UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

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

Commission File Number: 001-11852

 

HEALTHCARE REALTY TRUST INCORPORATED

(Exact name of Registrant as specified in its charter)

Maryland		62 – 1507028
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

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

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

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of April 30, 2011, 72,742,110 shares of the Registrant’s Common Stock were outstanding.

 

 

HEALTHCARE REALTY TRUST INCORPORATED

FORM 10-Q

March 31, 2011

TABLE OF CONTENTS

		Page
Part I — Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations			2
Condensed Consolidated Statements of Cash Flows			3
Notes to Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			31
Part II — Other Information
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 5. Other Information			32
Item 6. Exhibits			34
Signature			35
EX-10.1
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

Part I. FINANCIAL INFORMATION

Item 1.		Financial Statements.

Healthcare Realty Trust Incorporated

(Dollars in thousands, except per share data)

		(Unaudited)
		March 31,				December 31,
		2011				2010
ASSETS
Real estate properties:
Land		$	163,598			$	163,020
Buildings, improvements and lease intangibles			2,317,702				2,310,404
Personal property			18,073				17,919
Construction in progress			98,590				80,262
			2,597,963				2,571,605
Less accumulated depreciation			(505,784	)			(484,641	)
Total real estate properties, net			2,092,179				2,086,964
Cash and cash equivalents			3,007				113,321
Mortgage notes receivable			88,171				36,599
Assets held for sale and discontinued operations, net			16,694				23,915
Other assets, net			96,661				96,510
Total assets		$	2,296,712			$	2,357,309
LIABILITIES AND EQUITY
Liabilities:
Notes and bonds payable		$	1,293,086			$	1,407,855
Accounts payable and accrued liabilities			55,822				62,652
Liabilities of discontinued operations			145				423
Other liabilities			45,212				43,639
Total liabilities			1,394,265				1,514,569
Commitments and contingencies
Equity:
Preferred stock, $.01 par value; 50,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $.01 par value; 150,000,000 shares authorized; 70,265,262 and 66,071,424 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively			703				661
Additional paid-in capital			1,730,808				1,641,379
Accumulated other comprehensive loss			(5,269	)			(5,269	)
Cumulative net income attributable to common stockholders			790,376				796,165
Cumulative dividends			(1,614,171	)			(1,593,926	)
Total stockholders’ equity			902,447				839,010
Noncontrolling interests			—				3,730
Total equity			902,447				842,740
Total liabilities and equity		$	2,296,712			$	2,357,309

The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2010, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated

(Dollars in thousands, except per share data)

(Unaudited)

		2011				2010
REVENUES
Master lease rent		$	15,019			$	14,059
Property operating			52,353				45,531
Straight-line rent			1,286				600
Mortgage interest			1,649				638
Other operating			2,305				2,169
			72,612				62,997
EXPENSES
General and administrative			5,781				4,728
Property operating			28,095				24,199
Bad debt, net			180				(199	)
Depreciation			18,895				16,203
Amortization			1,770				1,301
			54,721				46,232
OTHER INCOME (EXPENSE)
Loss on extinguishment of debt			(1,986	)			(480	)
Interest expense			(22,274	)			(16,311	)
Interest and other income, net			228				437
			(24,032	)			(16,354	)
INCOME (LOSS) FROM CONTINUING OPERATIONS			(6,141	)			411
DISCONTINUED OPERATIONS
Income from discontinued operations			490				1,551
Impairment			(147	)			—
Gain on sales of real estate properties			36				2,696
INCOME FROM DISCONTINUED OPERATIONS			379				4,247
NET INCOME (LOSS)			(5,762	)			4,658
Less: Net income attributable to noncontrolling interests			(27	)			(64	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(5,789	)		$	4,594
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations		$	(0.09	)		$	0.01
Discontinued operations			—				0.07
Net income (loss) attributable to common stockholders		$	(0.09	)		$	0.08
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations		$	(0.09	)		$	0.01
Discontinued operations			—				0.07
Net income (loss) attributable to common stockholders		$	(0.09	)		$	0.08
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — BASIC			66,151,426				59,961,455
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — DILUTED			66,151,426				60,969,730
DIVIDENDS DECLARED, PER COMMON SHARE, DURING THE PERIOD		$	0.30			$	0.30

The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2010, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2011 and 2010

(Dollars in thousands)

(Unaudited)

		2011				2010
OPERATING ACTIVITIES
Net income (loss)		$	(5,762	)		$	4,658
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization			21,855				18,848
Stock-based compensation			941				754
Straight-line rent receivable			(1,286	)			(584	)
Straight-line rent liability			97				103
Gain on sales of real estate properties			(36	)			(2,696	)
Loss on extinguishment of debt			1,986				480
Impairment			147				—
Provision for bad debt, net			195				(199	)
Changes in operating assets and liabilities:
Other assets			(3,721	)			488
Accounts payable and accrued liabilities			(6,418	)			5,052
Other liabilities			1,676				1,433
Net cash provided by operating activities			9,674				28,337
INVESTING ACTIVITIES
Acquisition and development of real estate properties			(25,537	)			(25,268	)
Funding of mortgages and notes receivable			(48,780	)			(2,090	)
Proceeds from sales of real estate			3,775				19,588
Proceeds from mortgages and notes receivable repayments			18				36
Net cash used in investing activities			(70,524	)			(7,734	)
FINANCING ACTIVITIES
Net borrowings (repayments) on unsecured credit facility			164,000				(3,000	)
Repayments on notes and bonds payable			(806	)			(524	)
Repurchase of notes payable			(280,201	)			(8,556	)
Quarterly dividends paid			(20,245	)			(18,417	)
Proceeds from issuance of common stock			90,073				15,044
Common stock redemptions			(51	)			—
Capital contributions received from noncontrolling interests			—				633
Distributions to noncontrolling interest holders			(226	)			(115	)
Purchase of noncontrolling interests			(1,591	)			—
Equity issuance costs			(61	)			—
Debt issuance costs			(356	)			(474	)
Net cash used in financing activities			(49,464	)			(15,409	)
Increase (decrease) in cash and cash equivalents			(110,314	)			5,194
Cash and cash equivalents, beginning of year			113,321				5,851
Cash and cash equivalents, end of year		$	3,007			$	11,045
Supplemental Cash Flow Information:
Interest paid		$	22,374			$	3,238
Capitalized interest		$	1,969			$	2,197
Company-financed real estate property sales		$	2,700			$	—
Invoices accrued for construction, tenant improvement and other capitalized costs		$	13,223			$	15,052

The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2010, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated

Notes to Condensed Consolidated Financial Statements

March 31, 2011
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Business Overview

     Healthcare Realty Trust Incorporated (the “Company”) is a real estate investment trust (“REIT”) that owns, acquires, manages, finances, and develops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. The Company had investments of approximately $2.7 billion in 213 real estate properties and mortgages as of March 31, 2011, excluding assets classified as held for sale and including an investment in one unconsolidated joint venture. The Company’s 202 owned real estate properties, excluding assets classified as held for sale, are comprised of six facility types, located in 28 states, totaling approximately 13.3 million square feet. As of March 31, 2011, the Company provided property management services to approximately 9.2 million square feet nationwide.

Principles of Consolidation

     The Condensed Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiaries, joint ventures, and partnerships where the Company controls the operating activities. During the first quarter of 2011, the Company purchased the remaining noncontrolling interest in its two consolidated joint ventures: (1) HR Ladco Holdings, LLC in which the Company held an 80% interest and (2) Lakewood MOB, LLC in which the Company held a 98.75% interest. The noncontrolling interest holder in both joint ventures was Ladco MPF I, LLC. Prior to the purchase, the noncontrolling interests were reported as equity and the related net income (loss) attributable to the noncontrolling interests as part of consolidated net income in the Company’s Condensed Consolidated Financial Statements. The Company’s investment in its one unconsolidated joint venture, which is carried at cost, is included in other assets with its related income recognized in other income (expense) in the Company’s Condensed Consolidated Financial Statements.

     The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Management believes, however, that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. All material intercompany transactions and balances have been eliminated in consolidation.

     This interim financial information should be read in conjunction with the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2011 for many reasons including, but not limited to, acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends and uncertainties.

Use of Estimates in the Condensed Consolidated Financial Statements

     Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.

Segment Reporting

     The Company owns, acquires, manages, finances, and develops outpatient, healthcare-related properties. The Company is managed as one operating segment, rather than multiple operating segments, for internal reporting purposes and for internal decision-making. Therefore, the Company discloses its operating results in a single segment.

Notes to Condensed Consolidated Financial Statements-Continued

Reclassifications

     Certain amounts in the Company’s Condensed Consolidated Financial Statements for prior periods have been reclassified to conform to the current period presentation. Assets sold or held for sale, and related liabilities, have been reclassified in the Company’s Condensed Consolidated Balance Sheets, and the operating results of those assets have been reclassified from continuing to discontinued operations for all periods presented. The Company also reclassified one property from discontinued operations to continuing operations as discussed in Note 3.

Revenue Recognition

General

     The Company recognizes revenue when it is realized or realizable and earned. There are four criteria that must be met before a company may recognize revenue, including: persuasive evidence that an arrangement exists; delivery has occurred or services have been rendered (i.e., the tenant has taken possession of and controls the physical use of the leased asset); the price has been fixed or is determinable; and collectability is reasonably assured. Income received but not yet earned is deferred until such time it is earned. Deferred revenue is included in other liabilities in the Company’s Condensed Consolidated Balance Sheets.

     The Company derives most of its revenues from its real estate and mortgage notes receivable portfolio. The Company’s rental and mortgage interest income is recognized based on contractual arrangements with its tenants, sponsors or borrowers. These contractual arrangements generally fall into three categories: leases, mortgage notes receivable, and property operating agreements as described in the following paragraphs. The Company may accrue late fees based on the contractual terms of a lease or note. Such fees, if accrued, are included in master lease rent, property operating income, or mortgage interest income in the Company’s Condensed Consolidated Statements of Operations, based on the type of contractual agreement.

Rental Income

     Rental income related to non-cancelable operating leases is recognized as earned over the life of the lease agreements on a straight-line basis. The Company’s lease agreements generally include provisions for stated annual increases or increases based on a Consumer Price Index. The Company’s multi-tenant office lease arrangements also generally allow for operating expense recoveries which the Company calculates and bills to its tenants. Rental income from properties under master lease arrangements with tenants is included in master lease rent and rental income from properties with multi-tenant office lease arrangements is included in property operating income in the Company’s Condensed Consolidated Statements of Operations.

Interest Income

     Mortgage interest income and notes receivable interest income are recognized based on the interest rates and maturity date or amortization period specific to each note. Loan origination fees received are deferred and are recognized in mortgage interest income over the estimated life of the loan.

Property Operating Income

     The Company has eight real estate properties subject to property operating agreements that obligate the sponsoring health system to provide to the Company a minimum return on the Company’s investment in the property in exchange for the right to be involved in the operating decisions of the property, including tenancy. If the minimum return is not achieved through normal operations of the property, the sponsor is responsible to the Company for the shortfall under the terms of these agreements. The Company recognizes any shortfall income in other operating income in the Company’s Condensed Consolidated Statements of Operations.

Accumulated Other Comprehensive Loss

     A company must include certain items in comprehensive income (loss), such as foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains or losses on available-for-sale securities. The Company’s accumulated other comprehensive loss includes pension liability adjustments, which are generally recognized in the fourth quarter of each year.

Income Taxes

     The Company intends at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Accordingly, no provision has been made for federal income taxes. The Company must

Notes to Condensed Consolidated Financial Statements-Continued

distribute at least 90% per annum of its REIT taxable income to its stockholders and meet other requirements to continue to qualify as a REIT.

     The Company must pay certain state income taxes which are generally included in general and administrative expense in the Company’s Condensed Consolidated Statements of Operations.

     The Company classifies interest and penalties related to uncertain tax positions, if any, in its Condensed Consolidated Financial Statements as a component of general and administrative expense.

Incentive Plans

     The Company has various outstanding employee and non-employee stock-based awards, including restricted stock issued under its incentive plans, and options granted to employees pursuant to its employee stock purchase plan (the “Employee Stock Purchase Plan”). The Company recognizes compensation expense for these awards based on the grant date fair value of the awards ratably over the requisite service period.

Accounting for Defined Benefit Pension Plans

     The Company has a retirement plan (the “Executive Retirement Plan”) under which three of the Company’s founding officers may receive certain benefits upon retirement. The plan is unfunded and benefits will be paid from cash flows of the Company. The maximum annual benefits payable under the Executive Retirement Plan have been frozen at $896,000, subject to cost-of-living adjustments. The Company recognizes pension expense on an accrual basis over an estimated service period. The Company calculates pension expense and the corresponding liability annually on the measurement date (December 31) which requires certain assumptions, such as a discount rate and the recognition of actuarial gains and losses.

     The Company also had a pension plan under which the Company’s non-employee directors would receive certain retirement benefits. That plan was terminated in 2009 and during 2010 lump sum payments were made to those directors who participated in the plan. See Note 8 for further discussion.

Operating Leases

     As described in more detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the Company is obligated under operating lease agreements consisting primarily of its corporate office lease and various ground leases related to the Company’s real estate investments where the Company is the lessee.

Discontinued Operations and Assets Held for Sale

     The Company sells properties from time to time due to a variety of factors, including among other things, market conditions or the exercise of purchase options by tenants. The operating results of properties that have been sold or are held for sale are reported as discontinued operations in the Company’s Condensed Consolidated Statements of Operations. A company must report discontinued operations when a component of an entity has either been disposed of or is deemed to be held for sale if (i) both the operations and cash flows of the component have been or will be eliminated from ongoing operations as a result of the disposal transaction, and (ii) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. Long-lived assets classified as held for sale in the Company’s Condensed Consolidated Balance Sheets are reported at the lower of their carrying amount or their estimated fair value less cost to sell. Further, depreciation of these assets ceases at the time the assets are classified as discontinued operations. Losses resulting from the sale or anticipated sale of such properties are characterized as impairment losses relating to discontinued operations in the Company’s Condensed Consolidated Statements of Operations. See Note 3 for a detail of the Company’s assets held for sale and discontinued operations.

Land Held for Development

     Land held for development, which is included in construction in progress in the Company’s Condensed Consolidated Balance Sheets, includes parcels of land owned by the Company, upon which the Company intends to develop and own outpatient healthcare facilities.

Notes to Condensed Consolidated Financial Statements-Continued

Fair Value Measurements

     Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. In calculating fair value, a company must maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements.

     A hierarchy of valuation techniques is defined to determine whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:

     o Level 1 — quoted prices for identical instruments in active markets;

     o Level 2 — quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

     o Level 3 — fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Real Estate Properties

     Real estate properties are recorded at cost. Cost at the time of the acquisition is allocated between land, buildings, tenant improvements, lease and other intangibles, and personal property based upon estimated fair values at the time of acquisition.

     The Company also capitalizes direct construction and development costs, including interest, to all consolidated real estate properties that are under construction and substantive activities are ongoing to prepare the asset for its intended use. The Company considers a building as substantially complete and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred.

Mortgage Loans

     Loans receivable may be classified as held-for-investment or held-for-sale based on a lender’s intent and ability to hold the loans. Loans held-for-investment are carried at amortized cost and are reduced by valuation allowances for estimated credit losses as necessary. Loans held-for-sale are carried at the lower of cost or fair value. All of the Company’s loans receivable are classified as held-for-investment.

Allowance for Doubtful Accounts and Credit Losses

     Management monitors the aging and collectibility of its accounts receivable balances on an ongoing basis. Whenever deterioration in the timeliness of payment from a tenant or sponsor is noted, management investigates and determines the reason(s) for the delay. Considering all information gathered, management’s judgment is exercised in determining whether a receivable is potentially uncollectible and, if so, how much or what percentage may be uncollectible. Among the factors management considers in determining collectibility are: the type of contractual arrangement under which the receivable was recorded (e.g., a triple net lease, a gross lease, a sponsor guaranty agreement, or some other type of agreement); the tenant’s reason for slow payment; industry influences under which the tenant operates; evidence of willingness and ability of the tenant to pay the receivable; credit-worthiness of the tenant; collateral, security deposit, letters of credit or other monies held as security; tenant’s historical payment pattern; other contractual agreements between the tenant and the Company; relationship between the tenant and the Company; the state in which the tenant operates; and the existence of a guarantor and the willingness and ability of the guarantor to pay the receivable. Considering these factors and others, management concludes whether all or some of the aged receivable balance is likely uncollectible. Upon determining that some portion of the receivable is likely uncollectible, the Company records a provision for bad debts for the amount it expects will be uncollectible. When efforts to collect a receivable are exhausted, the receivable amount is charged off against the allowance.

Notes to Condensed Consolidated Financial Statements-Continued

     The Company also evaluates collectibility of its mortgage notes and notes receivable and records an allowance on the notes as necessary. A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan as scheduled, including both contractual interest and principal payments. If a mortgage loan or note receivable becomes past due, the Company will review the specific circumstances and may discontinue the accrual of interest on the loan. The loan is not returned to accrual status until the debtor has demonstrated the ability to continue debt service in accordance with the contractual terms.

Note 2. Real Estate and Mortgage Notes Receivable Investments

     The Company had investments of approximately $2.7 billion in 213 real estate properties and mortgage notes receivable as of March 31, 2011, excluding assets classified as held for sale and including an investment in one unconsolidated joint venture. The Company’s 202 owned real estate properties, excluding assets classified as held for sale, are located in 28 states and comprise approximately 13.3 million total square feet. The table below details the Company’s investments.

		Number of				Gross Investment								Square Feet
(Dollars and Square Feet in thousands)		Investments				Amount				%				Footage				%
Owned properties:
Master leases
Medical office			11			$	100,242				3.5	%			548				4.1	%
Physician clinics			13				106,063				3.9	%			602				4.6	%
Surgical facilities			6				162,631				6.1	%			382				2.9	%
Specialty outpatient			2				4,852				0.2	%			23				0.1	%
Inpatient rehab			11				178,755				6.7	%			735				5.5	%
Other			4				31,726				1.2	%			284				2.1	%
			47				584,269				21.6	%			2,574				19.3	%
Property operating agreements
Medical office			8				84,062				3.1	%			624				4.7	%
			8				84,062				3.1	%			624				4.7	%
Multi-tenanted with occupancy leases
Medical office			115				1,487,288				55.4	%			8,196				61.8	%
Medical office — stabilization in progress			8				233,366				8.7	%			808				6.1	%
Medical office — construction in progress			3				77,818				2.9	%			405				3.1	%
Physician clinics			14				46,295				1.7	%			296				2.2	%
Surgical facilities			4				35,303				1.3	%			212				1.6	%
Specialty outpatient			1				2,562				0.1	%			10				0.1	%
Other			2				11,210				0.4	%			144				1.1	%
			147				1,893,842				70.5	%			10,071				76.0	%
Land held for development			—				20,772				0.8	%			—				—
Corporate property			—				15,018				0.6	%			—				—
			—				35,790				1.4	%			—				—
Total owned properties			202				2,597,963				96.6	%			13,269				100.0	%
Mortgage loans:
Medical office			6				14,702				0.5	%			—				—
Physician clinics			2				17,620				0.7	%			—				—
Surgical facilities			1				15,849				0.6	%			—				—
Other			1				40,000				1.5	%			—				—
			10				88,171				3.3	%			—				—
Unconsolidated joint venture:
Other			1				1,266				0.1	%			—				—
			1				1,266				0.1	%			—				—
Total real estate investments			213			$	2,687,400				100.0	%			13,269				100.0	%

Notes to Condensed Consolidated Financial Statements-Continued

Mortgage loans

     A summary of the Company’s mortgage loans is shown in the table below:

		March 31, 2011												December 31, 2010
		Principal				Unamortized								Principal				Unamortized
(Dollars in thousands)		Balance				Fees				Total				Balance				Fees				Total
Construction mortgage loans		$	27,189			$	338			$	26,851			$	18,409			$	430			$	17,979
Other mortgage loans			61,320				—				61,320				18,620				—				18,620
		$	88,509			$	338			$	88,171			$	37,029			$	430			$	36,599

     All of the Company’s mortgage notes receivable are classified as held-for-investment based on management’s intent and ability to hold the loans until maturity. As such, the loans are carried at amortized cost. At March 31, 2011, the Company has not recorded any allowances for loan losses on its mortgage loan portfolio and has not placed any of its loans on non-accrual status.

Note 3. Acquisitions and Dispositions

Asset Acquisitions

     In March 2011, the Company purchased from the noncontrolling interest holder the remaining 20% equity interest in its HR Ladco Holdings, LLC joint venture and the remaining 1.25% equity interest in its Lakewood MOB, LLC joint venture, for a total aggregate purchase price of $5.1 million. The book value of the noncontrolling interests prior to the equity purchase was $3.6 million. Concurrent with these purchases, the noncontrolling interest holder repaid a loan receivable to the Company totaling $3.5 million. The loan receivable had been secured by the noncontrolling joint venture interests. The Company had previously consolidated these joint ventures in its financial statements. HR Ladco Holdings, LLC owns nine 100% leased outpatient facilities located in Iowa with an aggregate investment of approximately $87.6 million that aggregate approximately 369,000 square feet. Lakewood MOB, LLC is constructing two medical office buildings and a parking garage located in Colorado with an aggregate budget of approximately $54.9 million.

     Also, during the first quarter of 2011, the Company originated the following mortgage notes receivable:

•

a $40.0 million mortgage loan that is secured by a multi-tenanted office building located in Iowa that was 94% leased at the time the mortgage was originated. The mortgage loan requires interest only payments through maturity, has a stated fixed interest rate of 7.7% and matures in January 2014.

•

a $2.7 million mortgage note receivable with the purchaser in conjunction with the disposal of a physician clinic located in Florida as discussed below. The loan has a stated fixed interest rate of 7.0% and matures in March 2016.

•

a $3.7 million loan for the construction of a medical office building located in Missouri. The loan has a stated interest rate of 11.0% and matures in 2012. The Company had funded $0.5 million on the loan as of March 31, 2011.

     Further, during the first quarter of 2011, the Company funded approximately $8.3 million on existing construction mortgage loans.

     The following table details the Company’s acquisitions for the three months ended March 31, 2011.

Notes to Condensed Consolidated Financial Statements-Continued

										Note				Mortgage
		Date				Cash				Receivable				Note				Noncontrolling
(dollars in millions)		Acquired				Consideration				Repayment				Financing				interests				APIC				Other
Purchase of noncontrolling interests
Lakewood MOB, LLC			03/15/2011			$	0.5			$	—			$	—			$	0.2			$	—				0.3
HR Ladco Holdings, LLC			03/31/2011				0.8				(3.5	)							3.4				1.5				(0.6	)
							1.3				(3.5	)			—				3.6				1.5				(0.3	)
Mortgage note financing
Iowa			01/03/2011				40.0				—				40.0				—				—				—
Florida			02/03/2011				2.7				—				2.7				—				—				—
Missouri			03/24/2011				0.5				—				0.5				—				—				—
							43.2				—				43.2				—				—				—
						$	44.5			$	(3.5	)		$	43.2			$	3.6			$	1.5				(0.3	)

Asset Dispositions

     During the first quarter of 2011, the Company disposed of the following properties:

•

a 35,761 square foot medical office building in Maryland in which the Company had a net investment of approximately $3.5 million. The Company received approximately $3.4 million in net proceeds and recorded a $0.1 million impairment charge on the disposal.

•

a 28,861 square foot physician clinic in Florida in which the Company had a net investment of approximately $3.1 million. The Company received approximately $0.4 million in net cash proceeds, originated a $2.7 million mortgage note receivable with the purchaser as discussed above, and recognized an immaterial gain on the disposition.

     The following table details the Company’s dispositions for the three months ended March 31, 2011.

						Net Real				Mortgage
						Estate				Note				Gain/				Square
(dollars in millions)		Net Proceeds				Investment				Receivable				(Loss)				Footage
Real estate dispositions
Maryland		$	3.4			$	3.5			$	—			$	(0.1	)			35,761
Florida			0.4				3.1				(2.7	)			—				28,861
Total dispositions		$	3.8			$	6.6			$	(2.7	)		$	(0.1	)			64,622

Potential Dispositions

     In the fourth quarter of 2010, the Company received notice from a tenant of its intent to purchase six skilled nursing facilities in Michigan and Indiana pursuant to purchase options contained in its leases with the Company. The Company’s aggregate net investment in the buildings, which are classified as held for sale, was approximately $8.2 million at March 31, 2011. The aggregate purchase price for the properties is expected to be approximately $17.3 million, resulting in an expected net gain of approximately $9.1 million. The Company expects the sale to close during the third quarter of 2011.

Discontinued Operations and Assets Held for Sale

     During the first quarter of 2011, the Company sold one property in Florida and one property in Maryland and reclassified one property located in Tennessee that was previously classified as held for sale to held for use upon execution of a long-term lease. The Company’s gross investment in the Tennessee property was approximately $1.1 million ($0.5 million, net) at March 31, 2011.

     The tables below detail the assets, liabilities, and results of operations included in discontinued operations on the Company’s Condensed Consolidated Statements of Operations and in assets and liabilities of discontinued operations on the

Notes to Condensed Consolidated Financial Statements-Continued

Company’s Condensed Consolidated Balance Sheets. At March 31, 2011 and December 31, 2010, the Company had eight and 11 properties, respectively, classified as held for sale, including the six properties discussed above in “Potential Dispositions.” Of the 11 properties classified as held for sale at December 31, 2010, two of the properties were sold and one was reclassified to held for use during the first quarter of 2011.

		March 31,				December 31,
(Dollars in thousands)		2011				2010
Balance Sheet data (as of the period ended):
Land		$	4,766			$	7,099
Buildings, improvements and lease intangibles			27,115				35,424
Personal property			425				429
			32,306				42,952
Accumulated depreciation			(15,883	)			(19,447	)
Assets held for sale, net			16,423				23,505
Other assets, net (including receivables)			271				410
Assets of discontinued operations, net			271				410
Assets held for sale and discontinued operations, net		$	16,694			$	23,915
Accounts payable and accrued liabilities		$	61			$	229
Other liabilities			84				194
Liabilities of discontinued operations		$	145			$	423
		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2011				2010
Statements of Operations data (for the period ended):
Revenues
Master lease rent		$	668			$	1,861
Property operating			240				615
Straight-line rent			—				(16	)
			908				2,460
Expenses
General and administrative			1				2
Property operating			402				561
Bad debt, net			15				—
Depreciation			—				388
			418				951
Other Income (Expense)
Interest and other income, net			—				42
			—				42
Discontinued Operations
Income from discontinued operations			490				1,551
Impairment			(147	)			—
Gain on sales of real estate properties			36				2,696
Income from Discontinued Operations		$	379			$	4,247
Income from Discontinued Operations per Common Share — Basic		$	—			$	0.07
Income from Discontinued Operations per Common Share — Diluted		$	—			$	0.07

Notes to Condensed Consolidated Financial Statements-Continued

Note 4. Notes and Bonds Payable

     The table below details the Company’s notes and bonds payable as of March 31, 2011 and December 31, 2010.

		Mar. 31,				Dec. 31,				Maturity				Contractual				Principal				Interest
(Dollars in thousands)		2011				2010				Dates				Interest Rates				Payments				Payments
Unsecured Credit Facility due 2012		$	164,000			$	—				9/12			LIBOR + 2.80%				At maturity				Quarterly
Senior Notes due 2011, including premium			—				278,311				—				8.125%			At maturity				Semi-Annual
Senior Notes due 2014, net of discount			264,262				264,227				4/14				5.125%			At maturity				Semi-Annual
Senior Notes due 2017, net of discount			298,279				298,218				1/17				6.500%			At maturity				Semi-Annual
Senior Notes due 2021, net of discount			396,870				396,812				1/21				5.750%			At maturity				Semi-Annual
Mortgage notes payable, net of discount and including premiums			169,675				170,287				4/13-10/30				5.000%-7.625%			Monthly				Monthly
		$	1,293,086			$	1,407,855

     The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such loan agreements. Among other things, these provisions require the Company to maintain certain financial ratios and minimum tangible net worth and impose certain limits on the Company’s ability to incur indebtedness and create liens or encumbrances. At March 31, 2011, the Company was in compliance with the financial covenant provisions under all of its various debt instruments.

Unsecured Credit Facility due 2012

     On September 30, 2009, the Company entered into an amended and restated $550.0 million unsecured credit facility (the “Unsecured Credit Facility”) with a syndicate of 16 lenders that matures on September 30, 2012. Amounts outstanding under the Unsecured Credit Facility bear interest at a rate equal to (x) LIBOR or the base rate (defined as the highest of (i) the Federal Funds Rate plus 0.5%; (ii) the Bank of America prime rate and (iii) LIBOR) plus (y) a margin ranging from 2.15% to 3.20% (2.80% at March 31, 2011) for LIBOR-based loans and 0.90% to 1.95% for base rate loans (1.55% at March 31, 2011), based upon the Company’s unsecured debt ratings. In addition, the Company pays a facility fee per annum on the aggregate amount of commitments. The facility fee is 0.40% per annum, unless the Company’s credit rating falls below a BBB-/Baa3, at which point the facility fee would be 0.50%. At March 31, 2011, the Company had $164.0 million outstanding under the Unsecured Credit Facility with a weighted average interest rate of approximately 3.05% and had borrowing capacity remaining, under its financial covenants, of approximately $386.0 million.

Senior Notes due 2011

     On March 28, 2011, the Company redeemed its unsecured senior notes due 2011 (the “Senior Notes due 2011”) at a redemption price equal to an aggregate of $289.4 million, consisting of outstanding principal of $278.2 million, accrued interest as of the redemption date of $9.2 million, and a “make-whole” amount of approximately $2.0 million for the early extinguishment of the debt, which was approximately equal to the interest that would have been paid between the redemption date and the maturity date. The Senior Notes due 2011, issued in 2001, bore interest at 8.125% per annum, payable semi-annually on May 1 and November 1, and were due to mature on May 1, 2011. The unamortized net gain on these notes was written off upon redemption.

Senior Notes due 2014

     In 2004, the Company issued $300.0 million of unsecured senior notes due 2014 (the “Senior Notes due 2014”) that bear interest at 5.125% per annum, payable semi-annually on April 1 and October 1, and are due on April 1, 2014, unless redeemed earlier by the Company. The Senior Notes due 2014 were issued at a discount of approximately $1.5 million, yielding an effective interest rate of 5.19% per annum. In previous years, the Company repurchased approximately $35.3 million of the Senior Notes due 2014 and amortized a pro-rata portion of the discount upon such repurchases. The following table reconciles the balance of the Senior Notes due 2014 on the Company’s Condensed Consolidated Balance Sheets.

Notes to Condensed Consolidated Financial Statements-Continued

		March 31,				December 31,
(Dollars in thousands)		2011				2010
Senior Notes due 2014 face value		$	264,737			$	264,737
Unaccreted discount			(475	)			(510	)
Senior Notes due 2014 carrying amount		$	264,262			$	264,227

Senior Notes due 2017

     In 2009, the Company issued $300.0 million of unsecured senior notes due 2017 (the “Senior Notes due 2017”) that bear interest at 6.50% per annum, payable semi-annually on January 17 and July 17, and are due on January 17, 2017, unless redeemed earlier by the Company. The Senior Notes due 2017 were issued at a discount of approximately $2.0 million, yielding an effective interest rate of 6.618% per annum. For the quarter ended March 31, 2011, the Company amortized approximately $0.1 million of the discount which is included in interest expense on the Company’s Consolidated Statements of Operations. The following table reconciles the balance of the Senior Notes due 2017 on the Company’s Condensed Consolidated Balance Sheets.

		March 31,				December 31,
(Dollars in thousands)		2011				2010
Senior Notes due 2017 face value		$	300,000			$	300,000
Unaccreted discount			(1,721	)			(1,782	)
Senior Notes due 2017 carrying amount		$	298,279			$	298,218

Senior Notes due 2021

     In December 2010, the Company issued $400.0 million of unsecured senior notes due 2021 (the “Senior Notes due 2021”) that bear interest at 5.75%, payable semi-annually on January 15 and July 15, beginning July 15, 2011, and are due on January 15, 2021, unless redeemed earlier by the Company. The Senior Notes due 2021 were issued at a discount of approximately $3.2 million, which yielded a 5.855% interest rate per annum upon issuance. For the quarter ended March 31, 2011, the Company amortized approximately $0.1 million of the discount which is included in interest expense on the Company’s Consolidated Statements of Operations. The following table reconciles the balance of the Senior Notes due 2021 on the Company’s Consolidated Balance Sheet as of March 31, 2011.

		March 31,				December 31,
(Dollars in thousands)		2011				2010
Senior Notes due 2021 face value		$	400,000			$	400,000
Unaccreted discount			(3,130	)			(3,188	)
Senior Notes due 2021 carrying amount		$	396,870			$	396,812

Mortgage Notes Payable

     The following table reconciles the Company’s aggregate mortgage notes principal balance with the Company’s Condensed Consolidated Balance Sheets.

		March 31,				December 31,
(Dollars in thousands)		2011				2010
Mortgage notes payable principal balance		$	175,832			$	176,638
Unaccreted discount, net			(6,157	)			(6,351	)
Mortgage notes payable carrying amount		$	169,675			$	170,287

Notes to Condensed Consolidated Financial Statements-Continued

     The following table further details the Company’s mortgage notes payable, with related collateral, at March 31, 2011.

																		Investment in
						Effective												Collateral at				Balance at
		Original				Interest				Maturity								March 31,				Mar. 31,				Dec. 31,
(Dollars in millions)		Balance				Rate (13)				Date				Collateral (14)				2011				2011				2010
Life Insurance Co. (1)		$	4.7				7.765	%			1/17			MOB				$	11.5			$	2.2			$	2.2
Commercial Bank (2)			1.8				5.550	%			10/30			OTH					7.9				1.7				1.7
Life Insurance Co. (3)			15.1				5.490	%			1/16			MOB					32.6				13.4				13.5
Commercial Bank (4)			17.4				6.480	%			5/15			MOB					19.9				14.5				14.5
Commercial Bank (5)			12.0				6.110	%			7/15			2 MOBs					19.4				9.7				9.7
Commercial Bank (6)			15.2				7.650	%			7/20			MOB					20.2				12.8				12.8
Life Insurance Co. (7)			1.5				6.810	%			7/16			SOP					2.2				1.1				1.2
Commercial Bank (8)			12.9				6.430	%			2/21			MOB					20.6				11.5				11.5
Investment Fund (9)			80.0				7.250	%			12/16			15 MOBs					154.0				79.0				79.2
Life Insurance Co. (10)			7.0				5.530	%			1/18			MOB					14.5				3.9				4.0
Investment Co. (11)			15.9				6.550	%			4/13			MOB					23.3				15.5				15.6
Investment Co. (12)			4.6				5.250	%			9/15			MOB					6.9				4.4				4.4
																		$	333.0			$	169.7			$	170.3

Long-Term Debt Maturities

     Future maturities of the Company’s notes and bonds payable as of March 31, 2011 were:

		Principal				Net Accretion/				Notes and
(Dollars in thousands)		Maturities				Amortization (1)				Bonds Payable				%
2011 (remaining)		$	2,475			$	(1,073	)		$	1,402				0.1	%
2012			167,491				(1,508	)			165,983				12.8	%
2013			18,284				(1,738	)			16,546				1.3	%
2014			268,460				(1,785	)			266,675				20.6	%
2015			32,632				(1,443	)			31,189				2.4	%
2016 and thereafter			815,227				(3,936	)			811,291				62.8	%
		$	1,304,569			$	(11,483	)		$	1,293,086				100.0	%

Notes to Condensed Consolidated Financial Statements-Continued

Note 5. Other Assets

     Other assets consist primarily of straight-line rent receivables, prepaid assets, intangible assets and receivables. Items included in other assets on the Company’s Condensed Consolidated Balance Sheets are detailed in the table below.

		March 31,				December 31,
(Dollars in millions)		2011				2010
Prepaid assets		$	29.9			$	27.9
Straight-line rent receivables			28.3				27.0
Above-market intangible assets, net			13.3				13.4
Deferred financing costs, net			11.0				12.0
Accounts receivable			7.6				6.1
Goodwill			3.5				3.5
Equity investment in joint venture — cost method			1.3				1.3
Customer relationship intangible assets, net			1.2				1.2
Notes receivable			0.3				3.8
Allowance for uncollectible accounts			(1.3	)			(1.2	)
Other			1.6				1.5
		$	96.7			$	96.5

Equity investment in joint venture

     At March 31, 2011, the Company had an investment in one unconsolidated joint venture, which the Company accounts for under the cost method since the Company does not exert significant influence. The joint venture, which invests in real estate properties, is included in other assets on the Company’s Condensed Consolidated Balance Sheets, and the related distributions received are included in interest and other income, net on the Company’s Condensed Consolidated Statements of Operations.

Note 6. Commitments and Contingencies

Construction in Progress

     As of March 31, 2011, the Company had three medical office buildings under construction with estimated completion dates in the third quarter of 2011 for two of the buildings and in the first quarter 2012 for the third building. The table below details the Company’s construction in progress and land held for development as of March 31, 2011. The information included in the table below represents management’s estimates and expectations at March 31, 2011 which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results.

		Estimated				Property												CIP at				Estimated				Estimated
		Completion				Type								Approximate				March 31,				Remaining				Total
State		Date				(1)				Properties				Square Feet				2011				Funding				Investment
(Dollars in thousands)
Under construction:
Washington			3Q 2011			MOB					1				206,000			$	54,581			$	37,619			$	92,200
Colorado			3Q 2011			MOB					1				101,907				12,184				15,925				28,109
Colorado			1Q 2012			MOB					1				97,093				11,053				15,738				26,791
Land held for development:
Texas											—				—				20,772				—				—
											3				405,000			$	98,590			$	69,282			$	147,100

Notes to Condensed Consolidated Financial Statements-Continued

Other Construction

     The Company had approximately $29.8 million in various first-generation tenant improvement budgeted amounts remaining as of March 31, 2011 related to properties that were developed by the Company.

     As of March 31, 2011, the Company had remaining funding commitments totaling $49.6 million on six construction loans. The Company expects that the remaining commitments on the loans will be funded during the remainder of 2011 and 2012.

Legal Proceedings

     Two affiliates of the Company, HR Acquisition of Virginia Limited Partnership and HRT Holdings, Inc., are defendants in a lawsuit brought by Fork Union Medical Investors Limited Partnership, Goochland Medical Investors Limited Partnership, and Life Care Centers of America, Inc., as plaintiffs, in the Circuit Court of Davidson County, Tennessee. The plaintiffs allege that they overpaid rent between 1991 and 2003 under leases for two skilled nursing facilities in Virginia and seek a refund of such overpayments. Plaintiffs are seeking up to $2.0 million, plus pre- and post-judgment interest and attorneys’ fees. The two leases were terminated by agreement in 2003. The Company denies that it is liable to the plaintiffs for any refund of rent paid and will continue to defend the case vigorously. A trial had been scheduled for April 18, 2011, but has since been continued on the plaintiffs’ motion. No new trial date has been scheduled.

     The Company is, from time to time, involved in litigation arising out of the ordinary course of business or which is expected to be covered by insurance. The Company is not aware of any other pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

Note 7. Stockholders’ Equity

     The following table provides a reconciliation of total equity:

										Accumulated
						Additional				Other				Cumulative								Total				Non
(Dollars in thousands,		Common				Paid-In				Comprehensive				Net				Cumulative				Stockholders’				controlling				Total
except per share data)		Stock				Capital				Loss				Income				Dividends				Equity				Interests				Equity
Balance at Dec. 31, 2010		$	661			$	1,641,379			$	(5,269	)		$	796,165			$	(1,593,926	)		$	839,010			$	3,730			$	842,740
Issuance of common stock			41				90,009				—				—				—				90,050				—				90,050
Common stock redemption			—				(51	)			—				—				—				(51	)			—				(51	)
Stock-based compensation			1				940				—				—				—				941				—				941
Net income (loss)			—				—				—				(5,789	)			—				(5,789	)			27				(5,762	)
Other comprehensive loss			—				—				—				—				—				—				—				—
Comprehensive income																															(5,762	)
Dividends to common stockholders ($0.30 per share)			—				—				—				—				(20,245	)			(20,245	)			—				(20,245	)
Distributions to noncontrolling interests			—				—				—				—				—				—				(247	)			(247	)
Proceeds from noncontrolling interests			—				—				—				—				—				—				76				76
Redemption of noncontrolling interest in consolidated joint ventures			—				(1,469	)			—				—				—				(1,469	)			(3,586	)			(5,055	)
Balance at March 31, 2011		$	703			$	1,730,808			$	(5,269	)		$	790,376			$	(1,614,171	)		$	902,447			$	—			$	902,447

Notes to Condensed Consolidated Financial Statements-Continued

Common Stock

     The following table provides a reconciliation of the beginning and ending common stock outstanding for the three months ended March 31, 2011 and the year ended December 31, 2010:

		Three Months Ended				Year Ended
		March 31,				December 31,
		2011				2010
Balance, beginning of period			66,071,424				60,614,931
Issuance of common stock			4,128,163				5,287,098
Restricted stock-based awards, net of forfeitures			65,675				169,395
Balance, end of period			70,265,262				66,071,424