 0% 6% 25% Peace Health Medical Clinic 98,886 0% 0% 0% 0% 0% 0% 100% Centennial Hills Medical Office Building 96,696 31% 4% 5% 6% 0% 13% 41% 21 Table of Contents Percentage of RSF with lease expirations Total RSF Availablefor LeaseJan. 1, 2014 2014 2015 2016 2017 2018 2019andLater Summerlin Hospital Medical Office Building II(b) 92,313 21% 20% 9% 7% 11% 9% 23% Summerlin Hospital Medical Office Building I(b) 89,636 29% 27% 12% 27% 2% 3% 0% The Sparks Medical Building 35,127 11% 4% 9% 13% 0% 6% 57% Vista Medical Terrace 50,921 53% 8% 1% 1% 13% 9% 15% North Valley Medical Plaza 80,379 66% 2% 14% 3% 4% 9% 2% Summerlin Hospital Medical Office Building III 77,713 10% 0% 2% 13% 0% 6% 69% Mid Coast Hospital MOB 74,629 0% 0% 0% 77% 0% 7% 16% Sheffield Medical Building 73,446 62% 5% 3% 5% 7% 0% 18% North West Texas Professional Office Tower 72,351 0% 0% 3% 46% 3% 0% 48% Rosenberg Children’s Medical Plaza 66,231 1% 4% 3% 14% 0% 74% 4% Sierra San Antonio Medical Plaza 59,160 32% 0% 4% 6% 9% 7% 42% Palmdale Medical Plaza (d.) 58,150 48% 16% 0% 0% 5% 9% 22% Spring Valley Medical Office Building 57,828 40% 10% 19% 6% 21% 4% 0% Spring Valley Medical Office Building II 57,432 24% 0% 0% 13% 0% 39% 24% Southern Crescent Center II 53,680 35% 8% 0% 11% 0% 0% 46% Desert Valley Medical Center 53,625 19% 12% 13% 20% 4% 11% 21% Tuscan Professional Building(c) 52,868 7% 33% 33% 12% 0% 0% 15% Lake Pointe Medical Arts Building 50,974 0% 0% 0% 0% 33% 23% 44% Forney Medical Plaza 50,947 9% 0% 0% 0% 0% 80% 11% Southern Crescent Center I 41,400 46% 0% 0% 0% 6% 26% 22% Auburn Medical Office Building 41,311 10% 0% 0% 0% 9% 0% 81% BRB Medical Office Building 40,733 0% 0% 17% 4% 0% 9% 70% Cypresswood Professional Center—8101 10,200 0% 0% 100% 0% 0% 0% 0% Cypresswood Professional Center—8111 29,882 17% 6% 51% 0% 11% 0% 15% Medical Center of Western Connecticut 36,147 0% 17% 0% 4% 24% 5% 50% Phoenix Children’s East Valley Care Center 30,960 0% 0% 0% 0% 0% 0% 100% Forney Medical Plaza II 30,507 58% 0% 0% 0% 0% 5% 37% Apache Junction Medical Plaza 26,901 9% 0% 31% 4% 22% 0% 34% Santa Fe Professional Plaza 24,871 41% 5% 0% 23% 11% 11% 9% Professional Bldg at King’s Crossing—Bldg A 11,528 87% 0% 0% 0% 0% 13% 0% Professional Bldg at King’s Crossing—Bldg B 12,790 0% 0% 48% 41% 11% 0% 0% Kelsey-Seybold Clinic at King’s Crossing 20,470 0% 0% 0% 0% 0% 0% 100% Emory at Dunwoody Building 20,366 0% 0% 0% 0% 0% 0% 100% Ward Eagle Office Village 16,282 0% 0% 0% 0% 0% 0% 100% Family Doctor’s MOB 12,050 0% 0% 0% 100% 0% 0% 0% 701 South Tonopah Building 10,747 0% 0% 0% 0% 0% 0% 100% 5004 Poole 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% 100% 0% 0% 0% Chesterbrook Academy—New Britain 7,998 0% 0% 0% 100% 0% 0% 0% Sub-total Other Investments 2,485,561 20% 7% 8% 10% 6% 9% 40% Total 3,569,565 14% 7% 5% 31% 4% 6% 33% (a)The estimated market rates related to the 2014 expiring RSF are greater than the lease rates on the expiring leases by an average of approximately 2%.(b)The estimated market rates related to the 2014 expiring RSF are greater than the lease rates on the expiring leases by an average of approximately 3%.(c)The estimated market rates related to the 2014 expiring RSF are less than the lease rates on the expiring leases by an average of approximately 10%.(d)The master lease commitment from UHS was effective through June 30, 2013. As of July 1, 2013, that mater lease expired and we began accounting for this LLC under the equity method on an unconsolidatedbasis.(e)Pursuant to the terms of this lease, a wholly-owned subsidiary of UHS has two 5-year renewal options at fair market value lease rates (2015 through 2024) as well certain purchase options, as discussed herein. Wecan provide no assurance that this lease will be renewed at the fair market value lease rate upon the scheduled expiration in December, 2014. On a combined basis, based upon the aggregate revenues and square footage for the hospital facilities owned as of December 31, 2013 and 2012, theaverage effective annual rental per square foot was $17.85 and $17.69, respectively. On a combined basis, based upon the aggregate consolidated andunconsolidated revenues and the estimated average occupied square footage for our MOBs and childcare centers owned as of December 31, 2013 and 2012, theaverage effective annual rental per square foot was $27.47 and $27.22, respectively. On a combined basis, based upon the aggregate consolidated andunconsolidated revenues and estimated average occupied square footage for all of our properties owned as of December 31, 2013 and 2012, the average effectiveannual rental per square foot was $24.13 and $23.87, respectively. The estimated average occupied square footage for 2013 was calculated by averaging theunavailable rentable square footage on January 1, 2013 and January 1, 2014. The estimated average occupied square footage for 2012 was calculated byaveraging the unavailable rentable square footage on January 1, 2012 and January 1, 2013. 22 Table of ContentsDuring 2013, one of the UHS-related hospitals (McAllen Medical Center) generated revenues that comprised more than 10% of our consolidatedrevenues. None of the properties had book values greater than 10% of our consolidated assets as of December 31, 2013. Including 100% of the revenuesgenerated at the properties owned by our unconsolidated LLCs, none of our unconsolidated LLCs had revenues greater than 10% of the combined consolidatedand unconsolidated revenues during 2013. Including 100% of the book values of the properties owned by our unconsolidated LLCs, none of the properties hadbook values greater than 10% of the consolidated and unconsolidated assets. The following table sets forth the average effective annual rental per square foot for 2013, based upon average occupied square feet for McAllen MedicalCenter: Property 2013AverageOccupiedSquareFeet 2013Revenues 2013AverageEffectiveRentalPer SquareFoot McAllen Medical Center 422,276 $7,064,000 $16.73 The following table sets forth lease expirations for each of the next ten years: ExpiringSquareFeet NumberofTenants Annual Rentals ofExpiringLeases(1) Percentage ofAnnualRentals(2) Hospital properties 2014 77,901 1 $930,000 1% 2015 0 0 $0 0% 2016 858,963 4 $12,648,000 18% 2017 0 0 $0 0% 2018 0 0 $0 0% 2019 147,140 2 $1,501,000 2% 2020 0 0 $0 0% 2021 0 0 $0 0% 2022 0 0 $0 0% 2023 0 0 $0 0% Thereafter 0 0 $0 0% Subtotal-hospital facilities 1,084,004 7 $15,079,000 21% Other consolidated properties 2014 130,954 47 $3,785,000 5% 2015 144,291 45 $3,975,000 6% 2016 153,358 39 $3,981,000 6% 2017 90,512 24 $2,623,000 4% 2018 129,173 31 $4,058,000 6% 2019 89,294 19 $2,638,000 4% 2020 110,555 25 $3,497,000 5% 2021 163,505 13 $4,588,000 6% 2022 85,338 5 $2,110,000 3% 2023 43,797 8 $1,209,000 1% Thereafter 59,994 7 $1,447,000 2% Subtotal-other consolidated properties 1,200,771 263 $33,911,000 48% 23 Table of Contents ExpiringSquareFeet NumberofTenants Annual Rentals ofExpiringLeases(1) Percentage ofAnnualRentals(2) Other unconsolidated properties(MOBs) 2014 51,779 21 $1,316,000 2% 2015 47,193 15 $1,215,000 1% 2016 105,698 24 $2,805,000 4% 2017 47,453 18 $1,286,000 2% 2018 100,061 26 $2,836,000 4% 2019 13,096 5 $365,000 1% 2020 137,299 12 $4,046,000 6% 2021 29,982 9 $800,000 1% 2022 56,818 11 $1,410,000 2% 2023 63,368 15 $2,006,000 3% Thereafter 131,513 11 $3,765,000 5% Subtotal-other unconsolidated properties 784,260 167 $21,850,000 31% Total all properties 3,069,035 437 $70,840,000 100% (1)The annual rentals of expiring leases reflected above were calculated based upon each property’s 2013 average rental rate per occupied square foot appliedto each property’s scheduled lease expirations (on a square foot basis). These amounts include the data related to the unconsolidated LLCs in which wehold various non-controlling ownership interests at December 31, 2013 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 totalannual rentals of expiring leases (as reflected above). 24 Table of ContentsITEM 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 interestfor each quarter in the years ended December 31, 2013 and 2012 are summarized below: 2013 2012 HighPrice LowPrice HighPrice LowPrice First Quarter $58.03 $51.82 $40.94 $36.04 Second Quarter $58.85 $41.47 $41.53 $38.99 Third Quarter $46.53 $38.52 $46.46 $32.92 Fourth Quarter $45.60 $40.06 $50.61 $32.21 Holders As of January 31, 2014, there were approximately 400 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 InternalRevenue Code governing REITs. Our revolving credit facility limits our ability to increase dividends in excess of 95% of cash available for distribution, asdefined in our revolving credit agreement, unless additional distributions are required to be made so as to comply with applicable sections of the InternalRevenue Code and related regulations governing REITs. In each of the past two years, dividends per share were declared as follows: 2013 2012 First Quarter $.620 $.610 Second Quarter .625 .615 Third Quarter .625 .615 Fourth Quarter .625 .620 $2.495 $2.460 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 basedon market capitalization. Companies in our peer group are as follows: HCP, Inc., Nationwide Health Properties, Inc. (included until July, 2011 when it wasacquired by Ventas, Inc.), Omega Healthcare Investors, Inc., Health Care REIT, Inc., Healthcare Realty Trust, Inc., LTC Properties, Inc., and NationalHealth Investors, Inc. 25 Table of ContentsThe Stock Price Performance Graph shall not be deemed incorporated by reference by any general statement incorporating by reference in this Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent we specifically incorporate thisinformation by reference, and shall not otherwise be deemed filed under such Acts. 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 groupand the S&P 500 composite is based on the stock price or composite index at the end of fiscal 2008. BasePeriodDec 08 INDEXED RETURNSYears Ending Company Name / Index Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Universal Health Realty Income Trust $100 $104.94 $128.28 $145.89 $200.11 $167.42 S&P 500 Index $100 $126.46 $145.51 $148.59 $172.37 $228.19 Peer Group $100 $120.31 $143.35 $165.72 $196.50 $180.15 26 Table of ContentsITEM 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, 2013. You should read this tablein conjunction with our consolidated financial statements and related notes contained elsewhere in this Annual Report and Part II, Item 7, Management’sDiscussion and Analysis of Financial Condition and Results of Operations. (000s, except per share amounts) 2013 2012 2011 2010 2009 Operating Results: Total revenues(1) $54,280 $53,950 $29,494 $28,878 $31,914 Net income(2) $13,169 $19,477 $73,794 $16,310 $18,576 Balance Sheet Data: Real estate investments, net of accumulated depreciation(1)(3) $297,748 $314,386 $288,633 $125,257 $154,540 Investments in LLCs(1)(4) 39,201 28,636 33,057 80,442 61,934 Intangible assets, net of accumulated amortization(3) 20,782 26,293 28,081 1,080 1,214 Total assets(1)(3) 373,145 383,038 370,929 216,135 228,825 Total indebtedness, including debt premium(1)(3)(5) 199,987 197,936 174,836 67,563 84,267 Other Data: Funds from operations(6) $34,955 $34,280 $32,468 $32,582 $33,325 Cash provided by (used in): Operating activities 31,294 30,783 21,372 23,049 24,984 Investing activities (13,514) (8,565) (3,284) (17,302) (12,362) Financing activities (17,491) (30,819) (7,426) (7,798) (10,202) Per Share Data: Basic earnings per share: Total basic earnings per share(2) $1.04 $1.54 $5.84 $1.33 $1.56 Diluted earnings per share: Total diluted earnings per share(2) $1.04 $1.54 $5.83 $1.33 $1.56 Dividends per share $2.495 $2.460 $2.425 $2.415 $2.380 Other Information (in thousands) Weighted average number of shares outstanding—basic 12,689 12,661 12,644 12,259 11,891 Weighted average number of shares and share equivalents outstanding—diluted 12,701 12,669 12,649 12,262 11,897 (1)As discussed in Note 1 “Summary of Significant Accounting Policies—Investments in Limited Liability Companies”, our consolidated financialstatements include the consolidated accounts of our consolidated investments and those investments that meet the criteria of a variable interest entity.Please see Note 1 for further discussions.(2)Net income and earnings per share during 2013 includes approximately $200,000 of transaction costs related to the acquisition of three MOBs during2013 and the first quarter of 2014. Net income and earnings per share during 2012 includes an $8.5 million gain on the divestitures of properties ownedby two unconsolidated LLCs in which we formerly held non-controlling majority ownership interests, and $680,000 of transaction costs related to theacquisition of a medical clinic and medical office building in 2012. Net income and earnings per share data during 2011 includes: (i) a $28.6 milliongain recorded in connection with our purchase of third-party minority ownership interests in various LLCs in which we formerly held non-controllingmajority ownership interests (we own 100% of each of these entities since that time); (ii) a $35.8 million gain on the divestitures of properties owned byunconsolidated LLCs in which we formerly held non-controlling majority ownership interests; (iii) $518,000 of transaction costs related to theacquisition of four MOBs during 2011 and the first quarter of 2012, and; (iv) a $5.4 million charge for a provision for asset impairment recorded on acertain MOB. 27 Table of Contents(3)Amounts include the fair values of the real property (as of 2011) of various previously unconsolidated LLCs, which we began consolidating during thefourth quarter of 2011 subsequent to our purchase of the third-party minority ownership interests (we owned 100% of each of these entities atDecember 31, 2011).(4)Investments in LLCs at December 31, 2013, 2012 and 2011 reflect the consolidation of various LLCs, as mentioned in notes 2 and 3 above, as well asthe divestiture of property owned by various unconsolidated LLCs during 2012 and 2011, as discussed herein. 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 termof 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 unconsolidatedbasis pursuant to the equity method.(5)Excludes third-party debt that is non-recourse to us, incurred by unconsolidated LLCs in which we hold various non-controlling equity interests asfollows: $80.1 million as of December 31, 2013, $77.5 million as of December 31, 2012, $101.8 million as of December 31, 2011, $271.7 million asof December 31, 2010 and $251.4 million as of December 31, 2009 (See Note 8 to the consolidated financial statements).(6)Our funds from operations (“FFO”) during 2013, 2012 and 2011 are net of reductions for transaction costs of $203,000, $680,000 and $518,000,respectively. Funds from operations (“FFO”) is a widely recognized measure of performance for Real Estate Investment Trusts (“REITs”). We believe that FFO andFFO per diluted share, and adjusted funds from operations (“AFFO”) and AFFO per diluted share, which are non-GAAP financial measures (“GAAP” isGenerally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. We computeFFO, as reflected below, in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may notbe comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definitiondifferently than we interpret the definition. AFFO was also computed for 2013, 2012 and 2011, as reflected below, since we believe it is helpful to our investorssince it adjusts for the transaction costs related to acquisitions. FFO/AFFO do not represent cash generated from operating activities in accordance with GAAPand should not be considered to be an alternative to net income determined in accordance with GAAP. In addition, FFO/AFFO should not be used as: (i) anindication of our financial performance determined in accordance with GAAP; (ii) an alternative to cash flow from operating activities determined inaccordance with GAAP; (iii) a measure of our liquidity, or; (iv) an indicator of funds available for our cash needs, including our ability to make cashdistributions to shareholders. A reconciliation of our reported net income to FFO is shown below: (000s) 2013 2012 2011 2010 2009 Net income $13,169 $19,477 $73,794 $16,310 $18,576 Depreciation and amortization expense on real property/intangibles: Consolidated investments 18,496 20,030 7,173 6,156 6,283 Unconsolidated affiliates 3,290 3,293 10,558 10,116 8,466 Provision for asset impairment — — 5,354 — — Less gains: Gain on fair value recognition resulting from the purchase of minorityinterests in majority-owned LLCs, net — — (28,576) — — Gains on divestiture of properties owned by unconsolidated LLCs, net — (8,520) (35,835) — — Funds From Operations 34,955 34,280 32,468 32,582 33,325 Transaction costs 203 680 518 — — Adjusted Funds From Operations $35,158 $34,960 $32,986 $32,582 $33,325 28 Table of ContentsITEM 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 includingacute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers and medical officebuildings (“MOBs”). As of February 28, 2014, we have fifty-eight real estate investments or commitments in sixteen states consisting of: • seven hospital facilities including three acute care, one behavioral healthcare, one rehabilitation and two sub-acute; • forty-seven medical office buildings, including eleven owned by unconsolidated LLCs, 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, the 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 ourbusiness or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and thebenefits and synergies to be obtained from our completed and any future acquisitions, and statements of our goals and objectives, and other similarexpressions 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 futuretense, 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 thetimes at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or ourgood faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially fromthose 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”); • a number of legislative initiatives have recently been passed into law that may result in major changes in the health care delivery system on anational or state level to the operators of our facilities, including UHS. No assurances can be given that the implementation of these new laws willnot 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 forconflicts of interest; • lost revenues from purchase option exercises and lease expirations and renewals, loan repayments and other restructuring; • the availability and terms of capital to fund the growth of our business; • the outcome of known and unknown litigation, government investigations, and liabilities and other claims asserted against us or the operators ofour facilities; • failure of the operators of our hospital facilities to comply with governmental regulations related to the Medicare and Medicaid licensing andcertification requirements could have a material adverse impact on our future revenues and the underlying value of the property; 29 Table of Contents • the potential unfavorable impact on our business of deterioration in national, regional and local economic and business conditions, including acontinuation or worsening of unfavorable credit and/or capital market conditions, which may adversely affect, on acceptable terms, our access tosources of capital which may be required to fund the future growth of our business and refinance existing debt with near term maturities; • further deterioration in general economic conditions which could result in increases in the number of people unemployed and/or insured and likelyincrease the number of individuals without health insurance; as a result, the operators of our facilities may experience decreases in patient volumeswhich 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, includingUHS, which may unfavorably impact our future bonus rentals (on the UHS hospital facilities) and may potentially have a negative impact on thefuture 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 aswell 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 program resulting from, among otherthings, the various health care reform initiatives being implemented; • the issues facing the health care industry that affect the operators of our facilities, including UHS, such as: changes in, or the ability to complywith, existing laws and government regulations; unfavorable changes in the levels and terms of reimbursement by third party payors orgovernment programs, including Medicare (including, but not limited to, the potential unfavorable impact of future reductions to Medicarereimbursements resulting from the Budget Control Act of 2011, as discussed below) and Medicaid (most states have reported significant budgetdeficits that have resulted in the reduction of Medicaid funding to the operators of our facilities, including UHS, during each of the last severalyears, and many states may effectuate further reductions in the level of Medicaid funding due to continued projected state budget deficits);demographic changes; the ability to enter into managed care provider agreements on acceptable terms; an increase in uninsured and self-paypatients which unfavorably impacts the collectability of patient accounts; decreasing in-patient admission trends; technological andpharmaceutical improvements that may increase the cost of providing, or reduce the demand for, health care, and; the ability to attract and retainqualified 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 mostfederal agencies and programs aimed at reducing budget deficits by $917 billion between 2012 and 2021, according to a report released by theCongressional Budget Office. The 2011 Act provides for new spending on program integrity initiatives intended to reduce fraud and abuse underthe Medicare program. Among its other provisions, the law established a bipartisan Congressional committee, known as the Joint SelectCommittee on Deficit Reduction (the “Joint Committee”), which was tasked with making recommendations aimed at reducing future federalbudget deficits by an additional $1.5 trillion over 10 years. The Joint Committee was unable to reach an agreement by the November 23, 2011deadline and, as a result, across-the-board cuts to discretionary, national defense and Medicare spending were implemented on March 1, 2013resulting in Medicare payment reductions of up to 2% per fiscal year with a uniform percentage reduction across all Medicare programs. Wecannot predict whether Congress will restructure the implemented Medicare payment reductions or what federal other deficit reduction initiativesmay be proposed by Congress. We also cannot predict the effect this enactment 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 were enacted intolaw and created significant changes to health insurance coverage for U.S. citizens as well as material revisions to the federal Medicare and stateMedicaid 30 Table of Contents 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.We cannot predict the effect, if any, these enactments will have on operators (including UHS) and, thus, our business; • two LLCs that own properties in California, in which we have various non-controlling equity interests, could not obtain earthquake insurance atrates which are economically beneficial in relation to the risks covered; • 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 marketsincluding, but not limited to, McAllen, Texas, the site of our McAllen Medical Center, a 430-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 operatingactivities, we would be required to generate cash from other sources which could adversely affect our financial condition; • our majority ownership interests in various LLCs in which we hold non-controlling equity interests. In addition, pursuant to the operatingagreements of most of the LLCs (consisting of substantially all of the LLCs that own MOBs in Arizona, Reno, Nevada and California), the third-party member and the Trust, at any time, 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 asdetermined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interest of the Non-Offering Member (“Offer toPurchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has 60 days to either: (i) purchase the entire ownershipinterest of the Offering Member at the Transfer Price, or; (ii) sell its entire ownership interest to the Offering Member at the equivalentproportionate Transfer Price. The closing of the transfer must occur within 60 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 resultsand financial condition, including the operating results of our lessees and the facilities leased to subsidiaries of UHS, could differ materially from thoseexpressed 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-lookingstatements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as may be required bylaw. 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 makeestimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. 31 Table of ContentsA summary of our critical accounting policies is outlined in Note 1 to the consolidated financial statements. We consider our critical accounting policiesto 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), bonusrentals 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 all hospital facilities is fixed over the initial term or renewal term of the respective leases. Rental income recorded by ourconsolidated and unconsolidated medical office buildings (“MOBs”) relating to leases in excess of one year in length is recognized using the straight-linemethod under which contractual rents are recognized evenly over the lease term regardless of when payments are due. The amount of rental revenue resultingfrom straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants, scheduledrent 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 aresult, the straight-line adjustments to rental revenue may vary from period-to-period. Bonus rents are recognized when earned based upon increases in eachfacility’s net revenue in excess of stipulated amounts. Bonus rentals are determined and paid each quarter based upon a computation that compares therespective facility’s current quarter’s net revenue to the corresponding quarter in the base year. Tenant reimbursements for operating expenses are accrued asrevenue in the same period the related expenses are incurred. Real Estate Investments: On the date of acquisition, the purchase price of a property is allocated to the property’s land, buildings and intangibleassets based upon our estimates of their fair values. Depreciation is computed using the straight-line method over the useful lives of the buildings and capitalimprovements. The value of intangible assets is amortized over the remaining lease term. Asset Impairment: Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of the property might not be recoverable. A property to be held and used is considered impaired only if management’sestimate of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, areless than the carrying value of the property. This estimate takes into consideration factors such as expected future operating income, trends and prospects, aswell as the effects of demand, competition, local market conditions and other factors. The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheetdate that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated action to be taken withrespect to the property could impact the determination of whether an impairment exists and whether the effects could materially impact our net income. To theextent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of theproperty over the fair value of the property. Assessment of the recoverability by us of certain lease related costs must be made when we have reason to believe that a tenant might not be able toperform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs. If we determine that theintangible assets are not recoverable from future cash flows, the excess of carrying value of the intangible asset over its estimated fair value is charged toincome. An other than temporary impairment of an investment/advance in an LLC is recognized when the carrying value of the investment is not consideredrecoverable based on evaluation of the severity and duration of the decline in value, including projected declines in cash flow. To the extent impairment hasoccurred, the excess carrying value of the asset over its estimated fair value is charged to income. 32 Table of ContentsInvestments in Limited Liability Companies (“LLCs”): Our consolidated financial statements include the consolidated accounts of ourcontrolled investments and those investments that meet the criteria of a variable interest entity where we are the primary beneficiary. In accordance with theFASB’s standards and guidance relating to accounting for investments and real estate ventures, we account for our unconsolidated investments in LLCswhich we do not control using the equity method of accounting. The third-party members in these investments have equal voting rights with regards to issuessuch 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, cashcontributions to, and distributions from, the investments. Pursuant to certain agreements, allocations of sales proceeds and profits and losses of some of theLLC investments may be allocated disproportionately as compared to ownership interests after specified preferred return rate thresholds have been satisfied. As of December 31, 2013, we have non-controlling equity investments or commitments in thirteen LLCs which own medical office buildings. As ofDecember 31, 2013, we accounted for these LLCs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities.Palmdale Medical Properties was consolidated in our financial statements through June 30, 2013, as discussed below, since it was considered to be a variableinterest entity where we were the primary beneficiary by virtue of its master lease with a wholly-owned subsidiary of Universal Health Services, Inc. (“UHS”),a related party to us. The master lease expired effective as of July 1, 2013 and, as of that date, we began accounting for Palmdale Medical Properties under theequity method. The majority of these LLCs are joint-ventures between us and a non-related party that manages and holds minority ownership interests in the entities.Each LLC is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and servicethe 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 sincethey 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 aretypically advanced as equity or member loans. In addition, at December 31, 2011, as a result of our purchases of third-party minority ownership interests in eleven LLCs in which we formerly heldnon-controlling majority ownership interests, we now hold 100% of the ownership interest in these LLCs which own MOBs and are accounted for on aconsolidated basis, as discussed herein (see Notes 3 and 8 to the consolidated financial statements for additional disclosure). Palmdale Medical Properties had a master lease with a subsidiary of UHS through June 30, 2013. Additionally, UHS of Delaware, a wholly-ownedsubsidiary of UHS, serves as advisor to us under the terms of an advisory agreement and manages our day-to-day affairs. All of our officers are officers oremployees of UHS (through UHS of Delaware, Inc.). As a result of our related-party relationship with UHS and the master lease, lease assurance or leaseguarantee arrangements with subsidiaries of UHS, we have accounted for this LLC on a consolidated basis, since the fourth quarter of 2007 through June 30,2013, since it was a variable interest entity and we were deemed to be the primary beneficiary. As of July 1, 2013, the master lease expired and this LLC is nolonger considered a variable interest entity and we therefore began to account for this LLC on an unconsolidated basis pursuant to the equity method as ofJuly 1, 2013. Effective January 1, 2014, we purchased the third-party minority ownership interests in two LLCs (Palmdale Medical Properties and Sparks MedicalProperties) in which we formerly held non-controlling majority ownership interest. As a result of our purchase of the minority ownership interests, we nowhold 100% of the ownership interests in these LLCs which own MOBs and will begin accounting for them on a consolidated basis effective January 1, 2014.Each of the property’s assets and liabilities will be recorded at their fair values. (See Note 3 to the consolidated financial statements for additional disclosure). 33 Table of ContentsFederal Income Taxes: No provision has been made for federal income tax purposes since we qualify as a REIT under Sections 856 to 860 of theInternal 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 todistribute 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 incomeplus 95% of any capital gain income for the calendar year exceeds cash distributions during the calendar year, as defined. No provision for excise tax hasbeen reflected in the financial statements as no tax is expected to be due. Earnings and profits, which determine the taxability of dividends to shareholders, will differ from net income reported for financial reporting purposesdue 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 ofprovision for investment losses. Relationship with UHS and Related Party Transactions: UHS is our principal tenant and through UHS of Delaware, Inc., a wholly ownedsubsidiary of UHS, serves as our advisor (the “Advisor”) under an Advisory Agreement dated December 24, 1986 between the Advisor and us (the“Advisory Agreement”). Our officers are all employees of a wholly-owned subsidiary of UHS and although as of December 31, 2013 we had no salariedemployees, our officers do receive stock-based compensation. Pursuant to the Advisory Agreement, the Advisor is obligated to present an investment program to us, to use its best efforts to obtain investmentssuitable for such program (although it is not obligated to present any particular investment opportunity to us), to provide administrative services to us and toconduct our day-to-day affairs. All transactions between us and UHS must be approved by the Trustees who are unaffiliated with UHS (the “IndependentTrustees”). 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 writtennotice 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 theIndependent Trustees that the Advisor’s performance has been satisfactory. The Advisor is entitled to certain advisory fees for its services. See “Relationshipwith UHS and Related Party Transactions” in Note 2 to the consolidated financial statements for additional information on the Advisory Agreement and relatedfees. In December of 2013, based upon a review of our advisory fee and other general and administrative expenses, as compared to an industry peer group, theAdvisory Agreement was renewed for 2014 pursuant to the same terms as the Advisory Agreement in place during 2013. In December of 2012, based upon areview of our advisory fee and other general and administrative expenses, as compared to an industry peer group, the 2013 advisory fee, as compared to the2012 advisory fee, was increased to 0.70% (from 0.65%) of our average invested real estate assets, as derived from our consolidated balance sheet. See“Relationship with Universal Health Services, Inc.” in Item 1 and Note 2 to the consolidated financial statements for additional information on the AdvisoryAgreement and related fees. The combined revenues generated from the leases on the UHS hospital facilities comprised approximately 30%, for each of the years ended December 31,2013 and 2012, and 55% of our revenues for the year ended December 31, 2011. The decrease during 2012 as compared to 2011 is due primarily to theDecember, 2011 purchase of the third-party minority ownership interests in eleven LLCs in which we previously held noncontrolling majority ownershipinterests (we began recording the financial results of the entities in our financial statements on a consolidated basis at that time) and various acquisitions ofmedical office buildings (“MOBs”) and clinics completed during 2011 and the first quarter of 2012. Including 100% of the revenues generated at theunconsolidated LLCs in which we have various non-controlling equity interests ranging from 33% to 95%, the leases on the UHS hospital facilities accountedfor 22%, 21% and 19% of the combined consolidated and unconsolidated revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Inaddition, twelve of the MOBs, including certain properties owned by LLCs in which we hold either 100% of 34 Table of Contentsthe ownership interest or various non-controlling, majority ownership interests, include or will include tenants which are subsidiaries of UHS. The leases tothe hospital facilities of UHS are guaranteed by UHS and cross-defaulted with one another. For additional disclosure related to our relationship with UHS,please refer to Note 2 to the consolidated financial statements—Relationship with UHS and Related Party Transactions. Recent Accounting Pronouncements: For a summary of recent accounting pronouncements, please see Note 1 to the Consolidated FinancialStatements as included in this Annual Report on Form 10-K for the year ended December 31, 2013. Results of Operations Year ended December 31, 2013 as compared to the year ended December 31, 2012: Our Consolidated Statement of Income for the year ended December 31, 2012, includes the revenue and expenses associated with Palmdale MedicalProperties, an LLC in which we held a 95% non-controlling equity interest as of December 31, 2013 (we now hold 100% of the ownership in this LLCeffective as of January 1, 2014). As previously discussed, effective July 1, 2013, the master lease agreement between Palmdale Medical Properties andPalmdale Regional Medical Center, a wholly-owned subsidiary of UHS, expired. Therefore, effective on July 1, 2013, this LLC was no longer considered avariable interest entity and we began accounting for this LLC on an unconsolidated basis pursuant to the equity method. Prior to the expiration of the masterlease, this LLC was accounted for on a consolidated basis, through June 30, 2013. The table below reflects the “As Adjusted” Statement of Income for thetwelve months ended December 31, 2012, reflecting the revenue and expense impact of the deconsolidation of this LLC as if it had been deconsolidatedeffective July 1, 2012, since our Consolidated Statement of Income for the first six months of 2013 includes the revenue and expenses associated withPalmdale Medical Properties. There was no material impact to our net income as a result of the deconsolidation of this LLC. Year Ended December 31, 2013 Year Ended December 31, 2012 As reportedinConsolidatedStatementsof Income As reportedinConsolidatedStatementsof Income July 1 –December 31,2012Statementsof IncomeforPalmdaleMedicalProperties “AsAdjusted” “AsAdjusted”Variance Revenues $54,280 $53,950 $657 $53,293 $987 Expenses: Depreciation and amortization 18,753 20,216 172 20,044 1,291 Advisory fees to UHS 2,369 2,119 — 2,119 (250) Other operating expenses 14,409 14,575 266 14,309 (100) Transaction costs 203 680 — 680 477 35,734 37,590 438 37,152 1,418 Income before equity in income ofunconsolidated LLCs, interest expenseand gains, net 18,546 16,360 219 16,141 2,405 Equity in income of unconsolidatedLLCs 2,095 2,365 (13) 2,378 (283) Gains on divestiture of properties ownedby unconsolidated LLCs — 8,520 — 8,520 (8,520) Interest expense, net (7,472) (7,768) (206) (7,562) 90 Net income $13,169 $19,477 $— $19,477 ($6,308) 35 Table of ContentsDuring 2013, net income decreased $6.3 million to $13.2 million as compared to $19.5 million during 2012. The decrease was primarily attributable tothe following, as computed utilizing the “As Adjusted” Variance column indicated on the table above: • an unfavorable change of $8.5 million resulting from the aggregate net gains recorded during 2012 on divestiture of properties owned by twounconsolidated LLCs in which we formerly held noncontrolling majority ownership interests, as discussed below and herein (see Note 3 to theConsolidated Financial Statements); • a favorable change of $1.3 million (As Adjusted) resulting from a decrease in depreciation and amortization expense, resulting primarily from a$1.7 million decrease in amortization expense recorded on intangible assets, partially offset by an increase in depreciation expense resulting fromMOBs acquired during 2013 and the fourth quarter of 2012; • a favorable change of $477,000 resulting from a decrease in transaction costs; • a favorable change of $90,000 (As Adjusted) in interest expense due primarily to a decrease in the average effective borrowing rate pursuant to theterms of our $150 million revolving credit agreement, partially offset by an increase in our average outstanding borrowings (as discussed below inCredit facilities and mortgage debt), and; • other combined net favorable changes of $354,000 including the aggregate net operating income (before depreciation and amortization and interestexpense) generated at three MOBs acquired during 2013 and the fourth quarter of 2012, partially offset by the net operating losses incurred at anewly constructed MOB that opened in April, 2013 (property is owned by an unconsolidated LLC in which we hold a noncontrolling majorityownership interest). Total revenues increased approximately $1.0 million (As Adjusted) during 2013, as compared to 2012, due primarily from increases resulting fromMOBs acquired during 2013 and the fourth quarter of 2012, partially offset by other combined revenue decreases experienced at certain properties. Included in our other operating expenses are expenses related to the consolidated medical office buildings, which totaled $12.9 million and $12.6 million(As Adjusted basis), for 2013 and 2012, respectively. The increase in other operating expenses during 2013, as compared to 2012, is primarily attributable toexpenses related to the MOBs acquired during 2013 and the fourth quarter of 2012. A large portion of the expenses associated with our consolidated medicaloffice buildings is passed on to the tenants either directly as tenant reimbursements of common area maintenance expenses or included in base rental amounts.Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses are incurred and are included in tenantreimbursements and other revenue in our condensed consolidated statements of income. During 2013, we had a total of 106 new or renewed leases related to the medical office buildings indicated above, in which we have significantinvestments, some of which are accounted for by the equity method. These leases comprised approximately 13% of the aggregate rentable square feet of theseproperties (8% related to renewed leases and 5% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property toproperty based upon factors such as, but not limited to, the current occupancy and age of our buildings, local overall economic conditions, proximity tohospital campuses and the vacancy rates, rental rates and capacity of our competitors in the market. The weighted-average tenant improvement costsassociated with these new or renewed leases was approximately $17 per square foot during 2013. The weighted-average leasing commissions on the new andrenewed leases commencing during 2013 was approximately 3% of base rental revenue over the term of the leases. The average aggregate value of the tenantconcessions, generally consisting of rent abatements, provided in connection with new and renewed leases commencing during 2013 was approximately 2% ofthe future aggregate base rental revenue over the lease terms. Tenant concessions were, or will be, recognized in our results of operations under the straight-linemethod over the lease term regardless of when payments are due. In connection with lease renewals executed during 2013, the weighted-average rental rates, ascompared to rental rates on the expired leases, decreased by approximately 6%. 36 Table of ContentsFunds from operations (“FFO”) is a widely recognized measure of performance for Real Estate Investment Trusts (“REITs”). We believe that FFO andFFO per diluted share, and adjusted funds from operations (“AFFO”) and AFFO per diluted share, which are non-GAAP financial measures (“GAAP” isGenerally Accepted Accounting Principles in the United States of America), are helpful to our investors as measures of our operating performance. We computeFFO, as reflected below, in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), which may notbe comparable to FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or that interpret the NAREIT definitiondifferently than we interpret the definition. AFFO was also computed for 2013 and 2012, as reflected below, since we believe it is helpful to our investors sinceit adjusts for the transaction costs related to acquisitions. FFO/AFFO do not represent cash generated from operating activities in accordance with GAAP andshould not be considered to be an alternative to net income determined in accordance with GAAP. In addition, FFO/AFFO should not be used as: (i) anindication of our financial performance determined in accordance with GAAP; (ii) an alternative to cash flow from operating activities determined inaccordance with GAAP; (iii) a measure of our liquidity, or; (iv) an indicator of funds available for our cash needs, including our ability to make cashdistributions to shareholders. Below is a reconciliation of our reported net income to FFO and AFFO for 2013 and 2012 (in thousands): 2013 2012 Net income $13,169 $19,477 Depreciation and amortization expense on real property/intangibles of consolidated investments 18,496 20,030 Depreciation and amortization expense on real property/intangibles of unconsolidated affiliates 3,290 3,293 Gains (net of related transaction costs) on divestiture of properties owned by unconsolidated LLCs — (8,520) Funds From Operations 34,955 34,280 Transaction costs 203 680 Adjusted Funds From Operations $35,158 $34,960 Our FFO increased $675,000 to $35.0 million during 2013 as compared to $34.3 million during 2012. The increase was primarily due to: (i) anunfavorable change of $6.3 million resulting from the decrease in net income, as discussed above; (ii) an unfavorable change of $1.5 million in the add-backof depreciation and amortization expense on real property/intangibles, and; (iii) a favorable change of $8.5 million in gains recorded on divestiture ofproperties owned by an unconsolidated LLCs. Our AFFO were $35.2 million during 2013 as compared to $35.0 million during 2012. Year ended December 31, 2012 as compared to the year ended December 31, 2011: Our Consolidated Statement of Income for the year ended December 31, 2012 includes the revenue and expenses associated with the below-mentionedLLCs in which we purchased the third-party minority interests during the fourth quarter of 2011. Since we now own 100% of these entities, we beganconsolidating the financial data effective December 12, 2011. Prior to these minority interest purchases, we previously held noncontrolling majority interests inthese LLCs and they were therefore accounted for on an unconsolidated basis. Our Consolidated Statement of Income for the year ended December 31, 2011includes a partial month of revenue and expenses associated with the below-mentioned LLCs in which we purchased the third-party minority ownershipinterests during the fourth quarter of 2011. The table below reflects the “As Adjusted” Statement of Income for the year ended December 31, 2011, reflectingthe revenue and expense impact of the consolidation of these various LLCs as if they had been consolidated for the twelve months ended December 31, 2011.The “As Adjusted” amounts are used for comparison discussions in the Results of Operations, as they present both periods on a comparable basis. Our 2012net income was unfavorably impacted as a result of the consolidation of these 37 Table of ContentsLLCs primarily due to a $6.6 million increase in depreciation and amortization resulting from the increased basis recorded in connection with the fair valuerecognition of the assets and liabilities related to the eleven LLCs of which we purchased the third-party minority ownership interests. Year Ended December 31, 2012 Year Ended December 31, 2011 As reportedinConsolidatedStatementsof Income As reportedinConsolidatedStatementsof Income January 1 –December 11,2011Statementsof IncomeforLLCs inwhich wepurchasedthird-partyminorityinterests “AsAdjusted” “AsAdjusted”Variance Revenues $53,950 $29,494 $16,961 $46,455 $7,495 Expenses: Depreciation and amortization 20,216 7,306 3,922 11,228 (8,988) Advisory fees to UHS 2,119 2,008 — 2,008 (111) Other operating expenses 14,575 5,581 7,196 12,777 (1,798) Transaction costs 680 518 — 518 (162) Provision for asset impairment — 5,354 — 5,354 5,354 37,590 20,767 11,118 31,885 (5,705) Income before equity in income ofunconsolidated LLCs, interest expense andgains, net 16,360 8,727 5,843 14,570 1,790 Gain on fair value recognition resulting from thepurchase of minority interests in majority-owned LLCs, net — 28,576 — 28,576 (28,576) Equity in income of unconsolidated LLCs 2,365 3,058 (1,810) 1,248 1,117 Gains on divestiture of properties owned byunconsolidated LLCs 8,520 35,835 — 35,835 (27,315) Interest expense, net (7,768) (2,402) (4,033) (6,435) (1,333) Net income $19,477 $73,794 $— $73,794 ($54,317) During 2012, net income decreased $54.3 million to $19.5 million as compared to $73.8 million during 2011. The decrease was primarily attributableto the following, as computed utilizing the “As Adjusted” Variance column indicated on the table above: • an unfavorable change of $28.6 million resulting from the aggregate net gain (net of $301,000 of related transaction costs) recorded during 2011 inconnection with the fair value recognition of the assets and liabilities related to eleven LLCs in which we purchased the third-party minorityownership interests, as discussed below and herein (see Note 3 to the Consolidated Financial Statements); • an unfavorable change of $27.3 million resulting from the decrease in net gains recorded on the divestiture of properties owned by unconsolidatedLLCs during 2012 and 2011, as discussed below and herein (see Note 3 to the Consolidated Financial Statements); • an unfavorable change of $9.0 million (As Adjusted) in depreciation and amortization expense primarily due to a $6.6 million increase incurredduring 2012 resulting from the increased basis recorded in connection with the fair value recognition of the assets and liabilities related to theeleven LLCs of which we purchased the third-party minority ownership interests during the fourth quarter of 2011, as well as a $3.0 millionincrease during 2012 at five MOBs and clinics acquired during 2011 and the first quarter of 2012; 38 Table of Contents • an unfavorable change of $1.3 million (As Adjusted) in interest expense, as discussed below; • a favorable change of $5.4 million resulting from the provision for asset impairment recorded during 2011 on an MOB located in Atlanta,Georgia; • a favorable change of approximately $5.2 million from the net operating income (before depreciation and amortization and interest expenses)generated at five MOBs and clinics acquired during 2011 and the first quarter of 2012; • a favorable change of $1.1 million (As Adjusted) resulting from an increase in equity in income of unconsolidated LLCs resulting primarily fromincreased income generated at a number of our LLCs, and; • other combined net favorable changes of $200,000. Total revenue increased by $7.5 million (As Adjusted) during 2012, as compared to 2011, due primarily to the revenue, or increased revenue, generatedduring 2012 at five MOBs/clinic acquired at various times during 2011 and 2012, as discussed below and herein. During 2012, we recorded a combined net gain of $8.5 million in connection with the sale of two medical office buildings by LLCs in which weformerly held a noncontrolling majority ownership interests, as discussed below and herein. See Note 3 to the Consolidated Financial Statements for additionaldisclosure related to this divestiture. Interest expense, net of interest income, increased $1.3 million (As Adjusted) during 2012 as compared to 2011, primarily due to: (i) an increase in ouraverage outstanding borrowings (to $75.4 million in 2012 from $67.8 million in 2011) as well as an increase in the average effective interest rate (to 2.4% in2012 from 1.8% in 2011) pursuant to the terms of our new $150 million revolving credit agreement that commenced in July, 2011; (ii) interest expenseincurred on the combined $29.4 million of third-party debt assumed as part of the acquisitions, as mentioned below, partially offset by; (iii) a decrease ininterest expense related to the previously unconsolidated LLCs which are now consolidated in our financial statements, as discussed below. The increasedborrowings during 2012, as compared to 2011, were used primarily to: (i) fund the purchases of the six acquired MOBs/clinic during 2011 and the first andfourth quarters of 2012; (ii) fund the fourth quarter of 2011 purchases of the third-party minority ownership interests in various LLCs in which we formerlyheld noncontrolling majority ownership interests; (iii) fund investments in, and advances to, various LLCs, partially offset by; (iv) our share of the cashproceeds generated during 2011 and 2012 in connection with the sale of MOBs by various LLCs in which we formerly held noncontrolling majorityownership interests, as discussed herein. Included in our other operating expenses are expenses related to the consolidated medical office buildings, which totaled $12.9 million and $11.5 million(As Adjusted basis), for 2012 and 2011, respectively. The increase in other operating expenses during 2012 as compared to 2011, is primarily attributable tothe expenses related to the five MOBs/clinic acquired during 2011 and first quarter of 2012, as previously discussed. A large portion of the expensesassociated with our consolidated medical office buildings is passed on to the tenants either directly as tenant reimbursements of common area maintenanceexpenses or included in base rental amounts. Tenant reimbursements for operating expenses are accrued as revenue in the same period the related expenses areincurred and are included in tenant reimbursements and other revenue in our condensed consolidated statements of income. During 2012, we had a total of 91 new or renewed leases related to the medical office buildings indicated above, in which we have significantinvestments, some of which are accounted for by the equity method. These leases comprised approximately 13% of the aggregate rentable square feet of theseproperties (8% related to renewed leases and 5% related to new leases). Rental rates, tenant improvement costs and rental concessions vary from property toproperty based upon factors such as, but not limited to, the current occupancy and age of our buildings, local overall economic conditions, proximity tohospital campuses and the vacancy rates, rental rates 39 Table of Contentsand capacity of our competitors in the market. The weighted-average tenant improvement costs associated with these new or renewed leases was approximately$23 per square foot during 2012. The weighted-average leasing commissions on the new and renewed leases commencing during 2012 was approximately 3%of base rental revenue over the term of the leases. The average aggregate value of the tenant concessions, generally consisting of rent abatements, provided inconnection with new and renewed leases commencing during 2012 was approximately 3% of the future aggregate base rental revenue over the lease terms.Tenant concessions were, or will be, recognized in our results of operations under the straight-line method over the lease term regardless of when payments aredue. In connection with lease renewals executed during 2012, the weighted-average rental rates, as compared to rental rates on the expired leases, decreased byapproximately 1%. Rental rates on new leases were excluded from the above-mentioned market rates to expired lease rates calculation since a significant portionof the new leases occurred at then newly constructed MOBs which are leasing unoccupied space at generally fixed rental rates. Below is a reconciliation of our reported net income to FFO and AFFO for 2012 and 2011 (in thousands): 2012 2011 Net income $19,477 $73,794 Depreciation and amortization expense on real property/intangibles of consolidated investments 20,030 7,173 Depreciation and amortization expense on real property/intangibles of unconsolidated affiliates 3,293 10,558 Gain on fair value recognition resulting from the purchase of minority interests in majority-owned LLCs — (28,576) Gain (net of related transaction costs) on divestitures of properties owned by unconsolidated LLCs (8,520) (35,835) Provision for asset impairment — 5,354 Funds From Operations 34,280 32,468 Transaction costs 680 518 Adjusted Funds From Operations $34,960 $32,986 Our FFO increased $1.8 million to $34.3 million during 2012 as compared to $32.5 million during 2011. The increase was primarily due to: (i) anunfavorable change of $54.3 million resulting from the decrease in net income, as discussed above; (ii) a favorable change of $28.6 million from the 2011gain on purchase of minority interests in majority-owned LLCs; (iii) plus a $5.6 million increase in the add-back of depreciation and amortization expense(including consolidated investments and unconsolidated affiliates); (iv) a favorable change of $27.3 million in gains recorded on divestiture of propertiesowned by an unconsolidated LLCs., and; (v) an unfavorable change of $5.4 million from the provision for asset impairment add-back during 2011. Our AFFO increased $2.0 million to $35.0 million during 2012 as compared to $33.0 million during 2011. The increase in AFFO during 2012, ascompared to 2011, was attributable to: (i) the above-mentioned $1.8 million increase in FFO, plus; (ii) the $200,000 increase in the add-back of the transactioncosts incurred during each period. Summary of Acquisitions, Divestitures and Purchases of Third-Party Minority Ownership Interests completed during 2012 and 2011: Below is a summary of all transactions completed during 2012 and 2011. Each of the MOBs acquired during 2011, one of the MOBs acquired during2012 and certain of the divestitures of MOBs by formerly jointly-owned LLCs were part of planned like-kind exchange transactions pursuant to Section 1031of the Internal Revenue Code. 40 Table of ContentsAcquisitions: During 2012, we paid an aggregate of $16.9 million in cash and assumed $22.4 million of third-party debt to acquire the following: Property: Type of facility City State Date of AcquisitionPeaceHealth Medical Clinic Single-tenant MOB Bellingham WA January, 2012Northwest Texas Professional Office Tower Multi-tenant MOB Amarillo TX December, 2012 Transaction costs recorded in connection with the purchase of the two above-mentioned MOBs aggregated approximately $680,000 for the year endedDecember 31, 2012. During 2011, we paid an aggregate of $39.6 million in cash and assumed $7.0 million of third-party debt to acquire the following: Property: Type of facility City State Date of AcquisitionLake Pointe Medical Arts Building Multi-tenant MOB Rowlett TX June, 2011Forney Medical Plaza Multi-tenant MOB Forney TX July, 2011Tuscan Professional Building Multi-tenant MOB Irving TX December, 2011Emory at Dunwoody Building Single-tenant medical clinic Atlanta GA December, 2011 Transaction costs recorded in connection with the purchase of the four above-mentioned MOBs aggregated approximately $518,000 for the year endedDecember 31, 2011. Divestiture of MOBs by formerly jointly-owned LLCs: During 2012, we received an aggregate of $12.2 million of net cash proceeds in connection with the divestiture of the following MOBs by two LLCs inwhich we formerly owned noncontrolling majority ownership interests ranging from 90% to 95%. These proceeds were net of closing costs and the minoritymember’s share of the proceeds. These divestitures resulted in an aggregate net gain of $8.5 million which is included in our results of operations for the yearended December 31, 2012. Name of LLC: Property owned by LLC: City State Date ofDivestitureCanyon Healthcare Properties Canyon Springs Medical Plaza Gilbert AZ Feb, 2012575 Hardy Investors Centinela Medical Building Complex Inglewood CA Oct, 2012 During the fourth quarter of 2011, we received an aggregate of $33.8 million of net cash proceeds in connection with the divestitures of the followingMOBs by various LLCs in which we formerly owned noncontrolling, majority ownership interests ranging from 75% to 95%. These proceeds were net ofclosing costs, the minority member’s share of the proceeds and third-party debt assumed by the purchaser. These divestitures resulted in an aggregate net gainof $35.8 million (net of related transaction costs totaling approximately $500,000) which is included in our results of operations for the year endedDecember 31, 2011. Name of LLC: Property owned by LLC: City State Date ofDivestitureCobre Properties Cobre Valley Medical Plaza Globe AZ Dec, 2011Deerval Properties Deer Valley Medical Office II Phoenix AZ Nov, 2011Deerval Properties II Deer Valley Medical Office III Phoenix AZ Nov, 2011Deerval Parking Company Deer Valley Parking Garage Phoenix AZ Nov, 2011DSMB Properties Desert Samaritan Hospital MOBs Mesa AZ Dec, 2011Litchvan Investments Papago Medical Park Phoenix AZ Dec, 2011Paseo Medical Properties II Thunderbird Paseo Medical Plaza I & II Glendale AZ Dec, 2011Willetta Medical Properties Edwards Medical Plaza Phoenix AZ Nov, 2011 41 Table of ContentsPurchase of third-party minority ownership interests in majority-owned LLCs: During the fourth quarter of 2011, we paid an aggregate of $4.4 million to acquire the third-party minority ownership interests in the following LLCs inwhich we formerly held various noncontrolling, majority ownership interests. We now own 100% of each of these entities. Our results of operations for the yearended December 31, 2011 includes an aggregate net gain of $28.6 million (net of related transaction costs totaling approximately $300,000), recorded inconnection with fair value recognition of the assets and liabilities of these entities. Name of LLC: Property owned by LLC: City State Ourpreviousownership% Minorityownership%purchased 653 Town Center Investments Summerlin Hospital MOB I Las Vegas NV 95% 5% 653 Town Center Phase II Summerlin Hospital MOB II Las Vegas NV 98% 2% Auburn Medical Properties II Auburn Medical Office Building II Auburn WA 95% 5% ApaMed Properties Apache Junction Medical Plaza Apache J. AZ 85% 15% Banburry Medical Properties Summerlin Hospital MOB III Las Vegas NV 95% 5% BRB/E Building One BRB Medical Office Building Kingwood TX 95% 5% Centennial Medical Properties Centennial Hills Medical Office Bldg. I Las Vegas NV 95% 5% DesMed Desert Springs Medical Plaza Las Vegas NV 99% 1% Gold Shadow Properties 700 Shadow Lane & Goldring MOBs Las Vegas NV 98% 2% Spring Valley Medical Properties Spring Valley Medical Office Building Las Vegas NV 95% 5% Spring Valley Medical Properties II Spring Valley Medical Office Building II Las Vegas NV 95% 5% 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 laborintensive and salaries and benefits are subject to inflationary pressures, as are supply and other costs, we and the operators of our hospital facilities cannotpredict the impact that future economic conditions may have on our/their ability to contain future expense increases. Depending on general economic and labormarket conditions, the operators of our hospital facilities may experience unfavorable labor market conditions, including a shortage of nurses which maycause an increase in salaries, wages and benefits expense in excess of the inflation rate. Their ability to pass on increased costs associated with providinghealthcare to Medicare and Medicaid patients is limited due to various federal, state and local laws which have been enacted that, in certain cases, limit theirability 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 theoperators 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 MOBleases require the tenant to pay an allocable share of operating expenses, including common area maintenance costs, insurance and real estate taxes. Theseprovisions may reduce our exposure to increases in operating costs resulting from inflation. To the extent that some leases do not contain such provisions, ourfuture operating results may be adversely impacted by the effects of inflation. 42 Table of ContentsLiquidity and Capital Resources Year ended December 31, 2013 as compared to December 31, 2012: Net cash provided by operating activities Net cash provided by operating activities was $31.3 million during 2013 as compared to $30.8 million during 2012. The $511,000 increase wasattributable to: • a favorable change of $1.1 million due to an increase in net income plus the adjustments to reconcile net income to net cash provided by operatingactivities (depreciation and amortization, amortization on debt premium, restricted stock-based compensation and net gains on divestiture ofproperties owned by unconsolidated LLCs), as discussed above in Results of Operations; • a favorable change of $116,000 in rent receivable; • an unfavorable change of $191,000 in tenant reserves, escrows, deposits and prepaid rents, and; • other combined net unfavorable changes of $526,000, resulting primarily from an increase in leasing commissions paid during 2013, ascompared to 2012. Net cash used in investing activities Net cash used in investing activities was $13.5 million during 2013 as compared to $8.6 million during 2012. 2013: During 2013, we used $13.5 million of net cash in investing activities as follows: • We spent $3.0 million to fund equity investments in unconsolidated LLCs; • We spent $4.6 million in advances in the form of member loans to unconsolidated LLCs; • We spent $3.4 million on additions to real estate investments primarily for tenant improvements at various MOBs; • We spent $4.7 million to acquire the real estate assets of two medical office buildings; • We funded $150,000 consisting of a deposit on real estate assets related to the acquisition of two medical office buildings that we purchasedduring the first quarter of 2014; • We received $2.3 million of cash in excess of income related to our unconsolidated LLCs ($4.4 million of cash distributions received less $2.1million of equity in income of unconsolidated LLCs); • We received $114,000 in repayments of advances previously made to an unconsolidated LLC. Additionally, the cash balance reflected on our Consolidated Balance Sheet as of December 31, 2013, was reduced by $141,000 resulting from thedeconsolidation of the Palmdale Medical Plaza on July 1, 2013. This amount represents the cash balance of the entity as of the date of deconsolidation. 2012: During 2012, we used $8.6 million of net cash in investing activities as follows: • We spent $3.0 million to fund equity investments in unconsolidated LLCs; • We spent $8.0 million to fund an advance in the form of a member loan to an unconsolidated LLC that owned the Centinela Medical BuildingComplex to extinguish its third-party debt (this entity divested its property during the fourth quarter of 2012 and the member loan was repaid to usin full); 43 Table of Contents • We spent $4.0 million on additions to real estate investments primarily for tenant improvements at various MOBs; • We spent $16.9 million (net of certain acquired liabilities, third-part debt and prepaid deposits) to acquire the real estate assets of two medicaloffice buildings; • We spent $711,000 on payments made in settlement of assumed liabilities related to the acquired properties; • We received $8.6 million in repayments of advances previously provided to unconsolidated LLCs as follows: • $8.0 million from the LLC that owned the Centinela Medical Building in which we had a 90% non-controlling equity interest (thisproperty was divested during the fourth quarter of 2012), and; • $600,000 from various other LLCs in which we own non-controlling equity interests. • We received $3.2 million of cash in excess of income related to our unconsolidated LLCs ($5.6 million of cash distributions received less $2.4million of equity in income of unconsolidated LLCs); • We received $12.2 million, net, of cash in connection with our share of the proceeds received from the divestiture of property owned by twounconsolidated LLCs, and; • We received $100,000 of refunded real estate deposits. Net cash used in financing activities Net cash used in financing activities was $17.5 million during 2013 as compared to $30.8 million during 2012. The $17.5 million of net cash used in financing activities during 2013 consisted of: (i) generated $12.0 million of additional net borrowings on ourrevolving line of credit; (ii) generated $11.2 million of proceeds related to a new mortgage note payable (refinance) that is non-recourse to us; (iii) generated$5.8 million of net cash from the issuance of shares of beneficial interest, $5.5 million of which related to our at-the-market equity issuance program (asdiscussed below) and approximately $250,000 of which was related to our dividend reinvestment program; (iv) paid $31.8 million of dividends; (v) paid$14.4 million on mortgage and other notes payable that are non-recourse to us (including the pay-off of a mortgage note payable that was refinanced during thefirst quarter of 2013, resulting in the above-mentioned $11.2 million of mortgage proceeds to us); (vi) paid $101,000 as partial settlement of accrued dividendequivalent rights, and; (vii) paid $95,000 of financing costs on mortgage and other notes payable. During the fourth quarter of 2013, we commenced an at-the-market (“ATM”) equity issuance program, pursuant to the terms of which we may sell,from time-to-time, common shares of our beneficial interest up to an aggregate sales price of $50 million to or through Merrill Lynch, Pierce, Fenner andSmith, Incorporated (“Merrill Lynch”), as sales agent and/or principal. Pursuant to this ATM program, we issued 154,713 shares at an average price of$41.71 per share, which generated approximately $6.0 million of net cash proceeds or receivables (net of approximately $424,000, consisting of compensationof approximately $161,000 to Merrill Lynch, as well as approximately $263,000 of other various fees and expenses). Since inception of this program, we haveissued 154,713 shares at an average price of $41.71. The $30.8 million of net cash used in financing activities during 2012 consisted of: (i) generated $4.6 million from additional net borrowings on ourrevolving line of credit; (ii) generated $14.0 million of proceeds related to two new mortgage notes payable that are non-recourse to us; (iii) generated $350,000of net cash from the issuance of shares of beneficial interest; (iv) paid $31.2 million of dividends; (v) paid $18.1 million on mortgage and other notes payablethat are non-recourse to us (including the pay-offs of two mortgage notes payable that were refinanced during the second and fourth quarters of 2012, resultingin the $14.0 million of 44 Table of Contentsproceeds, as mentioned above, as well as a $600,000 mortgage principal pay-down); (vi) paid $384,000 of financing costs on mortgage and other notespayable, and; (vii) paid $106,000 as partial settlement of accrued dividend equivalent rights. Year ended December 31, 2012 as compared to December 31, 2011: Net cash provided by operating activities Net cash provided by operating activities was $30.8 million during 2012 as compared to $21.4 million during 2011. The $9.4 million increase wasattributable to: • a favorable change of $9.4 million due to an increase in net income plus the adjustments to reconcile net income to net cash provided by operatingactivities (depreciation and amortization, amortization on debt premium, provision for asset impairment, restricted stock-based compensation, netgain on fair value recognition resulting from the purchase of minority interests in majority-owned LLCs, and net gains on divestiture of propertiesowned by unconsolidated LLCs), as discussed above in Results of Operations; • an unfavorable change of $407,000 in rent receivable primarily resulting from an increase in straight-line rent receivable at various properties aswell as other combined unfavorable changes; • a favorable change of $203,000 in tenant reserves, escrows, deposits and prepaid rents resulting primarily from increased prepaid rents collectedfrom the medical clinic acquired during the first quarter of 2012, and; • other combined net favorable changes of $232,000. Net cash used in investing activities Net cash used in investing activities was $8.6 million during 2012 as compared to $3.3 million during 2011. The factors contributing to the $8.6million of net cash used in investing activities during 2012 are detailed above. 2011: During 2011, we used $3.3 million of net cash in investing activities as follows: • We spent $3.8 million to fund equity investments in unconsolidated LLCs. • We spent $11.5 million to fund advances to unconsolidated LLCs as follows: • $6.2 million advance made to an LLC that owns the Rosenberg Children’s Medical Plaza in which we have an 85% non-controllingequity interest (this advance was repaid in full to us during 2011, as discussed below); • $2.5 million advance made to an LLC that owns the Santa Fe Professional Plaza in which we have a 90% non-controlling equity interest(this advance, structured as a member loan to the LLC, extinguished the third-party debt related to this entity), and; • $2.8 million advanced to various other LLCs, in which we own or owned a non-controlling equity interests (consisted primarily offunding for tenant improvements for an LLC of which we now hold 100% of the ownership interest as discussed herein). • We spent $776,000 on additions to real estate investments primarily for tenant improvements at various MOBs; • We funded $634,000 consisting of deposits on real estate assets related to the acquisition of a medical clinic that we purchased during the firstquarter of 2012; 45 Table of Contents • We spent $39.6 million to acquire the real estate assets of four medical office buildings; • We spent $621,000 on payments made in settlement of assumed liabilities related to the acquired properties; • We spent $4.4 million to acquire the minority interests in majority-owned LLCs; • We received $8.7 million in repayments of advances previously provided to unconsolidated LLCs as follows: • $6.2 million from an LLC that owns the Rosenberg Children’s Medical Plaza (amounts advanced previously in 2011) in which we havean 85% non-controlling equity interest; • $2.0 million from an LLC that owned the Desert Samaritan Hospital MOBs, in which we had a 76% non-controlling equity interest (thisproperty was divested during the fourth quarter of 2011), and; • $500,000 from various other LLCs in which we own or owned non-controlling equity interests. • We received $5.2 million of cash in excess of income related to our unconsolidated LLCs ($8.3 million of cash distributions received less $3.1million of equity in income of unconsolidated LLCs); • We received $2.1 million of cash in connection with refinancing of third-party debt by the LLC that owns the Rosenberg Children’s Medical Plazain which we have an 85% non-controlling equity interest; • We received $4.0 million of cash in connection with the repayment of an advance previously made to a third-party partner, and; • We received $33.8 million, net, of cash in connection with our share of the proceeds received from the divestiture of property owned byunconsolidated LLCs, as discussed above. Additionally, the cash balance reflected on our Consolidated Balance Sheet as of December 31, 2011 was increased by an aggregate $4.2 millionresulting from the consolidation of LLCs in which we purchased third-party minority ownership interests in noncontrolled, majority-owned LLCs. Net cash used in financing activities Net cash used in financing activities was $30.8 million during 2012 as compared to $7.4 million during 2011. The factors contributing to the $30.8million of net cash used in financing activities during 2012 are detailed above. The $7.4 million of net cash used in financing activities during 2011 consisted of: (i) generated $24.6 million of additional net borrowings on ourrevolving line of credit; (ii) generated $244,000 of net cash from the issuance of shares of beneficial interest; (iii) paid $30.7 million of dividends; (iv) paid$291,000 on mortgage and other notes payable that are non-recourse to us; (v) paid $1.1 million of financing costs related to a $150 million revolving creditagreement, executed in July, 2011, and; (vi) paid $162,000 as settlement of accrued dividend equivalent rights. Additional cash flow and dividends paid information for 2013, 2012 and 2011: As indicated on our consolidated statements of cash flows, we generated net cash provided by operating activities of $31.3 million during 2013, $30.8million during 2012 and $21.4 million during 2011. As also indicated on our statements of cash flows, noncash expenses such as depreciation andamortization expense, amortization on debt premium, restricted stock-based compensation expense and provision for asset impairment, as well as the gainsrecorded during 2012 and 2011, are the primary differences between our net income and net cash provided by operating activities for each year. In addition, asreflected in the cash flows from investing 46 Table of Contentsactivities section, we received $2.3 million during 2013, $3.2 million during 2012 and $5.2 million during 2011, of cash distributions in excess of incomefrom various unconsolidated LLCs which represents our share of the net cash flow distributions from these entities. These cash distributions in excess ofincome represent operating cash flows net of capital expenditures and debt repayments made by the LLCs. We generated $33.6 million during 2013, $34.0 million during 2012 and $26.6 million during 2011 related to the operating activities of our propertiesrecorded on a consolidated and an unconsolidated basis. We paid dividends of $31.8 million during 2013, $31.2 million during 2012 and $30.7 millionduring 2011. During 2013, the $33.6 million of net cash generated related to the operating activities of our properties exceeded the $31.8 million of dividendspaid by approximately $1.9 million. During 2012, the $34.0 million of net cash generated related to the operating activities of our properties exceeded the$31.2 million of dividends paid by approximately $2.8 million. During 2011, the $26.6 million of net cash generated related to operating activities of ourproperties was approximately $4.1 million less than the $30.7 million of dividends paid during 2011. The shortfall experienced during 2011 was attributableto the debt repayments and capital expenditures made by the unconsolidated LLCs during the year as well as operating factors as discussed above in Resultsof Operations. As indicated in the cash flows from investing activities and cash flows from financing activities sections of the statements of cash flows, there werevarious other sources and uses of cash during each of the last three years. Therefore, the funding source for our dividend payments is not wholly dependent onthe operating cash flow generated by our properties in any given period. 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 fromthe 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 theamount of dividends to be paid each period. These considerations primarily include: (i) the minimum required amount of dividends to be paid in order tomaintain our REIT status; (ii) the current and projected operating results of our properties, including those owned in LLCs, and; (iii) our future capitalcommitments and debt repayments, including those of our LLCs. Based upon the information discussed above, as well as consideration of projections andforecasts of our future operating cash flows, management and the Board of Trustees have determined that our operating cash flows have been sufficient tofund our dividend payments. Future dividend levels will be determined based upon the factors outlined above with consideration given to our projected futureresults of operations. Included in the various sources of cash were: (i) funds generated from the repayments of advances made from us to LLCs ($114,000 in 2013, $8.6million in 2012 and $8.7 million in 2011); (ii) cash distributions of refinancing proceeds from LLCs of $2.1 million in 2011; (iii) net borrowings on ourrevolving credit agreement ($12.0 million during 2013, $4.6 million during 2012 and $23.5 million during 2011 net of $1.1 million of financing costs);(iv) repayment of advance made to third-party partners of $4.0 million during 2011, and; (v) issuance of shares of beneficial interest ($5.8 million during2013, $350,000 during 2012 and $244,000 during 2011). In addition, during 2012 and 2011, funds were generated from the divestiture of property owned byunconsolidated LLCs, our share of which was $12.2 million and $33.8 million, respectively. In addition to the dividends paid, the following were also included in the various uses of cash: (i) investments in LLCs ($3.0 million during each of2013 and 2012 and $3.8 million during 2011); (ii) advances made to LLCs/third-party partners ($4.6 million during 2013, $8.0 million during 2012 and$11.5 million during 2011); (iii) additions to real estate investments and acquisitions of real property ($3.4 million in 2013, $4.0 million in 2012 and$776,000 in 2011); (iv) acquisitions of medical office buildings ($4.7 million in 2013, $16.9 million in 2012 and $39.6 million in 2011); (v) netrepayments from mortgage, construction and third-party partners and other loans payable of consolidated MOBs and LLCs, net of financing costs ($3.3million during 2013, $4.5 million during 2012 and $291,000 during 2011); (vi), deposits on real estate assets ($150,000 during 2013 and $634,000 during2011, related primarily to the acquisitions of an MOB and a medical clinic which were 47 Table of Contentscompleted in early 2014 and 2012, respectively), and; (vii) payments of assumed liabilities on acquired properties ($711,000 in 2012 and $621,000 in 2011).Additionally, during 2011, we had an additional use of cash consisting of $4.4 million for the purchase of minority interests in majority-owned LLCs, aspreviously discussed. We expect to finance all capital expenditures and acquisitions and pay dividends utilizing internally generated and additional funds. Additional fundsmay be obtained through: (i) the issuance of equity pursuant to our at-the-market (“ATM”) equity issuance program (which has $43.5 million of grossproceeds remaining for issuance as of December 31, 2013); (ii) borrowings under our $150 million revolving credit facility (which has $47.6 million ofavailable borrowing capacity, net of outstanding borrowings and letters of credit, as of December 31, 2013); (iii) borrowings under or refinancing of existingthird-party debt pursuant to mortgage and construction loan agreements entered into by our LLCs, 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 equityissuance capacity pursuant to the terms of the ATM program, and access to the capital markets provide us with sufficient capital resources to fund ouroperating, investing and financing requirements for the next twelve months, including providing sufficient capital to allow us to make distributions necessaryto 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 capitalmarkets 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. Ourinability 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 In July, 2011, we entered into a $150 million revolving credit agreement (“Credit Agreement”) which is scheduled to expire on July 24, 2015. The CreditAgreement includes a $50 million sub limit for letters of credit and a $20 million sub limit for swingline/short-term loans. The Credit Agreement also providesan option to increase the total facility borrowing capacity by an additional $50 million, subject to lender agreement. Borrowings made pursuant to the CreditAgreement will bear interest, at our option, at one, two, three, or six month LIBOR plus an applicable margin ranging from 1.75% to 2.50% or at the BaseRate plus an applicable margin ranging from 0.75% to 1.50%. The Credit Agreement defines “Base Rate” as the greatest of: (a) the administrative agent’s primerate; (b) the federal funds effective rate plus 0.50%, and; (c) one month LIBOR plus 1%. A fee of 0.30% to 0.50% will be charged on the unused portion of thecommitment. The margins over LIBOR, Base Rate and the commitment fee are based upon our ratio of debt to total capital. At December 31, 2013, theapplicable margin over the LIBOR rate was 2.00%, the margin over the Base Rate was 1.00%, and the commitment fee was 0.35%. At December 31, 2013, we had $93.7 million of outstanding borrowings and $8.7 million of letters of credit outstanding against our Credit Agreement.We had $47.6 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2013. There areno compensating balance requirements. The average amounts outstanding under our Credit Agreement were $86.3 million in 2013, $75.4 million in 2012 and$67.8 million in 2011 with corresponding effective interest rates, including commitment fees, of 2.2% in 2013, 2.4% in 2012 and 1.8% in 2011. Thecarrying amount and fair value of borrowings outstanding pursuant to the Credit Agreement was $93.7 million at December 31, 2013. Covenants relating to the Agreement require the maintenance of a minimum tangible net worth and specified financial ratios, limit our ability to incuradditional debt, limit the aggregate amount of mortgage receivables and limit our ability to increase dividends in excess of 95% of cash available fordistribution, unless additional distributions are required to comply with the applicable section of the Internal Revenue Code of 1986 and related regulationsgoverning real estate investment trusts. We are in compliance with all of the covenants at December 31, 2013. We also believe that we would remain incompliance if the full amount of our commitment was borrowed. 48 Table of ContentsThe following table includes a summary of the required compliance ratios, giving effect to the covenants contained in the Credit Agreement (dollaramounts in thousands): Covenant December 31,2013 Tangible net worth $125,000 $144,848 Debt to total capital < 55% 36.0% Debt service coverage ratio > 4.00x 19.1x Debt to cash flow ratio < 3.50x 2.21x We have twelve mortgages, all of which are non-recourse to us, included on our consolidated balance sheet as of December 31, 2013, with a combinedoutstanding balance of $105.5 million. The following table summarizes our outstanding mortgages at December 31, 2013 (amounts in thousands): Facility Name OutstandingBalance(in thousands) (a) InterestRate MaturityDate Summerlin Hospital Medical Office Building I fixed rate mortgage loan(b) $9,188 6.55% 2014 Spring Valley Medical Office Building fixed rate mortgage loan 5,122 5.50% 2015 Summerlin Hospital Medical Office Building III floating rate mortgage loan 11,347 3.42% 2016 Peace Health fixed rate mortgage loan 21,681 5.64% 2017 Summerlin Hospital Medical Office Building II fixed rate mortgage loan 12,021 5.50% 2017 Auburn Medical II floating rate mortgage loan 7,406 2.92% 2017 Medical Center of Western Connecticut fixed rate mortgage loan 4,899 6.00% 2017 Centennial Hills Medical Office Building floating rate mortgage loan 10,938 3.42% 2018 Vibra Hospital of Corpus Christi fixed rate mortgage loan 2,983 6.50% 2019 BRB Medical Office Building fixed rate mortgage loan 6,840 4.27% 2022 700 Shadow Lane and Goldring MOBs fixed rate mortgage loan 6,766 4.54% 2022 Tuscan Professional Building fixed rate mortgage loan 6,262 5.56% 2025 Total $105,453 (a)Amortized principal payments are made on a monthly basis.(b)In the event we are unable to refinance this loan on acceptable terms upon its scheduled maturity, we will explore other financing alternatives includingpotentially utilizing funds borrowed under our revolving credit facility to repay all or a portion of the loan. Contractual Obligations: The following table summarizes the schedule of maturities of our outstanding borrowing under our revolving credit facility (“Credit Agreement”), theoutstanding mortgages applicable to our properties recorded on a consolidated basis and our other contractual obligations as of December 31, 2013 (amounts inthousands): Payments Due by Period (dollars in thousands) Debt and Contractual Obligation Total Less than 1 Year 1-3 years 3-5 years More than5 years Long-term non-recourse debt-fixed(a)(b) $75,762 $11,042 $8,503 $37,887 $18,330 Long-term non-recourse debt-variable(a)(b) 29,691 852 12,140 16,699 — Long-term debt-variable(c) 93,700 — 93,700 — — Estimated future interest payments on debt outstanding as ofDecember 31, 2013(d) 22,214 6,922 9,329 3,275 2,688 Equity and debt financing commitments(e) 7,499 7,499 — — — Total contractual obligations $228,866 $26,315 $123,672 $57,861 $21,018 49 Table of Contents (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 $106.4 million as of December 31, 2013. Changes in market rates on our fixed ratedebt impacts the fair value of debt, but it has no impact on interest incurred or cash flow. Excludes $80.1 million of combined third-party debtoutstanding as of December 31, 2013, that is non-recourse to us, at the unconsolidated LLCs in which we hold various non-controlling ownershipinterests (see Note 8 to the consolidated financial statements).(c)Consists of $93.7 million of borrowings outstanding as of December 31, 2013 under the terms of our $150 million Credit Agreement which matures onJuly 24, 2015. The amount outstanding approximates fair value as of December 31, 2013.(d)Assumes that all debt outstanding as of December 31, 2013, including borrowings under the Credit Agreement, and the twelve 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 31,2013. We have the right to repay borrowings under the Credit Agreement and term loans at any time during the terms of the agreements, 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, 2013, we have equity investment and debt financing commitments remaining in connection with our investments in various LLCs.As of December 31, 2013, we had outstanding letters of credit which secured the majority of these equity and debt financing commitments. The $47.6million of available borrowing capacity as of December 31, 2013, pursuant to the terms of our Credit Agreement, is net of the standby letters of creditoutstanding at that time. Our remaining financing commitments are as follows (in thousands): Amount Palmdale Medical Properties $2,756 Grayson Properties 2,250 FTX MOB Phase II 1,336 Arlington Medical Properties 1,157 Total $7,499 Off Balance Sheet Arrangements As of December 31, 2013, we are party to certain off balance sheet arrangements consisting of standby letters of credit and equity and debt financingcommitments as detailed on the above “Contractual Obligations” table. Our outstanding letters of credit at December 31, 2013 totaled $8.7 million consistingof: (i) $2.2 million related to Centennial Hills Medical Properties; (ii) $2.2 million related to Grayson Properties: (iii) $1.3 million related to Palmdale MedicalProperties; (iv) $1.3 million related to Banburry Medical Properties; (v) $1.2 million related to FTX MOB Phase II; and (vi) $478,000 related to ArlingtonMedical Properties. ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk Market Risks Associated with Financial Instruments As of December 31, 2013, 2012, and 2011, we had no material outstanding interest rate swap agreements. 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.Subsequent to the end of 2013, during the first quarter of 2014, we entered into two additional interest rate cap agreements on a total notional amount of $20million whereby we paid premiums of $134,500. In exchange for the premium payments, the counterparties agreed to pay us the difference between 1.50% andone-month LIBOR if one-month LIBOR rises above 1.50% during the term of the cap. The caps expire on January 13, 2017. 50 Table of ContentsThe sensitivity analysis related to our fixed and variable rate debt assumes current market rates with all other variables held constant. The fair value ofour debt is approximately $200 million. The difference between actual amounts outstanding and fair value is approximately $941,000. The table below presents information about our financial instruments that are sensitive to changes in interest rates, including debt obligations as ofDecember 31, 2013. 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) 2014 2015 2016 2017 2018 Thereafter Total Long-term debt: Fixed rate: Debt(a) $11,042 $6,665 $1,838 $36,886 $1,001 $18,330 $75,762 Average interest rates 5.6% 5.4% 5.5% 5.1% 5.0% 4.9% 5.2% Variable rate: Debt(b) $852 $94,580 $11,260 $7,028 $9,671 $— $123,391 Average interest rates 2.4% 2.5% 3.3% 3.5% 3.4% — 3.0% Interest rate caps: Notional amount(c) $— $— $— $30,000 $— $— $30,000 Interest rates 1.5% (a)Consists of non-recourse mortgage notes payable.(b)Includes $29.7 million of non-recourse mortgage notes payable and of $93.7 million of outstanding borrowings under the terms of our $150 millionrevolving credit agreement.(c)Includes two interest rate cap agreements entered into during the first quarter of 2014 on a total notional amount of $20 million, as discussed above. As calculated based upon our variable rate debt outstanding as of December 31, 2013 that is subject to interest rate fluctuations, each 1% change ininterest rates would impact our net income by approximately $1.8 million. ITEM 8.Financial Statements and Supplementary Data Our Consolidated Balance Sheets, Consolidated Statements of Income, Changes in Equity and Cash Flows, together with the report of KPMG LLP, anindependent 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, 2013, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) andChief Financial Officer (“CFO”), we performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) orRule 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 concludedthat our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by managementon a timely basis in order to comply with our disclosure obligations under the Securities and Exchange Act of 1934 and the SEC rules thereunder. 51 Table of ContentsChanges 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 2013 that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. 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 theeffectiveness 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 in Internal Control—Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. generally acceptedaccounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections ofany evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate becauseof 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, 2013,based on criteria in Internal Control—Integrated Framework (1992), issued by the COSO. The effectiveness of our internal control over financial reportingas of December 31, 2013 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein. 52 Table of ContentsReport of Independent Registered Public Accounting Firm The Shareholders and Board of TrusteesUniversal Health Realty Income Trust: We have audited Universal Health Realty Income Trust’s internal control over financial reporting as of December 31, 2013, based on criteria establishedin Internal Control—Integrated Framework (1992) 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 ofthe effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over FinancialReporting. 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 requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch 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 reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith 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 ofDecember 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizationsof the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Universal Health Realty Income Trust and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income,changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and our report dated March 7, 2014 expressed anunqualified opinion on those consolidated financial statements. (signed) KPMG LLP Philadelphia, PennsylvaniaMarch 7, 2014 53 Table of ContentsITEM 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 Commissionwithin 120 days after December 31, 2013. 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 theSecurities and Exchange Commission within 120 days after December 31, 2013. 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 andManagement” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2013. 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 “CorporateGovernance” in our Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2013. 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 PublicAccounting Firm” in our Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2013. 54 Table of ContentsPART 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 4.3 to the Trust’s registration statement on Form S-3 (File No. 333-60638) is incorporatedherein 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 datedSeptember 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 theTrust’s Current Report on Form 8-K dated December 24, 1986, is incorporated herein by reference. 10.2 Agreement dated December 6, 2013, to renew Advisory Agreement dated as of December 24, 1986 between Universal Health Realty Income Trustand 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 filedas 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 theTrust (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 UniversalHealth 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, isincorporated 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 AnnualReport on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 10.7* Universal Health Realty Income Trust 1997 Incentive Plan, previously filed as Exhibit 10.1 to the Trust’s Form 10-Q for the quarter endedSeptember 30, 1997, is incorporated herein by reference. 10.8 Credit Agreement, dated as of July 25, 2011, by and among the Trust, the financial institutions from time to time party thereto and Wells FargoBank, 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 Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2011, is incorporated herein by reference. 55 Table of Contents10.9 Dividend Reinvestment and Share Purchase Plan included in the Trust’s Registration Statement on Form S-3 (Registration No. 333-81763) filed onJune 28, 1999, is incorporated herein by reference. 10.10 Asset Exchange and Substitution Agreement, dated as of April 24, 2006, by and among the Trust and Universal Health Services, Inc. and certainof 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 filedas Exhibit 10.2 to the Trust’s Current Report on Form 8-K dated April 25, 2006, is incorporated herein by reference. 10.12* Universal Health Realty Income Trust 2007 Restricted Stock Plan, previously filed as Exhibit 10.1 to the Trust’s Current Report on Form 8-K,dated April 27, 2007, 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, isincorporated herein by reference. 10.14 ATM Equity Offering Sales Agreement, dated November 8, 2013, among the Trust, UHS of Delaware, Inc., and Merrill Lynch, Pierce, Fenner& Smith Incorporated, previously filed as Exhibit 1.1 to the Trust’s Current Report on Form 8-K dated November 8, 2013, is incorporated herein byreference. 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, filedherewith. 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, filedherewith. 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. 56SM Table of ContentsSIGNATURES 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 besigned on its behalf by the undersigned, thereunto duly authorized. UNIVERSAL HEALTH REALTY INCOME TRUSTBy: /S/ ALAN B. MILLER Alan B. Miller,Chairman of the Board,Chief Executive Officer and President Date: March 7, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated. Signatures Title Date/S/ ALAN B. MILLER Alan B. Miller Chairman of the Board, ChiefExecutive Officer and President(Principal Executive Officer) March 7, 2014/S/ JAMES E. DALTON, JR. James E. Dalton, Jr. Trustee March 7, 2014/S/ MILES L. BERGER Miles L. Berger Trustee March 7, 2014/S/ ELLIOT J. SUSSMAN Elliot J. Sussman, M.D., M.B.A. Trustee March 7, 2014/S/ ROBERT F. MCCADDEN Robert F. McCadden Trustee March 7, 2014/S/ MARC D. MILLER Marc D. Miller Trustee March 7, 2014/S/ CHARLES F. BOYLE Charles F. Boyle Vice President and Chief Financial Officer(Principal Financial and AccountingOfficer) March 7, 2014 57 Table of ContentsINDEX TO FINANCIAL STATEMENTS AND SCHEDULE Page Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements and Schedule 59 Consolidated Balance Sheets—December 31, 2013 and December 31, 2012 60 Consolidated Statements of Income—Years Ended December 31, 2013, 2012 and 2011 61 Consolidated Statements of Changes in Equity—Years Ended December 31, 2013, 2012 and 2011 62 Consolidated Statements of Cash Flows—Years Ended December 31, 2013, 2012 and 2011 63 Notes to the Consolidated Financial Statements—December 31, 2013 64 Schedule III—Real Estate and Accumulated Depreciation—December 31, 2013 89 Notes to Schedule III—December 31, 2013 90 58 Table of ContentsReport of Independent Registered Public Accounting Firm The Shareholders and Board of TrusteesUniversal Health Realty Income Trust: We have audited the accompanying consolidated balance sheets of Universal Health Realty Income Trust and subsidiaries as of December 31, 2013 and 2012,and the related consolidated statements of income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2013. Inconnection with our audits of the consolidated financial statements, we also have audited financial statement schedule III real estate and accumulateddepreciation. These consolidated financial statements and financial statement schedule III are the responsibility of the Company’s management. Ourresponsibility 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 thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide 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 RealtyIncome Trust and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financialstatement schedule III real estate and accumulated depreciation 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 IncomeTrust’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 7, 2014 expressed an unqualifiedopinion on the effectiveness of the Company’s internal control over financial reporting. (signed) KPMG LLP Philadelphia, PennsylvaniaMarch 7, 2014 59 Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST CONSOLIDATED BALANCE SHEETS(dollar amounts in thousands) December 31,2013 December 31,2012 Assets: Real Estate Investments: Buildings and improvements $368,295 $374,416 Accumulated depreciation (97,921) (87,088) 270,374 287,328 Land 27,374 27,058 Net Real Estate Investments 297,748 314,386 Investments in and advances to limited liability companies (“LLCs”) 39,201 28,636 Other Assets: Cash and cash equivalents 3,337 3,048 Base and bonus rent receivable from UHS 2,053 2,041 Rent receivable—other 3,310 2,783 Intangible assets (net of accumulated amortization of $13.7 million and $8.2 million at December 31, 2013and December 31, 2012, respectively) 20,782 26,293 Deferred charges, goodwill and other assets, net 6,714 5,851 Total Assets $373,145 $383,038 Liabilities: Line of credit borrowings $93,700 $81,750 Mortgage and other notes payable, non-recourse to us (including net debt premium of $834,000 and $1.3million at December 31, 2013 and December 31, 2012, respectively) 106,287 116,186 Accrued interest 491 539 Accrued expenses and other liabilities 5,156 4,920 Tenant reserves, escrows, deposits and prepaid rents 1,881 1,898 Total Liabilities 207,515 205,293 Equity: Preferred shares of beneficial interest, $.01 par value; 5,000,000 shares authorized; none issued andoutstanding 0 0 Common shares, $.01 par value; 95,000,000 shares authorized; issued and outstanding: 2013—12,858,6432012 -12,688,998 128 127 Capital in excess of par value 220,691 214,094 Cumulative net income 480,044 466,875 Cumulative dividends (535,176) (503,425) Accumulated other comprehensive loss (57) 0 Total Universal Health Realty Income Trust Shareholders’ Equity 165,630 177,671 Non-controlling equity interest 0 74 Total Equity 165,630 177,745 Total Liabilities and Equity $373,145 $383,038 See the accompanying notes to these consolidated financial statements. 60 Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST CONSOLIDATED STATEMENTS OF INCOME(amounts in thousands, except per share amounts) Year ended December 31, 2013 2012 2011 Revenues: Base rental—UHS facilities $14,773 $15,438 $13,150 Base rental—Non-related parties 27,955 27,213 10,392 Bonus rental—UHS facilities 4,260 4,142 4,191 Tenant reimbursements and other—Non-related parties 6,812 6,674 1,654 Tenant reimbursements and other—UHS facilities 480 483 107 54,280 53,950 29,494 Expenses: Depreciation and amortization 18,753 20,216 7,306 Advisory fees to UHS 2,369 2,119 2,008 Other operating expenses 14,409 14,575 5,581 Transaction costs 203 680 518 Provision for asset impairment 0 0 5,354 35,734 37,590 20,767 Income before equity in income of unconsolidated limited liability companies (“LLCs”), interest expense andgains, net 18,546 16,360 8,727 Equity in income of unconsolidated LLCs 2,095 2,365 3,058 Gain on fair value recognition resulting from the purchase of minority interests in majority-owned LLCs,net 0 0 28,576 Gain on divestitures of properties owned by unconsolidated LLCs, net 0 8,520 35,835 Interest expense, net (7,472) (7,768) (2,402) Net income $13,169 $19,477 $73,794 Basic earnings per share $1.04 $1.54 $5.84 Diluted earnings per share $1.04 $1.54 $5.83 Weighted average number of shares outstanding—Basic 12,689 12,661 12,644 Weighted average number of share equivalents 12 8 5 Weighted average number of shares and equivalents outstanding—Diluted 12,701 12,669 12,649 See the accompanying notes to these consolidated financial statements. 61 Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended December 31, 2013, 2012 and 2011(amounts in thousands, except per share amounts) Common Shares Capital inexcess ofpar value Cumulativenet income Cumulativedividends Accumulated othercomprehensiveloss UHTShareholders’Equity Non-controllingInterests TotalEquity Numberof Shares Amount January 1, 2011 12,653 $127 $213,209 $373,604 ($441,527) — $145,413 $97 $145,510 Shares of Beneficial Interest: Issued 14 — 238 — — — 238 — 238 Partial settlement of dividend equivalent rights — — (162) — — — (162) — (162) Restricted stock-based compensation expense — — 269 — — — 269 — 269 Stock-based compensation expense — — 12 — — — 12 — 12 Dividends ($2.425/share) — — — — (30,703) — (30,703) — (30,703) Comprehensive income: Net income — — — 73,794 — — 73,794 (13) 73,781 January 1, 2012 12,667 127 213,566 447,398 (472,230) — 188,861 84 188,945 Shares of Beneficial Interest: Issued 22 — 305 — — — 305 — 305 Partial settlement of dividend equivalent rights — — (106) — — — (106) — (106) Restricted stock-based compensation expense — — 329 — — — 329 — 329 Dividends ($2.46/share) — — — — (31,195) — (31,195) — (31,195) Comprehensive income: Net income — — — 19,477 — — 19,477 (10) 19,467 January 1, 2013 12,689 127 214,094 466,875 (503,425) — 177,671 74 177,745 Shares of Beneficial Interest: Issued 170 1 6,323 — — — 6,324 — 6,324 Partial settlement of dividend equivalent rights — — (101) — — — (101) — (101) Restricted stock-based compensation expense — — 375 — — — 375 — 375 Dividends ($2.495/share) — — — — (31,751) — (31,751) — (31,751) Deconsolidation of LLC — — — — — — — (74) (74) Comprehensive income: Net income — — — 13,169 — — 13,169 13,169 Unrealized loss on interest rate cap — — — — — (57) (57) — (57) Subtotal—comprehensive income 13,169 (57) 13,112 0 13,112 December 31, 2013 12,859 $128 $220,691 $480,044 ($535,176) ($57) $165,630 $0 $165,630 See the accompanying notes to these consolidated financial statements. 62 Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands) Year ended December 31, 2013 2012 2011 Cash flows from operating activities: Net income $13,169 $19,477 $73,794 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,843 20,216 7,306 Amortization on debt premium (433) (657) (96) Provision for asset impairment 0 0 5,354 Restricted stock-based compensation expense 375 329 281 Gain on purchase of minority interests in majority-owned LLCs before transaction costs 0 0 (28,877) Gains on divestiture of properties owned by unconsolidated LLCs before transaction costs 0 (8,520) (36,300) Changes in assets and liabilities: Rent receivable (746) (862) (455) Accrued expenses and other liabilities 523 278 221 Tenant reserves, escrows, deposits and prepaid rents 16 207 4 Accrued interest (22) 66 39 Other, net (431) 249 101 Net cash provided by operating activities 31,294 30,783 21,372 Cash flows from investing activities: Investments in LLCs (3,013) (2,973) (3,788) Repayments of advances made to LLCs 114 8,551 8,718 Advances made to LLCs (4,580) (8,000) (11,541) Cash distributions in excess of income from LLCs 2,346 3,169 5,260 Cash distributions of refinancing proceeds from LLCs 0 0 2,111 Repayment of advance made to third-party partners 0 0 3,967 Additions to real estate investments (3,415) (3,985) (776) Deposits on real estate assets (150) 100 (634) Net cash paid for acquisition of medical office buildings (4,675) (16,891) (39,578) Payment of assumed liabilities on acquired properties 0 (711) (621) Cash paid to acquire minority interests in majority-owned LLCs 0 0 (4,408) Cash proceeds received from divestiture of property owned by unconsolidated LLCs, net 0 12,175 33,836 Increase in cash and cash equivalents due to recording of LLCs on a consolidated basis 0 0 4,170 Decrease in cash and cash equivalents due to deconsolidation of LLCs (141) 0 0 Net cash used in investing activities (13,514) (8,565) (3,284) Cash flows from financing activities: Net borrowings on line of credit 11,950 4,600 24,550 Proceeds from mortgages and other notes payable 11,150 14,000 0 Repayments of mortgages and other notes payable (14,401) (18,084) (291) Financing costs paid, new Revolving Credit Facility 0 0 (1,064) Financing costs paid on mortgage and other notes payable (95) (384) 0 Dividends paid (31,751) (31,195) (30,703) Partial settlement of dividends equivalent rights (101) (106) (162) Issuance of shares of beneficial interest, net 5,757 350 244 Net cash used in financing activities (17,491) (30,819) (7,426) Increase/(decrease) in cash and cash equivalents 289 (8,601) 10,662 Cash and cash equivalents, beginning of period 3,048 11,649 987 Cash and cash equivalents, end of period $3,337 $3,048 $11,649 Supplemental disclosures of cash flow information: Interest paid $7,517 $7,994 $2,216 Supplemental disclosures of non-cash transactions: Debt assumed on acquisition of real estate $0 $22,441 $6,999 Deconsolidation (2013) and consolidation (2011) of LLCs: Net real estate investments $11,597 $0 $133,080 Cash and cash equivalents 141 0 4,170 Intangible assets 0 0 20,890 Rent receivable—other 207 0 687 Other assets 135 0 2,944 Mortgage and note payable, non-recourse to us (6,215) 0 (76,111) Other liabilities (368) 0 (3,025) Third-party equity interests (54) 0 0 Gain on purchase of minority interests in majoriyt-owned LLCs 0 0 (28,877) Investment in LLCs $5,443 $0 ($53,758) See accompanying notes to these consolidated financial statements. 63 Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2013 (1) 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 healthcareand human service related facilities including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgerycenters, childcare centers and medical office buildings. As of February 28, 2014, we have fifty-eight real estate investments or commitments located in sixteenstates consisting of: • seven hospital facilities including three acute care, one behavioral healthcare, one rehabilitation and two sub-acute; • forty-seven medical office buildings, including eleven owned by unconsolidated limited liability companies (“LLCs”), and; • four preschool and childcare centers. Our future results of operations could be unfavorably impacted by continued deterioration in general economic conditions which could result inincreases in the number of people unemployed and/or uninsured. Should that occur, it may result in decreased occupancy rates at our medical office buildingsas well as a reduction in the revenues earned by the operators of our hospital facilities which would unfavorably impact our future bonus rentals (on theUniversal Health Services, Inc. hospital facilities) and may potentially have a negative impact on the future lease renewal terms and the underlying value of thehospital properties. Additionally, the general real estate market has been unfavorably impacted by the deterioration in economic and credit market conditionswhich may adversely impact the underlying value of our properties. The tightening in the credit markets and the instability in certain banking and financialinstitutions over the past several years has not had a material impact on us. However, there can be no assurance that unfavorable credit market conditions willnot materially increase our cost of borrowings and/or have a material adverse impact on our ability to finance our future growth through borrowed funds. Management is unable to predict the effect, if any, that the factors discussed above will have on the operating results of our lessees or on their ability tomeet their obligations under the terms of their leases with us. Management’s estimate of future cash flows from our leased properties could be materiallyaffected 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 andreimbursements from tenants for their pro-rata share of expenses such as common area maintenance costs, real estate taxes and utilities. The minimum rent for all hospital facilities is fixed over the initial term or renewal term of the respective leases. Rental income recorded by ourconsolidated and unconsolidated medical office buildings (“MOBs”) relating to leases in excess of one year in length is recognized using the straight-linemethod under which contractual rents are recognized evenly over the lease term regardless of when payments are due. The amount of rental revenue resultingfrom straight-line rent adjustments is dependent on many factors including the nature and amount of any rental concessions granted to new tenants, scheduledrent 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 aresult, the straight-line adjustments to rental revenue may vary from period-to-period. Bonus rents are recognized when earned based upon increases in eachfacility’s net revenue in excess of stipulated amounts. Bonus rentals are determined and paid each quarter based upon a computation that compares therespective facility’s current 64 Table of Contentsquarter’s net revenue to the corresponding quarter in the base year. Tenant reimbursements for operating expenses are accrued as revenue in the same period therelated expenses are incurred. Real Estate Investments On the date of acquisition, the purchase price of a property is allocated to the property’s land, buildings and intangible assets based upon our estimatesof their fair values. Intangible assets include the value of in-place leases, above market leases and leasehold interest in land at the time of acquisition.Substantially all of our intangible assets consist of the value of in-place leases at December 31, 2013, and will be amortized over the remaining lease terms(aggregate weighted average of 3.5 years) and will result in an estimated aggregate amortization expense of $4.6 million, $3.9 million, $3.4 million $2.9million and $1.7 million for 2014, 2015, 2016, 2017 and 2018, respectively. Amortization expense on intangible values of in place leases was $6.0 millionfor the year ended December 31, 2013, $7.8 million for the year ended December 31, 2012 and $836,000 for the year ended December 31, 2011. Depreciationis computed using the straight-line method over the estimated useful lives of the buildings and capital improvements. The estimated original useful lives of ourbuildings 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 $12.5 million for the year ended December 31, 2013, $12.2 million for the year ended December 31, 2012 and $6.3 million for theyear ended December 31, 2011. 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 Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carryingamount of the property might not be recoverable. A property to be held and used is considered impaired only if management’s estimate of the aggregate futurecash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value ofthe property. This estimate takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand,competition, local market conditions and other factors. The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheetdate that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated action to be taken withrespect to the property could impact the determination of whether an impairment exists and whether the effects could materially impact our net income. To theextent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of theproperty over the fair value of the property. Assessment of the recoverability by us of certain lease related costs must be made when we have reason to believe that a tenant might not be able toperform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs. If we determine that theintangible assets are not recoverable from future cash flows, the excess of carrying value of the intangible asset over its estimated fair value is charged toincome. During the fourth quarter of 2011, we recorded an asset impairment charge of $5.4 million in connection with an MOB located on a medical campus inAtlanta, Georgia. The asset impairment charge was recorded after evaluation of property and location-specific factors including pressure on rental andoccupancy rates caused, in part, by the impact of continued unfavorable economic conditions in the market as well as competitive pressures caused byincreased capacity added to the market. The fair value of this property was determined based upon the present value of the expected future cash flows. An other than temporary impairment of an investment/advance in an LLC is recognized when the carrying value of the investment is not consideredrecoverable based on evaluation of the severity and duration of the 65 Table of Contentsdecline in value, including projected declines in cash flow. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fairvalue is charged to income. Investments in Limited Liability Companies (“LLCs”) Our consolidated financial statements include the consolidated accounts of our controlled investments and those investments that meet the criteria of avariable interest entity where we are the primary beneficiary. In accordance with the FASB’s standards and guidance relating to accounting for investments andreal estate ventures, we account for our unconsolidated investments in LLCs which we do not control using the equity method of accounting. The third-partymembers in these investments have equal voting rights with regards to issues such as, but not limited to: (i) divestiture of property; (ii) annual budgetapproval, and; (iii) financing commitments. These investments, which represent 33% to 95% non-controlling ownership interests, are recorded initially at ourcost and subsequently adjusted for our net equity in the net income, cash contributions to, and distributions from, the investments. Pursuant to certainagreements, allocations of sales proceeds and profits and losses of some of the LLC investments may be allocated disproportionately as compared toownership interests after specified preferred return rate thresholds have been satisfied. At December 31, 2013, we have non-controlling equity investments or commitments in thirteen LLCs which own medical office buildings (includingPalmdale Medical Properties, LLC and Sparks Medical Properties, LLC which, as discussed below, we purchased the minority ownership interests effectiveJanuary 1, 2014 and now hold 100% of the ownership interests of these entities). As of December 31, 2013, we accounted for these LLCs on an unconsolidatedbasis pursuant to the equity method since they are not variable interest entities. Palmdale Medical Properties was consolidated in our financial statementsthrough June 30, 2013. As discussed below, the master lease with a wholly-owned subsidiary of UHS related to Palmdale Medical Properties expired effectiveas of July 1, 2013 and, as of that date, we began accounting for Palmdale Medical Properties under the equity method. The majority of these LLCs are joint-ventures between us and a non-related party that manages and holds minority ownership interests in the entities.Each LLC is generally self-sustained from a cash flow perspective and generates sufficient cash flow to meet its operating cash flow requirements and servicethe 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 sincethey 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 aretypically advanced as equity or member loans. Palmdale Medical Properties had a master lease with a subsidiary of UHS through June 30, 2013. Additionally, UHS of Delaware, a wholly-ownedsubsidiary of UHS, serves as advisor to us under the terms of an advisory agreement and manages our day-to-day affairs. All of our officers are officers oremployees of UHS (through UHS of Delaware, Inc.). As a result of our related-party relationship with UHS and the master lease, lease assurance or leaseguarantee arrangements with subsidiaries of UHS, we have accounted for this LLC on a consolidated basis, since its inception in the fourth quarter of 2007through June 30, 2013, since it was a variable interest entity and we were deemed to be the primary beneficiary. As of July 1, 2013, the master lease expiredand this LLC is no longer considered a variable interest entity and we therefore began to account for this LLC on an unconsolidated basis pursuant to theequity method as of July 1, 2013. The expiration of the master lease and related deconsolidation did not have a material impact on our net income and fundsfrom operations during the second half of 2013. As a result of master lease arrangements between UHS and various LLCs in which we hold or held majority non-controlling ownership interests, wehave consolidated or deconsolidated these LLCs as required in accordance with the FASB’s standards and guidance. 66 Table of ContentsEffective January 1, 2014, we purchased the third-party minority ownership interests in two LLCs (Palmdale Medical Properties and Sparks MedicalProperties) in which we formerly held non-controlling majority ownership interest. As a result of our purchase of the minority ownership interests, we nowhold 100% of the ownership interests in these LLCs which own MOBs and will begin accounting for them on a consolidated basis effective January 1, 2014.Each of the property’s assets and liabilities will be recorded at their fair values (see Note 3 to the consolidated financial statements for additional disclosure).We do not expect these transactions or the expected related aggregate gain (to be recorded during the first quarter of 2014) to have a material impact on our futureresults of operations. In addition, effective December 12, 2011, as a result of our purchases of third-party minority ownership interests in eleven LLCs in which we formerlyheld non-controlling majority ownership interests, we now hold 100% of the ownership interest in these LLCs which own MOBs and are accounted for on aconsolidated basis, as discussed herein (see Notes 3 and 8 to the consolidated financial statements for additional disclosure). 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 InternalRevenue 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 atleast 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 incomeplus 95% of any capital gain income for the calendar year exceeds cash distributions during the calendar year, as defined. No provision for excise tax hasbeen 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 purposesdue 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 ofprovision for impairment losses. The aggregate gross cost basis and net book value of the properties for federal income tax purposes are approximately $382 million and $256 million,respectively, at December 31, 2013. Stock-Based Compensation We expense the grant-date fair value of stock options and restricted stock awards over the vesting period. We recognize the grant-date fair value of stockoptions and other equity-based compensation and account for these transactions using the fair-value based method. We use the Black-Scholes model as ouroption pricing model for determining the grant-date fair value of our stock options. The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-basedcompensation 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 participantswould use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, accounting requirementsestablish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of thereporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about marketparticipant assumptions (unobservable inputs classified 67 Table of Contentswithin 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 useunobservable 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 impairmentactivity, are considered to be Level 3 valuations as they are primarily based upon an income capitalization approach. Significant inputs into the models used todetermine fair value of real estate investments and components of real estate investments include future cash flow projections, holding period, terminalcapitalization rate and discount rates. Additionally the fair value of land takes into consideration comparable sales, as adjusted for site specific factors. Thefair value of real estate investments is based upon significant judgments made by management, and accordingly, we typically obtain assistance from thirdparty 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-termnature of these instruments. Accordingly, these items are excluded from the fair value disclosures included elsewhere in these notes to the consolidated financialstatements. See Note 3-Acquisitions and Dispositions, for disclosure related to the $28.6 million net gain recorded during 2011 in connection with the fair valuerecognition of the assets and liabilities, including third-party debt, resulting from the purchase of minority ownership interests in majority-owned LLCs. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New Accounting Standards Except as noted below, there were no new accounting pronouncements during 2013 that impacted, or are expected to impact, us. In February, 2013, the Financial Accounting Standards Board issued an Accounting Standards Update on reporting of amounts reclassified out ofaccumulated other comprehensive income. This guidance, which is effective for fiscal years beginning after December 31, 2012, required companies toprovide information about amounts reclassified out of accumulated other comprehensive income by component (the respective line items of the incomestatement). The adoption of this standard did not have a material impact on our consolidated financial position or results of operations. In July 2013, the Financial Accounting Standards Board (FASB) issued guidance allowing the use of the Fed Funds Effective Swap Rate (or OvernightIndex Swap Rate) as a benchmark interest rate for hedge accounting purposes in addition to interest rates on direct Treasury obligations of the United Statesgovernment and the LIBOR. In addition, the guidance removes the restriction on using different benchmark rates for similar hedges. The guidance becameeffective on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013, and did not have a materialimpact in the consolidated financial results. 68 Table of Contents(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 backto 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 upto six additional 5-year renewal terms. The current base rentals and lease and rental terms for each facility are provided below. The base rents are paid monthlyand each lease also provides for additional or bonus rents which are computed and paid on a quarterly basis based upon a computation that compares currentquarter revenue to a corresponding quarter in the base year. The 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 41% of our total revenue for the five yearsended December 31, 2013 (approximately 30% for each of the years ended December 31, 2013 and 2012, and 55% for the year ended December 31, 2011).The decrease during 2013 and 2012 as compared to 2011 is due primarily to the December, 2011 purchase of the third-party minority ownership interests ineleven LLCs in which we previously held noncontrolling majority ownership interests (we began recording the financial results of the entities in our financialstatements on a consolidated basis at that time) and various acquisitions of medical office buildings (“MOBs”) and clinics completed during 2011 and thefirst quarter of 2012. Including 100% of the revenues generated at the unconsolidated LLCs in which we have various non-controlling equity interests rangingfrom 33% to 95%, the leases on the UHS hospital facilities accounted for approximately 20% of the combined consolidated and unconsolidated revenue for thefive years ended December 31, 2013 (approximately 22% for the year ended December 31, 2013, 21% for the year ended December 31, 2012 and 19% for theyear ended December 31, 2011). In addition, twelve MOBs, that are either wholly or jointly-owned, include or will include tenants which are subsidiaries ofUHS. Pursuant to the Master Lease Document by and among us and certain subsidiaries of UHS, dated December 24, 1986 (the “Master Lease”), whichgoverns 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 providingnotice to us at least 90 days prior to the termination of the then current term. In addition, UHS has rights of first refusal to: (i) purchase the respective leasedfacilities 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 respectiveleased 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. UHS also has the right topurchase 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, asamended 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 Trustoccur, to purchase any or all of the four leased hospital properties listed below at their appraised fair market value. The table below details the existing lease terms and renewal options for each of the UHS hospital facilities, giving effect to the above-mentioned renewals: Hospital Name Type of Facility AnnualMinimumRent End ofLease Term RenewalTerm(years) McAllen Medical Center Acute Care $5,485,000 December, 2016 15(a) Wellington Regional Medical Center Acute Care $3,030,000 December, 2016 15(b) Southwest Healthcare System, Inland Valley Campus Acute Care $2,648,000 December, 2016 15(b) The Bridgeway Behavioral Health $930,000 December, 2014 10(c) (a)UHS has three 5-year renewal options at existing lease rates (through 2031).(b)UHS has one 5-year renewal option at existing lease rates (through 2021) and two 5-year renewal options at fair market value lease rates (2022 through2031).(c)UHS has two 5-year renewal options at fair market value lease rates (2015 through 2024). 69 Table of ContentsManagement cannot predict whether the leases with subsidiaries of UHS, which have renewal options at existing lease rates or fair market value leaserates, 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 leaserates, 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.The Bridgeway’s lease term is scheduled to end in December, 2014. We can provide no assurance that this lease will be renewed at the fair market value leaserate. As discussed above, Palmdale Medical Plaza, which is located in Palmdale, California, on the campus of a UHS hospital, had a master leasecommitment by a wholly-owned subsidiary of UHS which expired on June 30, 2013. This MOB, tenants of which include subsidiaries of UHS, wascompleted and opened during the third quarter of 2008 at which time the master lease commenced. The LLC that owns this MOB was deemed to be a variableinterest entity during the term of the master lease and was therefore consolidated in our financial statements through June 30, 2013 since we were the primarybeneficiary 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 statementson an unconsolidated basis pursuant to the equity method. Effective January 1, 2014, we purchased the third-party minority ownership interests in two LLCs (Palmdale Medical Properties and Sparks MedicalProperties) in which we formerly held non-controlling majority ownership interest. As a result of our purchase of the minority ownership interests, we nowhold 100% of the ownership interests in these LLCs (which own MOBs) and will begin accounting for them on a consolidated basis effective January 1, 2014. We have funded $2.1 million in equity as of December 31, 2013, and are committed to fund an additional $2.3 million, in exchange for a 95% non-controlling equity interest in an LLC (Texoma Medical Properties) that developed, constructed, owns and operates the Texoma Medical Plaza located inDenison, Texas, which was completed and opened during the first quarter of 2010. This MOB is located on the campus of a UHS acute care hospital which isowned and operated by Texoma Medical Center (“Texoma Hospital”), a wholly-owned subsidiary of UHS. This MOB has tenants that include subsidiaries ofUHS. This LLC has a third-party term loan of $12.5 million, which is non-recourse to us, outstanding as of December 31, 2013. As this LLC is notconsidered to be a variable interest entity and does not meet the other criteria requiring consolidation of an investment, it is accounted for pursuant to the equitymethod. Advisory Agreement: UHS of Delaware, Inc. (the “Advisor”), a wholly-owned subsidiary of UHS, serves as Advisor to us under an AdvisoryAgreement (the “Advisory Agreement”) dated December 24, 1986. Pursuant to the Advisory Agreement, the Advisor is obligated to present an investmentprogram to us, to use its best efforts to obtain investments suitable for such program (although it is not obligated to present any particular investmentopportunity 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 bythe Trustees who are unaffiliated with UHS (the “Independent Trustees”). In performing its services under the Advisory Agreement, the Advisor may utilizeindependent professional services, including accounting, legal, tax and other services, for which the Advisor is reimbursed directly by us. The AdvisoryAgreement may be terminated for any reason upon sixty days written notice by us or the Advisor. The Advisory Agreement expires on December 31 of eachyear; however, it is renewable by us, subject to a determination by the Independent Trustees, that the Advisor’s performance has been satisfactory. InDecember of 2013, based upon a review of our advisory fee and other general and administrative expenses, as compared to an industry peer group, theAdvisory Agreement was renewed for 2014 pursuant to the same terms as the Advisory Agreement in place during 2013. In December of 2012, based upon areview of our advisory fee and other general and administrative expenses, as compared to an industry peer group, the 2013 advisory fee, as compared to the2012 advisory fee, was increased to 0.70% (from 0.65%) of our average invested real estate assets, as derived from our consolidated balance sheet. The average real estate assets for advisory fee calculation purposes exclude certain items from our consolidated balance sheet such as, among otherthings, accumulated depreciation, cash and cash equivalents, base and bonus rent receivables, deferred charges and other assets. The advisory fee is payablequarterly, subject to adjustment at year-end based upon our audited financial statements. In addition, the Advisor is entitled to an 70 Table of Contentsannual 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 withoutreduction for return of capital dividends. The Advisory Agreement defines cash available for distribution to shareholders as net cash flow from operations lessdeductions for, among other things, amounts required to discharge our debt and liabilities and reserves for replacement and capital improvements to ourproperties and investments. No incentive fees were paid during 2013, 2012 or 2011 since the incentive fee requirements were not achieved. Advisory feesincurred and paid (or payable) to UHS amounted to $2.4 million during 2013, $2.1 million during 2012 and $2.0 million during 2011 and were based uponaverage invested real estate assets of $338 million, $326 million and $309 million during 2013, 2012 and 2011, respectively. Officers and Employees: Our officers are all employees of a wholly-owned subsidiary of UHS and although as of December 31, 2013 we had nosalaried employees, our officers do typically receive annual stock-based compensation awards in the form of restricted stock. In special circumstances, ifwarranted and deemed appropriate by the Compensation Committee of the Board of Trustees, our officers may also receive one-time special compensationawards in the form of restricted stock and/or cash bonuses. Share Ownership: As of December 31, 2013 and 2012, UHS owned 6.1% and 6.2%, respectively, of our outstanding shares of beneficial interest. SEC reporting requirements of UHS: UHS is subject to the reporting requirements of the SEC and is required to file annual reports containingaudited 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 30% of our consolidated revenues for each of the years ended December 31, 2013 and 2012, and 55% ofour consolidated revenues for the year ended December 31, 2011, and since a subsidiary of UHS is our Advisor, you are encouraged to obtain the publiclyavailable filings for Universal Health Services, Inc. from the SEC’s website at www.sec.gov. These filings are the sole responsibility of UHS and are notincorporated by reference herein. (3) ACQUISITIONS AND DISPOSITIONS 2014: Acquisitions: In January, 2014, we purchased the following in a single transaction: • The Children’s Clinic at Springdale – a 9,800 square foot, single-tenant medical office building located in Springdale, Arkansas, and; • The Northwest Medical Center at Sugar Creek – a 16,700 square foot, multi-tenant medical office building located in Bentonville, Arkansas. The aggregate purchase price for these MOBs was approximately $7.2 million. The net tangible and intangible property preliminary asset allocation ofthe total purchase price will be recorded during the first quarter of 2014, subject to a third-party fair market valuation. Additionally, effective January 1, 2014, we purchased the minority ownership interests held by third-party members in two LLCs in which wepreviously held noncontrolling majority ownership interests (Palmdale Medical Properties and Sparks Medical Properties). As a result of these minorityownership purchases, we now own 100% of each of these LLCs and will begin accounting for each on a consolidated basis effective January 1, 2014. Theaggregate cash payment made by us during the first quarter of 2014 in connection with the purchase of these minority ownership interests was approximately$170,000. Each of the property’s assets and liabilities will be recorded at their estimated fair values during the first quarter of 2014. We do not expect thesetransactions, or the expected related aggregate gain (to be recorded during the first quarter of 2014), to have a material impact on our future results ofoperations. 71 Table of Contents2013: Acquisition: In August, 2013, we purchased the Ward Eagle Office Village located in Farmington Hills, Michigan. This multi-tenant MOB, which was purchased forapproximately $4.1 million, consists of approximately 16,300 rentable square feet. In June, 2013, we purchased the 5004 Poole Road MOB, located in Denison, Texas, on the campus of Texoma Medical Center, a wholly-ownedsubsidiary of UHS. This single-tenant MOB, which was purchased for approximately $625,000, consists of approximately 4,400 rentable square feet and islocated adjacent to our Texoma Medical Plaza MOB. The aggregate purchase price of approximately $4.7 million for these MOBs was allocated to the assets and liabilities acquired consisting of tangibleproperty and identifiable intangible assets, based on their respective fair values at acquisition, as detailed in the table below. Substantially all of the intangibleassets include the value of the in-place leases at Ward Eagle Office Village at the time of acquisition which will be amortized over the average remaining leaseterm of approximately 9.8 years. Land $316 Buildings and improvements 3,749 Intangible assets 610 Other assets 21 Liabilities (real property and operating) (11) Net cash paid $4,685 The Ward Eagle Office Village acquisition was valued utilizing the income capitalization approach. The calculated fair value, utilizing the incomecapitalization approach, is based upon the basis of capitalization of the net estimated earnings expectancy of the property, assuming continued use similar tothe existing use of the acquired property’s continued cash flow analysis were also utilized in estimating the fair value of the property, whereby cash flows fromthe various tenants are calculated based upon lease commencement and termination dates. New Construction: The newly constructed Forney Medical Plaza II located in Forney, Texas was completed and opened in April, 2013. This multi-tenant medical officebuilding, consisting of 30,000 rentable square feet, is owned by a limited partnership in which we hold a 95% non-controlling ownership interest. As this LLCis not considered to be a variable interest entity, it is accounted for pursuant to the equity method. Divestitures: There were no divestitures during 2013. 2012: Acquisitions and New Construction: In January and December, 2012, we purchased the: • PeaceHealth Medical Clinic (as part of a planned like-kind exchange transaction pursuant to Section 1031 of the Internal Revenue Code) – a 99,000square foot, single tenant medical office building located in Bellingham, Washington, which was acquired in January, 2012 for $30.4 million; theweighted average remaining lease term on the date of acquisition was approximately ten years, and; 72 Table of Contents • Northwest Texas Professional Office Tower – a 72,000 square foot, multi-tenant medical office building located in Amarillo, Texas, which wasacquired in December, 2012 for $9.6 million; the weighted average remaining lease term at the date of acquisition was 5.1 years. The aggregate purchase price of $40.0 million for these MOBs was allocated to the assets and liabilities acquired consisting of tangible property andidentified intangible assets, based on their respective fair values at acquisition, as detailed in the table below. Substantially all of the intangible assets includethe value of the in-place leases at the time of acquisition which are being amortized over the then average remaining lease term of approximately 7.0 years(aggregate weighted average of 4.9 years at December 31, 2013). Land $1,900 Buildings and improvements 32,090 Intangible assets 6,020 Other assets 799 Liabilities (real property and operating) (144) Deposit paid in 2011 (534) Debt (including fair value adjustment of $799) (23,240) Net cash paid $16,891 The 2012 acquisitions were both valued utilizing the income capitalization approach as well as the sales comparison approach for valuing the land at thePeaceHealth Medical Clinic. The calculated fair values, utilizing the income capitalization approach, are based upon the basis of capitalization of the netestimated earnings expectancy of the properties, assuming continued use similar to the existing use of the acquired property’s continued cash flow analysiswere also utilized in estimating the fair values of the properties, whereby cash flows from the various tenants are calculated based upon lease commencementand termination dates. The following table summarizes significant unobservable quantitative inputs and assumptions used for the 2012 acquired properties categorized inLevel 3 of the fair value hierarchy: Assets(b.) Fair Value atDecember 31, 2012 Valuation Technique Unobservable inputs Range PeaceHealth Medical Clinic (a.)(c.) $30,400,000 Income Capitalization Approach Capitalization Rate 7.50% Discount Rate 8.50% Northwest Texas Professional Office Tower $9,600,000 Income Capitalization Approach Capitalization Rate 8.60% Discount Rate 9.50% (a.)The fair value of the land was estimated based upon the sales comparison approach.(b.)Based upon preliminary appraisals.(c.)Debt is recorded at its current estimated fair value based upon significant inputs including outstanding loan balance, term, stated interest rate andcurrent market rate of the mortgage. For these MOBs acquired during 2012, we recorded aggregate revenue of $2.7 million and net income of approximately $232,000 (excluding transactionexpenses of $680,000) during 2012. Divestiture: In February, 2012, Canyon Healthcare Properties, a limited liability company (“LLC”) in which we owned a 95% noncontrolling ownership interest,completed the divestiture of the Canyon Springs Medical Plaza. As partial consideration for the transaction, the buyer assumed an existing third-partymortgage related to this property. The divestiture by this LLC generated approximately $8.1 million of cash proceeds to us, net of closing 73 Table of Contentscosts and the minority members’ share of the proceeds. This divestiture resulted in a gain of approximately $7.4 million which is included in our consolidatedstatement of income for the year ended December 31, 2012. In October, 2012, 575 Hardy Investors, a LLC in which we owned a 90% non-controlling ownership interest, completed the divestiture of the CentinelaMedical Building Complex. Including the repayment to us of a previously provided $8.0 million member loan, the divestiture by this LLC generatedapproximately $12.2 million of cash proceeds to us, net of closing costs and minority members’ share of the proceeds. This divestiture resulted in a gain ofapproximately $1.1 million, which is included in our consolidated statement of income for the year ended December 31, 2012. Assuming the 2012 acquisitions and divestitures, as well as the 2011 acquisitions and divestitures as discussed below, occurred on January 1, 2011,our pro forma net revenues for the year ended December 31, 2011 would have been approximately $54.0 million, and our pro forma net income for the yearended December 31, 2011 would have been approximately $4.1 million, or $0.32 per diluted share, without giving effect to the gains and transaction costsrecorded during 2011. Our 2011 reported (and pro forma) net income included a provision for asset impairment of $5.4 million, or $0.42 per diluted share, asdiscussed herein. Assuming the 2012 acquisitions and divestitures occurred on January 1, 2012, our pro forma net revenues and net income for the yearended December 31, 2012 would have been approximately $55.4 million and $11.6 million, or $.92 per diluted share, respectively, without giving effect tothe gains and transaction costs recorded during 2012. 2011: Acquisitions: In June, July and December, 2011, utilizing a qualified third-party intermediary in connection with planned like-kind exchange transactions pursuant toSection 1031 of the Internal Revenue Code, we purchased the: • Lake Pointe Medical Arts Building—a 50,974 square foot, multi-tenant, medical office building located in Rowlett, Texas, which was acquired inJune, 2011, for $12.2 million; the weighted average remaining lease term at the date of acquisition was 6.5 years; • Forney Medical Plaza—a 50,946 square foot, multi-tenant medical office building located in Forney, Texas, which was acquired in July, 2011, for$15.0 million; the weighted average remaining lease term at the date of acquisition was 6.2 years; • Tuscan Professional Building—a 53,000 square foot, multi-tenant medical office building located in Irving, Texas, which was acquired inDecember, 2011, for $15.5 million, including the assumption of $7.0 million of third-party financing; the weighted average remaining lease term atthe date of acquisition was 4.3 years, and; • Emory at Dunwoody Building—a 50,344 square foot single-tenant medical office building located in Atlanta, Georgia, which was acquired inDecember, 2011, for $5.1 million; the weighted average remaining lease term at the date of acquisition was 13.5 years. 74 Table of ContentsThe aggregate purchase price of $47.8 million for these MOBs was allocated to the assets acquired consisting of tangible property ($40.9 million) andidentified intangible assets ($6.9 million), based on their respective fair values at acquisition, as detailed in the table below. Intangible assets include the valueof the in-place leases at the time of acquisition. Land $3,892 Buildings and improvements 36,940 Intangible assets 6,943 Other assets 31 Total purchase price 47,806 Liabilities (real property and operating) (1,229) Debt (6,999) Net cash paid $39,578 For these MOBs acquired during 2011, we recorded aggregate revenue of $1.8 million during 2011 and aggregate net income of approximately $474,000(excluding transaction expenses). In addition, on December 12, 2011, the Trust purchased the minority ownership interests held by third-party members in eleven LLCs in which wepreviously held noncontrolling majority ownership interests. As a result of these minority ownership purchases, the Trust and our subsidiaries now own100% of each of these LLCs. The aggregate cash expenditure made by us in connection with the purchase of these membership interests in the various LLCs,including closing costs, was approximately $4.4 million. As a result of these transactions, current accounting standards required that the Trust record eachproperty’s assets and liabilities at their fair values and record a non-cash gain or loss for the difference between the fair values and the equity method carryingvalue of each investment. The aggregate fair values of these MOBs was allocated to the assets acquired consisting of tangible property ($133.1 million) andidentified intangible assets ($20.9 million). As a result of the purchase of these minority interests, we recorded aggregate revenue of $18.3 million during 2012and $991,000 during 2011. There was no material impact on our net income, other than the gain, as a result of the consolidation of these LLCs subsequent tothis transaction. In the aggregate, the purchase of these membership interests resulted in a $28.6 million gain (net of related transaction costs totaling approximately$300,000) on the fair value recognition resulting from the purchase of minority interests in majority-owned LLCs which is included in our consolidatedstatements of income for the year ended December 31, 2011. The table below reflects each of the LLCs in which we purchased the minority ownershipinterests, the location and property owned by the LLC, our previous noncontrolling, majority ownership interest and the noncontrolling, minority ownershipinterests purchased by us. Name of LLC: Property owned by LLC: City State Trust’spreviousownership% Minorityownership%purchased 653 Town Center Investments Summerlin Hospital MOB I(1) Las Vegas NV 95% 5% 653 Town Center Phase II Summerlin Hospital MOB II(1) Las Vegas NV 98% 2% Auburn Medical Properties II Auburn Medical OfficeBuilding II(1) Auburn WA 95% 5% ApaMed Properties Apache Junction Medical Plaza Apache J. AZ 85% 15% Banburry Medical Properties Summerlin Hospital MOB III(1) Las Vegas NV 95% 5% 75 Table of ContentsName of LLC: Property owned by LLC: City State Trust’spreviousownership% Minorityownership%purchased BRB/E Building One BRB Medical Office Building Kingwood TX 95% 5% Centennial Medical Properties Centennial Hills Medical OfficeBldg. I(1) Las Vegas NV 95% 5% DesMed Desert Springs Medical Plaza(1) Las Vegas NV 99% 1% Gold Shadow Properties 700 Shadow Lane & GoldringMOBs(1) Las Vegas NV 98% 2% Spring Valley Medical Properties Spring Valley Medical OfficeBuilding Las Vegas NV 95% 5% Spring Valley Medical Properties II Spring Valley Medical OfficeBuilding II Las Vegas NV 95% 5% (1)Tenants of this medical office building include subsidiaries of UHS. Divestitures: On November 30, 2011 and December 16, 2011, eight LLCs in which we owned various noncontrolling, majority ownership interests, completed thedivestitures of medical office buildings and related real property. As partial consideration for the transaction, the buyer assumed certain existing third-partymortgage debt related to the properties. For certain of the LLCs, the sale of the medical office buildings were part of a series of planned like-kind exchangetransaction pursuant to Section 1031 of the Internal Revenue Code. The divestiture by the eight LLCs generated approximately $33.8 million of aggregate cashproceeds (a portion of which were sent to qualified third-party intermediaries), net of closing costs and the minority members’ share of the proceeds. In theaggregate, these transactions also resulted in a $35.8 million gain (net of related transaction costs of approximately $500,000) on divestiture which is includedin our consolidated statements of income for the year ended December 31, 2011. The following table represents each of the eight LLCs that was a selling party,the location and property owned by the LLC and our former noncontrolling, majority ownership interest: Name of LLC: Property owned by LLC: City State Trust’sFormerOwnership% Cobre Properties Cobre Valley Medical Plaza Globe AZ 95% Deerval Properties Deer Valley Medical Office II Phoenix AZ 90% Deerval Properties II Deer Valley Medical Office III Phoenix AZ 95% Deerval Parking Company(a) Deer Valley Parking Garage Phoenix AZ 93% DSMB Properties Desert Samaritan Hospital MOBs Mesa AZ 76% Litchvan Investments Papago Medical Park Phoenix AZ 89% Paseo Medical Properties II Thunderbird Paseo Medical Plaza I & II Glendale AZ 75% Willetta Medical Properties(b) Edwards Medical Plaza Phoenix AZ 90% (a)Deerval Parking Company, LLC, which owned the real property of a parking garage located near Deer Valley Medical Office Buildings I & II, was 50%owned by each of Deerval Properties and Deerval Properties II.(b)The membership interest of this entity was held by a master LLC in which the Trust held a 90% noncontrolling ownership interest. Assuming these 2011 acquisitions and divestitures occurred on January 1, 2011, our 2011 pro forma net revenues would have been approximately$49.8 million and our pro forma net income would have been 76 Table of Contentsapproximately $4.6 million, or $0.37 per diluted share, without giving effect to the gains and transaction costs recorded during 2011. Our 2011 reported (andpro forma) net income included a provision for asset impairment of $5.4 million, or $0.42 per diluted share, as discussed herein. As of December 31, 2013, our net intangible assets total $20.8 million (net of $13.7 million accumulated amortization) and substantially all of theamount is related to acquired, in-place leases which have a weighted average remaining amortization period of 3.5 years. (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 renewaloptions. 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 bonusrents (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 computedand 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, excluding increases resulting from changes in the consumer price index, bonus rents and theimpact of straight line rent, are as follows (amounts in thousands): 2014 $42,692 2015 39,631 2016 36,769 2017 21,519 2018 18,860 Thereafter 46,589 Total minimum base rents $206,060 Some of the leases contain gross terms where operating expenses are included in the base rent amounts. Other leases contain net terms where the operatingexpenses are assessed separately from the base rentals. The table above contains a mixture of both gross and net leases, and does not include any separatelycalculated operating expense reimbursements. Under the terms of the hospital leases, the lessees are required to pay all operating costs of the propertiesincluding property insurance and real estate taxes. Tenants of the medical office buildings generally are required to pay their pro-rata share of the property’soperating costs. (5) DEBT In July, 2011, we entered into a $150 million revolving credit agreement (“Credit Agreement”) which is scheduled to expire on July 24, 2015. The CreditAgreement includes a $50 million sub limit for letters of credit and a $20 million sub limit for swingline/short-term loans. The Credit Agreement also providesan option to increase the total facility borrowing capacity by an additional $50 million, subject to lender agreement. Borrowings made pursuant to the CreditAgreement will bear interest, at our option, at one, two, three, or six month LIBOR plus an applicable margin ranging from 1.75% to 2.50% or at the BaseRate plus an applicable margin ranging from 0.75% to 1.50%. The Credit Agreement defines “Base Rate” as the greatest of: (a) the administrative agent’s primerate; (b) the federal funds effective rate plus 0.50%, and; (c) one month LIBOR plus 1%. A fee of 0.30% to 0.50% will be charged on the unused portion of thecommitment. The margins over LIBOR, Base Rate and the commitment fee are based upon our ratio of debt to total capital. At December 31, 2013, theapplicable margin over the LIBOR rate was 2.00%, the margin over the Base Rate was 1.00%, and the commitment fee was 0.35%. At December 31, 2013, we had $93.7 million of outstanding borrowings and $8.7 million of letters of credit outstanding against our revolving creditagreement. We had $47.6 million of available borrowing capacity, net of the outstanding borrowings and letters of credit outstanding as of December 31, 2013.There are no compensating balance requirements. The average amounts outstanding under our revolving credit agreement were $86.3 million 77 Table of Contentsin 2013, $75.4 million in 2012 and $67.8 million in 2011 with corresponding effective interest rates, including commitment fees, of 2.2% in 2013, 2.4% in2012 and 1.8% in 2011. The carrying amount and fair value of borrowings outstanding pursuant to the Credit Agreement was $93.7 million at December 31,2013. Covenants relating to the Agreement require the maintenance of a minimum tangible net worth and specified financial ratios, limit our ability to incuradditional debt, limit the aggregate amount of mortgage receivables and limit our ability to increase dividends in excess of 95% of cash available fordistribution, unless additional distributions are required to comply with the applicable section of the Internal Revenue Code of 1986 and related regulationsgoverning real estate investment trusts. We are in compliance with all of the covenants at December 31, 2013. We also believe that we would remain incompliance 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 (dollaramounts in thousands): Covenant December 31,2013 Tangible net worth $125,000 $144,848 Debt to total capital < 55% 36.0% Debt service coverage ratio > 4.00x 19.1x Debt to cash flow ratio < 3.50x 2.21x We have twelve mortgages, all of which are non-recourse to us, included on our consolidated balance sheet as of December 31, 2013, with a combinedoutstanding balance of $105.5 million (excluding net debt premium, resulting from fair value recognition of third-party debt of $834,000 at December 31,2013). The following table summarizes our outstanding mortgages, excluding net debt premium, at December 31, 2013 (amounts in thousands): Facility Name OutstandingBalance(in thousands)(a) InterestRate MaturityDate Summerlin Hospital Medical Office Building I fixed rate mortgage loan (b) $9,188 6.55% 2014 Spring Valley Medical Office Building fixed rate mortgage loan 5,122 5.50% 2015 Summerlin Hospital Medical Office Building III floating rate mortgage loan 11,347 3.42% 2016 Peace Health fixed rate mortgage loan 21,681 5.64% 2017 Summerlin Hospital Medical Office Building II fixed rate mortgage loan 12,021 5.50% 2017 Auburn Medical II floating rate mortgage loan 7,406 2.92% 2017 Medical Center of Western Connecticut fixed rate mortgage loan 4,899 6.00% 2017 Centennial Hills Medical Office Building floating rate mortgage loan 10,938 3.42% 2018 Vibra Hospital of Corpus Christi fixed rate mortgage loan 2,983 6.50% 2019 BRB Medical Office Building fixed rate mortgage loan 6,840 4.27% 2022 700 Shadow Lane and Goldring MOBs fixed rate mortgage loan 6,766 4.54% 2022 Tuscan Professional Building fixed rate mortgage loan 6,262 5.56% 2025 Total $105,453 (a)Amortized principal payments are made on a monthly basis.(b)In the event we are unable to refinance this loan on acceptable terms upon its scheduled maturity, we will explore other financing alternatives includingpotentially utilizing funds borrowed under our revolving credit facility to repay all or a portion of the loan. 78 Table of ContentsThe mortgages are secured by the real property of the buildings as well as property leases and rents. The mortgages have a combined fair value ofapproximately $106.4 million as of December 31, 2013. Changes in market rates on our fixed rate debt impacts the fair value of debt, but it has no impact oninterest incurred or cash flow. As of December 31, 2013, our aggregate consolidated scheduled debt repayments (including mortgages) are as follows (amounts in thousands): 2014 $11,894 2015(a) 101,245 2016 13,098 2017 43,914 2018 10,672 Later 18,330 Total $199,153 (a)Includes repayment of $93.7 million of outstanding borrowings under the terms of our $150 million revolving credit agreement. (6) DIVIDENDS AND EQUITY ISSUANCE PROGRAM Dividends of $2.495 per share were declared and paid in 2013, of which $1.96 per share was ordinary income and $.535 per share was a return ofcapital distribution. Dividends of $2.46 per share were declared and paid in 2012, of which $1.294 per share was ordinary income and $1.166 per sharewas total capital gain (total capital gain amount consists of Unrecaptured Section 1250 gain of $.281 per share and 15% rate gain of $.885 per share).Dividends of $2.425 per share were declared and paid in 2011, of which $1.234 per share was ordinary income and $1.191 per share was total capital gain(total capital gain amount consists of Unrecaptured Section 1250 gain of $.716 per share and 15% rate gain of $.475 per share). During the fourth quarter of 2013, we entered into an ATM Equity Offering Sales Agreement (“Sales Agreement”) with Merrill Lynch, Pierce, Fenner andSmith Incorporated (“Merrill Lynch”), under which we may offer and sell our common shares of beneficial interest, up to an aggregate sales price of $50million. The common shares will be offered pursuant to the Registration Statement filed with the Securities and Exchange Commission, which becameeffective in November, 2012, under which we can offer up to $50 million of our securities pursuant to supplemental prospectuses which we may file fromtime to time. Pursuant to this ATM Program, we issued 154,713 shares at an average price of $41.71 per share during the three-month period ended December 31,2013, which generated approximately $6.0 million of net cash proceeds, (net of approximately $424,000 consisting of compensation of approximately$161,000 to Merrill Lynch as well as approximately $263,000 of other various fees and expenses), which includes approximately $592,000 of net proceedsreceivable at December 31, 2013, which were received by us in January, 2014. The net proceeds receivable is a non-cash item, as presented on theConsolidated Statements of Cash Flows at December 31, 2013. (7) INCENTIVE PLANS We expense the grant-date fair value of stock options and restricted stock awards under the straight-line method over the stated vesting period of theaward. We use the Black-Scholes option pricing model for determining the grant-date fair value of our stock options. All of our outstanding stock options havebeen fully expensed as of December 31, 2011. During 2007, upon the expiration of our 1997 Incentive Plan, as discussed below, our Board of Trustees and shareholders approved the UniversalHealth Realty Income Trust 2007 Restricted Stock Plan (the “2007 Plan”). A total of 75,000 shares were authorized for issuance under this plan and a total of47,975 shares, net of cancellations, have been issued pursuant to the terms of this plan, 28,870 of which have vested as of 79 Table of ContentsDecember 31, 2013. At December 31, 2013 there are 27,025 shares remaining for issuance under the terms of the 2007 Plan. During 2013, there were 8,730 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant tothe 2007 Plan at a weighted average grant price of $43.54 per share ($380,104 in the aggregate). These restricted shares are scheduled to vest in June of 2015(the second anniversary of the date of grant). During 2012, there were 10,375 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant tothe 2007 Plan at a weighted average grant price of $39.05 per share ($405,144 in the aggregate). These restricted shares are scheduled to vest in June of 2014(the second anniversary of the date of grant). Included the restricted stock issuances during 2012 were one-time special compensation awards made to ourexecutive officers in recognition of their efforts and contributions in connection with various acquisitions, divestitures and purchases of third-party minorityinterests in certain majority-owned LLCs as completed at various times during 2011 and the first quarter of 2012. During 2011, there were 7,395 restricted Shares of Beneficial Interest, net of cancellations, issued to the Trustees and officers of the Trust pursuant tothe 2007 Plan at a weighted average grant price of $41.90 per share ($309,850 in the aggregate). These restricted shares vested during 2013. In connection with these grants, we recorded compensation expense of approximately $375,000, $329,000 and $216,000 during 2013, 2012 and 2011,respectively. The remaining expenses associated with these grants is approximately $354,000 and will be recorded over the remaining weighted average vestingperiod for outstanding restricted Shares of Beneficial Interest of approximately one year at December 31, 2013. Prior to its expiration in 2007, the Universal Health Realty Income Trust 1997 Incentive Plan (the “1997 Plan”) provided for the granting of stockoptions and dividend equivalents rights (“DERs”) to employees of the Trust, including officers and trustees. Awards granted pursuant to the 1997 Plan priorto its termination date remain exercisable, in accordance with the terms of the outstanding agreements. All stock options were granted with an exercise priceequal 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 expirein ten years. DERs on outstanding awards are earned in amounts equal to the cash or stock dividends declared subsequent to the date of grant. We recordedexpenses relating to the dividend equivalent rights of approximately $19,000 in 2013 and $18,000 in each of 2012 and 2011. As of December 31, 2013, therewere 40,000 options outstanding and exercisable under the 1997 Plan with an average exercise price of $35.65 per share. There were no compensation costs recognized during 2013 and 2012, and $12,000 of compensation costs during 2011, related to outstanding stockoptions and DERs that were granted or have vestings after January 1, 2006. As of December 31, 2011, all of the outstanding stock options and DERs werefully vested and fully expensed. The outstanding stock options have a remaining weighted average life of 2.5 years at December 31, 2013. During the fourth quarter of 2008, the Board of Trustees of the Trust approved amendments to the outstanding stock option agreements made pursuantto the 1997 Plan. These original agreements provided for the deferred payment of dividend equivalents on shares covered by the options, with payment tied tothe date the options were exercised or expire. In order to meet certain recent changes to tax law requirements, the agreements, as amended, provide for the currentpayment of dividend equivalents in the years in which dividends are declared and paid or, if later, when the related options become vested. Dividendequivalent rights with respect to 40,000 shares were outstanding at December 31, 2013. Dividend equivalent rights with respect to 43,000 shares wereoutstanding at December 31, 2012. Dividend equivalent rights with respect to 51,000 shares were outstanding at December 31, 2011. In December of 2013,2012 and 2011, dividend equivalent rights which were vested and accrued as of each respective date, were paid to officers and Trustees of the Trustamounting to $106,000, $116,000 and $178,000, respectively. 80 Table of ContentsStock options to purchase shares of beneficial interest have been granted to eligible individuals, including our officers and trustees. Information withrespect to these options, before adjustment to the option price to give effect to the dividend equivalent rights, is summarized as follows: Outstanding Options Numberof Shares ExerciseWeighted-Average Price Grant Price Range(High-Low) Balance, January 1, 2011 51,000 $33.89 $36.53/$26.09 Exercised — — — Balance, January 1, 2012 51,000 $33.89 $36.53/$26.09 Exercised 8,000 26.76 $27.65/$26.09 Balance, January 1, 2013 43,000 $35.22 $36.53/$29.44 Exercised 3,000 29.44 $29.44/$29.44 Outstanding options vested and exercisable as ofDecember 31, 2013 40,000 $35.65 $36.53/$30.06 During 2013, there were 3,000 stock options exercised with a total in-the-money value of $46,290. During 2012, there were 8,000 stock options exercisedwith a total in-the-money value of $148,930. There were no stock options exercised during 2011. There were no unvested options as of December 31, 2013. The following table provides information about options outstanding and exercisable options at December 31, 2013: OptionsOutstandingand Exercisable Number 40,000 Weighted average exercise price $35.65 Aggregate intrinsic value $176,240 Weighted average remaining contractual life 2.5 The weighted average remaining contractual life and weighted average exercise price for options outstanding and the weighted average exercise prices pershare for exercisable options at December 31, 2013 were as follows: Options Outstanding andExercisable Exercise Price Shares WeightedAverageExercisePrice PerShare WeightedAverageRemainingContractualLife (inYears) $30.06 -$34.07 4,000 $33.07 1.0 $34.90 -$34.90 13,000 34.90 1.7 $36.53 -$36.53 23,000 36.53 3.2 Total 40,000 $35.65 2.5 81 Table of Contents(8) SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES As of December 31, 2013, we have non-controlling equity investments or commitments in thirteen LLCs which own medical office buildings. As ofDecember 31, 2013, we accounted for these LLCs on an unconsolidated basis pursuant to the equity method since they are not variable interest entities.Palmdale Medical Properties was consolidated in our financial statements through June 30, 2013. As previously disclosed, the master lease with a wholly-owned subsidiary of UHS related to Palmdale Medical Properties expired effective as of July 1, 2013 and, as of that date, we began accounting for PalmdaleMedical Properties under the equity method. Additionally, we have 100% ownership interests in eleven LLCs as of December 31, 2013 that were accounted for under the equity method throughDecember 11, 2011 as previously disclosed. These eleven LLCs were subsequently consolidated into the results of operations effective December 12, 2011. The following property table represents the thirteen LLCs which were accounted for under the equity method as of December 31, 2013: Name of LLC/LP Ownership Property Owned by LLCDVMC Properties(g.) 90% Desert Valley Medical CenterSuburban Properties 33% Suburban Medical Plaza IISanta Fe Scottsdale 90% Santa Fe Professional PlazaBrunswick Associates(g.) 74% Mid Coast Hospital MOBPCH Medical Properties(g.) 85% Rosenberg Children’s Medical PlazaArlington Medical Properties(b.)(g.) 75% Saint Mary’s Professional Office BuildingSierra Medical Properties 95% Sierra San Antonio Medical PlazaPCH Southern Properties(g.) 95% Phoenix Children’s East Valley Care CenterSparks Medical Properties(a.)(f.)(g.) 95% Vista Medical Terrace & The Sparks Medical BuildingGrayson Properties(a.)(c.)(g.) 95% Texoma Medical Plaza3811 Bell Medical Properties 95% North Valley Medical PlazaFTX MOB Phase II(d.)(g.) 95% Forney Medical Plaza IIPalmdale Medical Properties(a.)(e.)(f.)(g) 95% Palmdale Medical Plaza (a.)Tenants of this medical office building include or will include subsidiaries of UHS.(b.)We have committed to invest up to $6.3 million in equity and debt financing, of which $5.2 million has been funded as of December 31, 2013, inexchange for a 75% non-controlling equity interest in an LLC that owns and operates the Saint Mary’s Professional Office Building.(c.)We have committed to invest up to $4.4 million in equity and debt financing, of which $2.1 million has been funded as of December 31, 2013.(d.)During the third quarter of 2012, this limited partnership entered into an agreement to develop, construct, own and operate the Forney Medical Plaza II,which was completed and opened in April, 2013. We have committed to invest up to $2.5 million in equity and debt financing, $1.1 million of whichhas been funded as of December 31, 2013.(e.)We began to account for this LLC on an unconsolidated basis pursuant to the equity method as of July 1, 2013, as discussed above.(f.)Effective January 1, 2014, we purchased the third-party minority ownership interest (5%) in this LLC. As a result of our purchase of the minorityownership interest, as of January 1, 2014 we hold 100% of the ownership interest in this LLC and will begin accounting for it on a consolidated basiseffective January 1, 2014.(g.)As disclosed below, as of December 31, 2013, this LLC has a third-party loan outstanding, which is non-recourse to us. 82 Table of ContentsOn December 12, 2011, the Trust purchased the minority ownership interests held by third-party members in eleven LLCs in which we previously heldnoncontrolling majority ownership interests. As a result of these minority ownership purchases, the Trust and our subsidiaries now own 100% of each of theseLLCs. The aggregate cash expenditure made by us in connection with the purchase of these membership interests in the various LLCs, including closingcosts, was approximately $4.4 million. As a result of these transactions, accounting standards required that we record each property’s assets and liabilities attheir fair values and record a non-cash gain or loss for the difference between the fair values and the equity method carrying value of each investment. In theaggregate, the purchase of these membership interests resulted in a $28.6 million gain on fair value recognition resulting from the purchase of the minorityinterests which is included in our consolidated statements of income for the year ended December 31, 2011. On December 12, 2011, we began consolidatingthe financial data of these eleven LLCs in our consolidated financial statements. The following property table represents these eleven LLCs (the summarizedfinancial data for these eleven LLCs through December 11, 2011, are included in the financial tables below, which summarize the combined statements ofincome and combined balance sheets for the LLCs accounted for under the equity method): Name of LLC PreviousOwnership Property Owned by LLC653 Town Center Investments(a.) 95% Summerlin Hospital Medical Office Building I653 Town Center Phase II(a.) 98% Summerlin Hospital Medical Office Building IIApaMed Properties 85% Apache Junction Medical PlazaAuburn Medical Properties II(a.) 95% Auburn Medical Office Building IIBanburry Medical Properties(a.) 95% Summerlin Hospital Medical Office Building IIIBRB/E Building One 95% BRB Medical Office BuildingCentennial Medical Properties(a.) 95% Centennial Hills Medical Office Building IDesMed(a.) 99% Desert Springs Medical PlazaGold Shadow Properties(a.) 98% 700 Shadow Lane & Goldring Medical Office BuildingsSpring Valley Medical Properties 95% Spring Valley Medical Office BuildingSpring Valley Medical Properties II 95% Spring Valley Hospital Medical Office Building II (a.)Tenants of this medical office building include or will include subsidiaries of UHS. On November 30, 2011 and December 16, 2011, eight LLCs in which we owned various noncontrolling, majority ownership interests, completed thedivestitures of medical office buildings and related real property. As partial consideration for the transaction, the buyer assumed certain existing third-partymortgage debt related to the properties. For certain of the LLCs, the sale of the medical office buildings were part of a series of planned like-kind exchangetransaction pursuant to Section 1031 of the Internal Revenue Code. The divestiture by the eight LLCs generated approximately $33.8 million of aggregate cashproceeds (a portion of which were sent to qualified third-party intermediaries), net of closing costs and the minority members’ share of the proceeds. In theaggregate, these transactions also resulted in a $35.8 million gain on divestiture which is included in our consolidated statements of income for the year endedDecember 31, 2011. The following property table represents the eight LLCs that divested medical office buildings on November 30, 2011 and December 16,2011 (the summarized financial data for these eight LLCs through the date of divestiture are included in the financial tables below, which summarize thecombined statements of income and combined balance sheets for the LLCs accounted for under the equity method): Name of LLC Ownership Property Owned by LLCDSMB Properties 76% Desert Samaritan Hospital MOBsLitchvan Investments 89% Papago Medical ParkPaseo Medical Properties II 75% Thunderbird Paseo Medical Plaza I & IIWilletta Medical Properties 90% Edwards Medical PlazaDeerval Properties(a.) 90% Deer Valley Medical Office IIDeerval Properties II(a.) 95% Deer Valley Medical Office Building IIIDeerval Parking Company(a.) (a.) Deer Valley Parking GarageCobre Properties 95% Cobre Valley Medical Plaza 83 Table of Contents (a.)Deerval Parking Company, LLC, which owned the real property of a parking garage located near Deer Valley Medical Office Buildings II and III, was50% owned by each of Deerval Properties and Deerval Properties II. The following property table represents the two LLCs that divested medical office buildings on February 3, 2012 and October 10, 2012 (the summarizedfinancial data for these two LLCs through the date of divestiture are included in the financial tables below, which summarize the combined statements ofincome and combined balance sheets for the LLCs accounted for under the equity method): Name of LLC Ownership Property Owned by LLCCanyon Healthcare Properties 95% Canyon Springs Medical Plaza575 Hardy Investors 90% Centinela Medical Building Complez The following financial tables represent summarized financial information related to the LLCs that we accounted for under the equity method during2013, including the financial information of the divested LLCs through their divestiture date. The 2011 table includes financial information of the divestedLLCs through their divestiture date, as well as the LLCs in which we held majority noncontrolling ownership interests through December 11, 2011. Below are the combined statements of income for the LLCs accounted for under the equity method. The years ended December 31, 2012 and 2011include the prorated amounts for the LLCs that were divested through their divestiture dates, or in which we purchased the minority ownership interests, forthe period in which they were accounted for under the equity method: For the Year Ended December 31, 2013(b.) 2012(a.) 2011(a.) (amounts in thousands) Revenues $21,001 $21,448 $57,932 Operating expenses 8,705 8,974 25,503 Depreciation and amortization 4,039 4,140 13,066 Interest, net 6,353 6,056 17,630 Net income before gains on divestitures $1,904 $2,278 $1,733 Our share of net income before gains on divestitures(c.) $2,095 $2,365 $3,058 Our share of gains on divestitures $— $8,520 $35,835 (a.)As mentioned above, beginning in the fourth quarter of 2011, eleven of our LLCs that were previously recorded on unconsolidated basis became wholly-owned by us and are included in our financial results on a consolidated basis. Additionally, during the fourth quarter of 2011, the first quarter of 2012and the fourth quarter of 2012, eleven LLCs in which we previously owned various noncontrolling, majority ownership interests, completed divestituresof medical office buildings and related real property. Our share of the financial results of the divested entities were previously accounted for on anunconsolidated basis under the equity method.(b.)As mentioned above, we began to account for Palmdale Medical Plaza on an unconsolidated basis pursuant to the equity method as of July 1, 2103.Prior to July 1, 2013, the financial results of this entity were accounted for on a consolidated basis. Included in the 2013 amounts reflected on the tableabove are the financial results for Palmdale Medical Plaza for the six-month period of July 1, 2013 through December 31, 2013.(c.)Our share of net income during 2013, 2012 and 2011, includes interest income earned by us on various advances made to LLCs of approximately $1.9million, $1.5 million and $2.6 million, respectively. 84 Table of ContentsBelow are the combined balance sheets for the LLCs that were accounted for under the equity method as of December 31, 2013 and 2012: December 31, 2013(a.) 2012 (amounts in thousands) Net property, including CIP $119,547 $106,150 Other assets 9,479 9,850 Total assets $129,026 $116,000 Liabilities $5,336 $5,368 Mortgage notes payable, non-recourse to us 80,112 77,511 Advances payable to us 22,911 12,658 Equity 20,667 20,463 Total liabilities and equity $129,026 $116,000 Our share of equity and advances to LLCs $39,201 $28,636 (a.)As mentioned above, we began to account for Palmdale Medical Plaza on an unconsolidated basis pursuant to the equity method as of July 1, 2013.Prior to July 1, 2013, the financial results of this entity were accounted for on a consolidated basis. As of December 31, 2013, aggregate principal amounts due on mortgage notes payable by unconsolidated LLCs, which are accounted for under theequity method and are non-recourse to us, are as follows (amounts in thousands): 2014 $14,174 2015 41,492 2016 578 2017 11,829 2018 12,039 Total $80,112 Name of LLC MortgageBalance(b.) Maturity Date Grayson Properties(a.) $12,540 2014 Brunswick Associates 7,941 2015 Arlington Medical Properties 24,052 2015 DVMC Properties 3,970 2015 Palmdale Medical Properties 6,162 2015 FTX MOB Phase II(c.) 5,596 2017 PCH Southern Properties 6,614 2017 Sparks Medical Properties 4,603 2018 PCH Medical Properties 8,634 2018 $80,112 (a.)We believe the terms of this loan are within current market underwriting criteria. At this time, we expect to refinance this loan during 2014 for three to tenyear terms at the then current market interest rates. In the unexpected event that we are unable to refinance this loan on reasonable terms, we will exploreother financing alternatives, including, among other things, potentially increasing our equity investment in the property utilizing funds borrowed underour revolving credit facility. 85 Table of Contents(b.)All mortgage loans, other than construction loans, require monthly principal payments through maturity and include a balloon principal payment uponmaturity.(c.)Construction loan. Pursuant to the operating agreements of the jointly-owned LLCs, the third-party member and the Trust, at any time, 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 Memberto the Non-Offering Member (“Offer to Sell”) at a price as determined by the Offering Member (“Transfer Price”), or; (ii) purchase the entire ownership interestof the Non-Offering Member (“Offer to Purchase”) at the equivalent proportionate Transfer Price. The Non-Offering Member has 60 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 theequivalent proportionate Transfer Price. The closing of the transfer must occur within 60 days of the acceptance by the Non-Offering Member. The LLCs in which we have invested maintain property insurance on all properties. Although we believe that generally our properties are adequatelyinsured, two of the LLCs in which we own various non-controlling equity interests, own properties in California that are located in earthquake zones. Theseproperties, in which we have invested or advanced a total of $16.3 million at December 31, 2013, are not covered by earthquake insurance since earthquakeinsurance is no longer available at rates which are economical in relation to the risks covered. (9) SEGMENT REPORTING Our primary business is investing in and leasing healthcare and human service facilities through direct ownership or through joint ventures, whichaggregate into a single reportable segment. We actively manage our portfolio of healthcare and human service facilities and may from time to time makedecisions to sell lower performing properties not meeting our long-term investment objectives. The proceeds of sales are typically reinvested in newdevelopments or acquisitions, which we believe will meet our planned rate of return. It is our intent that all healthcare and human service facilities will beowned 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 ofallocating resources or measuring performance. We review operating and financial data for each property on an individual basis; therefore, we define anoperating segment as our individual properties. Individual properties have been aggregated into one reportable segment based upon their similarities with regardto both the nature and economics of the facilities, tenants and operational processes, as well as long-term average financial performance. (10) QUARTERLY RESULTS (unaudited) 2013 (a.) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Total (amounts in thousands, except per share amounts) Revenues $13,885 $13,502 $13,448 $13,445 $54,280 Net income $3,427 $2,941 $3,303 $3,498 $13,169 Total basic earnings per share $0.27 $0.23 $0.26 $0.27 $1.04 Total diluted earnings per share $0.27 $0.23 $0.26 $0.27 $1.04 86 Table of Contents 2012 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Total (amounts in thousands, except per share amounts) Revenues $13,351 $13,666 $13,610 $13,323 $53,950 Net income before gains $2,139 $2,467 $2,986 $3,365 $10,957 Net gains on divestiture of properties owned by unconsolidated LLCs(b.) 7,375 — — 1,145 8,520 Net income $9,514 $2,467 $2,986 $4,510 $19,477 Total basic earnings per share $0.75 $0.19 $0.24 $0.36 $1.54 Total diluted earnings per share $0.75 $0.19 $0.24 $0.36 $1.54 (a.)We began reflecting the operating results for Palmdale Medical Plaza on an unconsolidated basis pursuant to the equity method as of July 1, 2013. Priorto July 1, 2013, the financial results of this entity were recorded on a consolidated basis. The revenues for the first and second quarters of 2013, asreflected above, include the revenue for Palmdale Medical Plaza. There was no material impact to our net income as a result of the deconsolidation of thisproperty.(b.)During the first and fourth quarters of 2012, as previously discussed in Note 3, two LLCs in which we owned various noncontrolling, majorityownership interests, completed the divestitures of medical office buildings. As a result, the net income amounts presented for 2012 include amounts onlyup to the divested date for each of these two LLCs. In the aggregate, these divestitures resulted in an $8.5 million gain which is included in ourconsolidated statements of income for the year ended December 31, 2012. 87 Table of ContentsSchedule IIIUniversal Health Realty Income TrustReal Estate and Accumulated Depreciation — December 31, 2013(amounts in thousands) Description Initial Cost Gross amount atwhich carriedat end of period AccumulatedDepreciationas of Dec. 31,2013 Date ofCompletionof Construction,Acquisition orSignificantimprovement DateAcquired AverageDepreciableLife Encumbrance(e.) Land Building&Improv. Adjustments toBasis (a.) Land Building &Improvements CIP Total Inland Valley RegionalMedical CenterWildomar, California — $2,050 $10,701 $14,596 $2,050 $25,297 — $27,347 $10,464 2007 1986 43 Years McAllen Medical CenterMcAllen, Texas — 4,720 31,442 10,189 6,281 40,070 — 46,351 23,440 1994 1986 42 Years Wellington Regional Medical CenterWest Palm Beach, Florida — 1,190 14,652 17,370 1,663 31,549 — 33,212 15,182 2006 1986 42 Years The BridgewayNorth Little Rock, Arkansas — 150 5,395 4,571 150 9,966 — 10,116 5,554 2006 1986 35 Years HealthSouth Deaconess RehabilitationHospital Evansville, Indiana — 500 6,945 1,062 500 8,007 — 8,507 4,867 1993 1989 40 Years Kindred Hospital Chicago CentralChicago, Illinois — 158 6,404 1,838 158 8,242 — 8,400 8,245 1993 1986 25 Years Family Doctor’s Medical Office BuildingShreveport, Louisiana — 54 1,526 494 54 2,020 — 2,074 854 1991 1995 45 Years Kelsey-Seybold Clinic at King’s Crossing — 439 1,618 870 439 2,488 — 2,927 958 1995 1995 45 Years Professional Center at King’s Crossing — 439 1,837 183 439 2,020 — 2,459 832 1995 1995 45 Years Kingwood, Texas Chesterbrook AcademyAudubon, Pennsylvania — 307 996 — 307 996 — 1,303 391 1996 1996 45 Years Chesterbrook AcademyNew Britain, Pennsylvania — 250 744 — 250 744 — 994 292 1991 1996 45 Years Chesterbrook AcademyUwchlan, Pennsylvania — 180 815 — 180 815 — 995 320 1992 1996 45 Years Chesterbrook AcademyNewtown, Pennsylvania — 195 749 — 195 749 — 944 294 1992 1996 45 Years The Southern Crescent Center I (b.) — 1,130 5,092 (2,304) 1,130 2,788 — 3,918 2,141 1994 1996 45 Years The Southern Crescent Center II (b.) — — — 5,015 806 4,209 — 5,015 1,742 2000 1998 35 Years Riverdale, Georgia The Cypresswood Professional CenterSpring ,Texas — 573 3,842 573 573 4,415 — 4,988 2,212 1997 1997 35 Years 701 South Tonopah BuildingLas Vegas, Nevada — — 1,579 68 — 1,647 — 1,647 858 1999 1999 25 Years Sheffield MedicalBuilding (c.)Atlanta, Georgia — 1,760 9,766 (7,327) 736 3,463 — 4,199 936 1999 1999 25 Years Medical Center of Western Connecticut—Bldg. 73 Danbury,Connecticut 4,899 1,151 5,176 430 1,151 5,606 — 6,757 2,678 2000 2000 30 Years Vibra Hospital of Corpus ChristiCorpus Christi, Texas 2,983 1,104 5,508 — 1,104 5,508 — 6,612 928 2008 2008 35 Years Apache Junction Medical Plaza (d.)Apache Junction, AZ — 240 3,590 27 240 3,617 — 3,857 283 2004 2004 30 Years 88 Table of ContentsSchedule IIIUniversal Health Realty Income TrustReal Estate and Accumulated Depreciation — December 31, 2013—(Continued)(amounts in thousands) Description Initial Cost Gross amount atwhich carriedat end of period AccumulatedDepreciationas of Dec. 31,2013 Date ofCompletionof Construction,Acquisition orSignificantimprovement DateAcquired AverageDepreciableLife Encumbrance(e.) Land Building&Improv. Adjustments toBasis (a.) Land Building &Improvements CIP Total Auburn Medical Office Building (d.)Auburn, WA 7,406 — 10,200 159 — 10,359 — 10,359 694 2009 2009 36 Years BRB Medical Office Building (d.)Kingwood, Texas 6,840 430 8,970 24 430 8,994 — 9,424 591 2010 2010 37 Years Centennial Hills Medical Office Building (d.)Las Vegas, NV 10,938 — 19,890 743 — 20,633 — 20,633 1,412 2006 2006 34 Years Desert Springs Medical Plaza (d.)Las Vegas, NV — 1,200 9,560 200 1,200 9,760 — 10,960 772 1998 1998 30 Years 700 Shadow Lane & Goldring MOB (d.)Las Vegas, NV 6,766 400 11,300 968 400 12,268 — 12,668 931 2003 2003 30 Years Spring Valley Hospital MOB I (d.)Las Vegas, NV 5,122 — 9,500 111 — 9,611 — 9,611 664 2004 2004 35 Years Spring Valley Hospital MOB II (d.)Las Vegas, NV — — 9,800 8 — 9,808 — 9,808 693 2006 2006 34 Years Summerlin Hospital MOB I (d.) Las Vegas, NV 9,188 460 15,440 451 460 15,891 — 16,351 1,251 1999 1999 30 Years Summerlin Hospital MOB II (d.)Las Vegas, NV 12,021 370 16,830 731 370 17,561 — 17,931 1,345 2000 2000 30 Years Summerlin Hospital MOB III (d.)Las Vegas, NV 11,347 — 14,900 1,443 — 16,343 — 16,343 1,044 2009 2009 36 Years Emory at DunwoodyDunwoody, GA — 782 3,455 — 782 3,455 — 4,237 264 2011 2011 35 Years Forney Medical PlazaForney, TX — 910 11,960 31 910 11,991 — 12,901 1,149 2011 2011 35 Years Lake Pointe Medical ArtsRowlett, TX — 1,100 9,000 41 1,100 9,041 — 10,141 772 2011 2011 35 Years Tuscan Medical PropertiesIrving, TX 6,262 1,100 12,525 — 1,100 12,525 — 13,625 869 2011 2011 35 Years Peace Health Medical Clinic Bellingham, WA 21,681 1,900 24,910 — 1,900 24,910 — 26,810 1,701 2012 2012 35 Years NW Texas Prof TowerAmarillo, TX — — 7,180 — — 7,180 — 7,180 244 2012 2012 35 Years Ward Eagle Office Village FarmingtonHills, MI — $220 3,220 — 220 3,220 — 3,440 44 2013 2013 35 Years 5004 Poole RoadDenison, TX — $96 529 — 96 529 — 625 10 2013 2013 35 Years TOTALS $105,453 $25,558 $317,546 $52,565 $27,374 $368,295 $0 $395,669 $97,921 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.During 2011, a $5.4 million provision for asset impairment was recorded in connection with the real estate assets of Sheffield Medical Building.d.During 2011, 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.Consists of outstanding balances as of December 31, 2013 on third-party debt that is non-recourse to us. Excludes net debt premium of $834,000. 89 Table of ContentsUNIVERSAL HEALTH REALTY INCOME TRUST NOTES TO SCHEDULE IIIDECEMBER 31, 2013(amounts in thousands) (1)RECONCILIATION OF REAL ESTATE PROPERTIES The following table reconciles the Real Estate Properties from January 1, 2011 to December 31, 2013: 2013 2012 2011 Balance at January 1, $401,474 $363,498 $199,940 Impact of deconsolidation of an LLC(a.) (13,185) — — Impact of consolidation of eleven LLCs(b.) — — 133,080 Property additions 3,415 3,985 1,157 Acquisitions 4,065 33,991 40,832 Disposals (100) — — Provision for asset impairment(c.) — — (11,511) Balance at December 31, $395,669 $401,474 $363,498 (2)RECONCILIATION OF ACCUMULATED DEPRECIATION The following table reconciles the Accumulated Depreciation from January 1, 2011 to December 31, 2013: 2013 2012 2011 Balance at January 1, $87,088 $74,865 $74,683 Impact of deconsolidation of an LLC(a.) (1,588) — — Provision for asset impairment(c.) — — (6,157) Current year depreciation expense 12,464 12,223 6,339 Other (43) — — Balance at December 31, $97,921 $87,088 $74,865 (a.)The master lease with a wholly-owned subsidiary of UHS related to Palmdale Medical Properties expired effective as of July 1, 2013 and, as of thatdate, we began accounting for Palmdale Medical Properties on an unconsolidated basis under the equity method.(b.)On December 12, 2011, the Trust purchased the minority ownership interests held by third-party members in eleven LLCs in which we previously heldnoncontrolling majority ownership interests. As a result of these minority ownership purchases, the Trust and our subsidiaries now own 100% of eachof these LLCs and the financial results are included in our consolidated financial statements.(c.)During the fourth quarter of 2011, we recorded an asset impairment charge of $5.4 million ($11.5 million gross assets net of $6.1 million ofaccumulated depreciation) in connection with the Sheffield Medical Building located in Atlanta, Georgia. 90 Table of ContentsExhibit Index Exhibit No. Exhibit 10.2 Agreement dated December 6, 2013, to renew Advisory Agreement dated as of December 24, 1986 between Universal Health RealtyIncome 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 theSarbanes-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 theSarbanes-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 91 Exhibit 10.2 December 6, 2013 Steve FiltonSenior Vice President & CFOUHS of Delaware, Inc.367 South Gulph RoadKing 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 betweenUniversal 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, 2014, upon the same terms andconditions. 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. RamaganoCheryl K. RamaganoVice President and Treasurer Agreed and Accepted:UHS OF DELAWARE, INC.By: /s/ Steve Filton Steve Filton Senior Vice President and CFOCC: Charles Boyle Exhibit 21 Subsidiaries of Registrant Jurisdiction 5004 Pool Road Properties, LP Texas73 Medical Building, LLC Connecticut653 Town Center Investments, LLC Arizona653 Town Center Phase II, LLC ArizonaAuburn Medical Properties II, LLC DelawareApaMed Properties, LLC ArizonaBanburry Medical Properties, LLC DelawareBRB/E Building One, LLC TexasCentennial Medical Properties, LLC DelawareCimarron Medical Properties, LLC TexasCobre Properties, LLC DelawareCypresswood Investments, L.P GeorgiaDeerval Properties, LLC ArizonaDesMed, LLC ArizonaDTX Medical Properties, LLC TexasEagle Medical Properties, LLC MichiganForney Deerval, LLC TexasForney Willetta, LLC TexasGold Shadow Properties, LLC ArizonaNSHE TX Bay City, LLC TexasNSHE TX Cedar Park, LLC TexasNWTX Medical Properties, LLC TexasOneida Medical Properties, LP TexasPaseo Medical Properties II, LLC ArizonaPax Medical Holdings, LLC DelawareRiverdale Realty, LLC GeorgiaSaratoga Hospital Properties, LP TexasSheffield Properties, LLC GeorgiaSpring Valley Medical Properties, LLC ArizonaSpring Valley Medical Properties II, LLC ArizonaSaratoga Hospital Properties, LP TexasTuscan Medical Properties, LLC DelawareUHT TRS, LLC DelawareUHT/Ensemble Properties I, LLC DelawareWilletta Medical Properties, LLC Arizona EXHIBIT 23.1 Consent of Independent Registered Public Accounting Firm The Board of TrusteesUniversal Health Realty Income Trust: We consent to the incorporation by reference in the registration statements (Nos. 333-143944 and 333-57815) on Form S-8 and in the registration statements(Nos. 333-81763 and 333-185092) on Form S-3 of Universal Health Realty Income Trust of our reports dated March 7, 2014, with respect to the consolidatedbalance sheets of Universal Health Realty Income Trust as of December 31, 2013 and 2012, and the related consolidated statements of income, changes inequity, and cash flows for each of the years in the three-year period ended December 31, 2013, and the related financial statement schedule III, real estate &accumulated depreciation, and the effectiveness of internal control over financial reporting as of December 31, 2013, which reports appear in the December 31,2013 annual report on Form 10-K of Universal Health Realty Income Trust. (signed) KPMG LLP Philadelphia, PennsylvaniaMarch 7, 2014 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 thestatements 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 thefinancial 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 inExchange 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 theregistrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 theeffectiveness 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 recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, 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 theregistrant’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 reasonablylikely 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 controlover financial reporting. Date: March 7, 2014 /s/ Alan B. MillerPresident and ChiefExecutive Officer 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 thestatements 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 thefinancial 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 inExchange 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 theregistrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision toensure 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes 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 theeffectiveness 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 recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, 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 theregistrant’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 reasonablylikely 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 controlover financial reporting. Date: March 7, 2014 /s/ Charles F. BoyleVice President andChief Financial Officer EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 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, 2013 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Alan B. Miller, President and Chief Executive Officer of the Trust, herebycertify, 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. MillerPresident and Chief Executive OfficerMarch 7, 2014 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 andExchange Commission or its staff upon request. EXHIBIT 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 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, 2013, as filedwith 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. BoyleVice President and Chief Financial OfficerMarch 7, 2014 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 andExchange Commission or its staff upon request.
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