UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2008

OR

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

For the transition period from ________ to ________

Commission File Number: 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 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer 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 July 31, 2008, 50,758,481 shares of the Registrant’s Common Stock were outstanding.

 

 

HEALTHCARE REALTY TRUST INCORPORATED

FORM 10-Q

June 30, 2008

TABLE OF CONTENTS

		Page
Part I — Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Income			2
Condensed Consolidated Statements of Cash Flows			4
Notes to Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			34
Part II — Other Information
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 4. Submission of Matters to a Vote of Security Holders			36
Item 6. Exhibits			37
Signature			38
EX-31.1 Section 302 Certification of the CEO
EX-31.2 Section 302 Certification of the CFO
EX-32 Section 906 Certification of the CEO and CFO

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Healthcare Realty Trust Incorporated

(Dollars in thousands, except per share data)

		(Unaudited)
		June 30,				December 31,
		2008				2007
ASSETS
Real estate properties:
Land		$	99,386			$	102,321
Buildings, improvements and lease intangibles			1,492,638				1,483,547
Personal property			16,543				16,305
Construction in progress			101,345				94,457
			1,709,912				1,696,630
Less accumulated depreciation			(363,566	)			(345,457	)
Total real estate properties, net			1,346,346				1,351,173
Cash and cash equivalents			4,882				8,519
Mortgage notes receivable			37,285				30,117
Assets held for sale and discontinued operations, net			20,229				15,639
Other assets, net			81,358				90,044
Total assets		$	1,490,100			$	1,495,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Notes and bonds payable		$	795,652			$	785,289
Accounts payable and accrued liabilities			34,014				37,376
Liabilities of discontinued operations			4,511				34
Other liabilities			39,947				40,798
Total liabilities			874,124				863,497
Commitments and contingencies
Stockholders’ 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; 50,757,916 and 50,691,331 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively			508				507
Additional paid-in capital			1,288,552				1,286,071
Accumulated other comprehensive loss			(4,346	)			(4,346	)
Cumulative net income			715,748				695,182
Cumulative dividends			(1,384,486	)			(1,345,419	)
Total stockholders’ equity			615,976				631,995
Total liabilities and stockholders’ equity		$	1,490,100			$	1,495,492

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, 2007, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated

(Dollars in thousands, except per share data)

(Unaudited)

		2008				2007
REVENUES
Master lease rent		$	14,787			$	14,456
Property operating			34,886				31,803
Straight-line rent			(137	)			9
Mortgage interest			542				460
Other operating			4,990				4,786
			55,068				51,514
EXPENSES
General and administrative			5,863				5,220
Property operating			20,112				18,179
Bad debts, net of recoveries			115				77
Interest			11,209				12,153
Depreciation			12,385				10,883
Amortization			575				1,204
			50,259				47,716
INCOME FROM CONTINUING OPERATIONS			4,809				3,798
DISCONTINUED OPERATIONS
Income from discontinued operations			1,242				2,363
Gain on sales of real estate properties			7,715				7,482
INCOME FROM DISCONTINUED OPERATIONS			8,957				9,845
NET INCOME		$	13,766			$	13,643
Basic Earnings Per Common Share
Income from continuing operations per common share		$	0.10			$	0.08
Discontinued operations per common share			0.18				0.21
Net income per common share		$	0.28			$	0.29
Diluted Earnings Per Common Share
Income from continuing operations per common share		$	0.10			$	0.08
Discontinued operations per common share			0.17				0.21
Net income per common share		$	0.27			$	0.29
Weighted Average Common Shares Outstanding — Basic			49,431,724				46,603,643
Weighted Average Common Shares Outstanding — Diluted			50,474,762				47,577,334
Dividends Declared, per Common Share, During the Period		$	0.385			$	0.660

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, 2007, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For The Six Months Ended June 30, 2008 and 2007
(Dollars in thousands, except per share data)
(Unaudited)

		2008				2007
REVENUES
Master lease rent		$	30,238			$	29,354
Property operating			68,911				63,343
Straight-line rent			(204	)			43
Mortgage interest			1,067				812
Other operating			9,226				9,782
			109,238				103,334
EXPENSES
General and administrative			11,908				11,395
Property operating			39,135				36,163
Bad debts, net of recoveries			333				82
Interest			22,407				25,558
Depreciation			24,430				21,567
Amortization			1,169				2,620
			99,382				97,385
INCOME FROM CONTINUING OPERATIONS			9,856				5,949
DISCONTINUED OPERATIONS
Income from discontinued operations			2,387				8,959
Impairments			(29	)			(2,792	)
Gain on sales of real estate properties			8,352				37,871
INCOME FROM DISCONTINUED OPERATIONS			10,710				44,038
NET INCOME		$	20,566			$	49,987
Basic Earnings Per Common Share
Income from continuing operations per common share		$	0.20			$	0.13
Discontinued operations per common share			0.22				0.94
Net income per common share		$	0.42			$	1.07
Diluted Earnings Per Common Share
Income from continuing operations per common share		$	0.20			$	0.13
Discontinued operations per common share			0.21				0.92
Net income per common share		$	0.41			$	1.05
Weighted Average Common Shares Outstanding — Basic			49,422,391				46,575,554
Weighted Average Common Shares Outstanding — Diluted			50,442,808				47,587,624
Dividends Declared, per Common Share, During the Period		$	0.77			$	6.07

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, 2007, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated

(Dollars in thousands)

(Unaudited)

		2008				2007
Operating Activities
Net income		$	20,566			$	49,987
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			26,480				27,396
Stock-based compensation			2,403				2,666
Straight-line rent receivable			199				(95	)
Straight-line rent liability			86				1,095
Gain on sales of real estate properties			(8,352	)			(37,871	)
Gain on repurchase of notes payable			(9	)			—
Impairments			29				2,792
Equity in losses from unconsolidated LLCs			148				252
Provision for bad debts, net of recoveries			331				82
State income taxes paid, net of refunds			(621	)			(41	)
Changes in operating assets and liabilities:
Other assets			5,866				(2,001	)
Accounts payable and accrued liabilities			(3,686	)			(6,777	)
Other liabilities			(717	)			4,906
Net cash provided by operating activities			42,723				42,391
Investing Activities
Acquisition and development of real estate properties			(37,694	)			(37,963	)
Funding of mortgages and notes receivable			(7,181	)			(4,071	)
Distributions received from unconsolidated LLCs			867				524
Proceeds from sales of real estate			22,040				281,699
Proceeds from mortgages and notes receivable repayments			79				65,519
Net cash provided by (used in) investing activities			(21,889	)			305,708
Financing Activities
Borrowings on notes and bonds payable			90,000				304,839
Repayments on notes and bonds payable			(69,825	)			(365,661	)
Repurchase of notes payable			(5,332	)			—
Special dividend paid			—				(227,157	)
Quarterly dividends paid			(39,067	)			(63,165	)
Proceeds from issuance of common stock			361				1,767
Common stock redemption			(282	)			(30	)
Credit facility amendment fee			(326	)			—
Net cash used in financing activities			(24,471	)			(349,407	)
Decrease in cash and cash equivalents			(3,637	)			(1,308	)
Cash and cash equivalents, beginning of period			8,519				1,950
Cash and cash equivalents, end of period		$	4,882			$	642
Supplemental Cash Flow Information:
Interest paid		$	25,201			$	27,008
Capitalized interest			3,110				1,552
Capital expenditures accrued			7,370				2,130
Mortgage note payable assumed			—				1,840

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, 2007, are an integral part of these financial statements.

Healthcare Realty Trust Incorporated

Notes to Condensed Consolidated Financial Statements

June 30, 2008
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Business Overview

     Healthcare Realty Trust Incorporated (the “Company”) is a real estate investment trust (“REIT”) that integrates owning, developing, financing and managing income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. The Company had investments of approximately $1.8 billion in 181 real estate properties and mortgages as of June 30, 2008, excluding assets classified as held for sale and including investments in three unconsolidated joint venture limited liability companies (“LLCs”). The Company’s 174 owned real estate properties, excluding assets classified as held for sale, are comprised of six facility types, located in 24 states, totaling approximately 10.8 million square feet. As of June 30, 2008, the Company provided property management services to approximately 7.2 million square feet nationwide.

Principles of Consolidation

     The accompanying Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, consolidated variable interest entities (“VIEs”) and certain other affiliated entities with respect to which the Company controlled or controls the operating activities and receives substantially all of the economic benefits. The Company did not consolidate any variable interest entities during 2008 as the real estate properties related to its variable interest entities were sold during 2007 with the sale of the senior living assets.

     The Company accounts for its joint venture investments in accordance with the American Institute of Certified Public Accountants Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures,” which provides guidance on whether an entity should consolidate an investment or account for it under the equity or cost methods.

     The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States for complete financial statements that are included in the Company’s Annual Report to Shareholders on Form 10-K for the year ended December 31, 2007. Management believes, however, that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. All significant inter-company accounts and transactions have been eliminated in the Condensed Consolidated Financial Statements.

     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 (“MD&A”) included in the Company’s Annual Report to Shareholders on Form 10-K for the year ended December 31, 2007. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2008 due to many reasons including, but not limited to, acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of trends.

Variable Interest Entities

     In accordance with Financial Accounting Standards Board (“FASB”) Financial Interpretation No. 46R, “Consolidation of Variable Interest Entities an Interpretation of Accounting Research Bulletin No. 51” (“FIN No. 46R”), a company must evaluate whether certain relationships it has with other entities constitute a variable interest in a variable interest entity (“VIE”). Prior to the sale of the Company’s senior living assets in 2007, the Company had concluded it had a variable interest in 21 VIEs and had also concluded that it was the primary beneficiary in six of the 21 VIEs. Therefore, in accordance with FIN No. 46R, the Company had consolidated the six entities into its Consolidated Financial Statements. As such, the Company’s Condensed Consolidated Income Statement for the three and six months ended June 30, 2007 includes, as part of discontinued operations, the operations of the six VIEs through their respective disposition dates. As of June 30, 2008, the Company concluded that it does not have any relationships with other entities constituting a variable interest in any VIEs.

Use of Estimates in the Condensed Consolidated Financial Statements

     Preparation of the Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America 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 is in the business of owning, developing, managing, and financing healthcare-related properties. The Company is managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision-making. Therefore, in accordance with FASB Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company discloses its operating results in a single segment.

Reclassifications

     Certain reclassifications have been made in the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2007 to conform to the June 30, 2008 presentation.

Revenue Recognition

     The Company recognizes revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”). SAB No. 104 includes four criteria that must be met before revenue is realized or realizable and earned. The Company begins recognizing revenue when all four criteria have been met, such as collectibility is reasonably assured and the tenant has taken possession of or controls the physical use of the leased asset.

     The Company derives most of its revenues from its real estate property 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 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 on the Company’s Condensed Consolidated Statements of Income, 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. Additional rent, generally defined in most lease agreements as the cumulative increase in a Consumer Price Index (“CPI”) from the lease start date to the CPI as of the end of the previous year, is calculated as of the beginning of each year, and is then billed and recognized as income during the year as provided for in the lease. Rental income from properties under master lease

arrangements with tenants is included in master lease rent and rental income from properties with multiple tenant lease arrangements is included in property operating income on the Company’s Condensed Consolidated Statements of Income.

   Interest Income

     Mortgage interest income and notes receivable interest income are recognized based on the interest rates and maturity date or amortized period specific to each note.

   Property operating income

     As of June 30, 2008, the Company had property operating agreements, between the Company and a sponsoring health system, relating to 14 of the Company’s 174 owned real estate properties. The property operating agreements obligate the sponsoring health system to provide to the Company a minimum return on the Company’s investment in the property in return 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 pay to the Company the shortfall under the terms of these agreements. The Company recognizes the shortfall income in other operating income on the Company’s Condensed Consolidated Statements of Income.

Accumulated Other Comprehensive Loss

     SFAS No. 130, “Reporting Comprehensive Income,” requires that foreign currency translation adjustments, minimum pension liability adjustments, unrealized gains or losses on available-for-sale securities, as well as other items, be included in comprehensive income (loss). The Company includes in accumulated other comprehensive loss its cumulative adjustment related to the adoption and subsequent application of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of SFAS No. 87, 88, 106 and 132(R),” which is generally recognized in the fourth quarter of each year.

     Total comprehensive income for the three and six months ended June 30, 2008 and 2007 is detailed in the following table.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands)		2008				2007				2008				2007
Net income		$	13,766			$	13,643			$	20,566			$	49,987
Other comprehensive income			—				—				—				120
Total comprehensive income		$	13,766			$	13,643			$	20,566			$	50,107

Income Taxes

     No provision has been made for federal income taxes. The Company intends at all times to qualify as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. The Company must distribute at least 90% per annum of its real estate investment trust taxable income to its stockholders and meet other requirements to continue to qualify as a real estate investment trust.

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

     The Company classifies interest and penalties related to uncertain tax positions, if any, in the consolidated financial statements as a component of general and administrative expense.

Incentive Plans

     The Company follows the provisions of SFAS No. 123(R), “Share-Based Payment,” for accounting for its stock-based awards. As of June 30, 2008, the Company had issued and outstanding various employee and non-employee stock-based awards. These awards included restricted stock issued to employees pursuant to the Company’s employee stock incentive plans, restricted stock issued to its Board

of Directors under its non-employee director incentive plan, and options issued to employees pursuant to its employee stock purchase plan.

Accounting for Defined Benefit Pension Plans

     The Company accounts for its pension plans in accordance with SFAS No. 158. The Company has pension plans under which the Company’s Board of Directors and certain designated employees may receive retirement benefits upon retirement and the completion of five years of service with the Company. The plans are unfunded and benefits will be paid from earnings of the Company.

Operating Leases

     As described in more detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the Company is obligated under operating lease agreements consisting primarily of the 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 periodically sells properties based on market conditions and 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 Income in accordance with the criteria established in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”). Pursuant to SFAS No. 144, 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 on the Company’s Condensed Consolidated Balance Sheet are reported at the lower of their carrying amount or their 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 of such properties are characterized as impairment losses relating to discontinued operations in the Condensed Consolidated Statements of Income. As of June 30, 2008, the Company had classified eight real estate properties as held for sale.

Land Held for Development

     Land held for development, which is included in construction in progress on the Company’s Condensed Consolidated Balance Sheet, includes parcels of land owned by the Company, upon which the Company intends to develop and own medical office and outpatient healthcare properties. See Note 6 for a detail of the Company’s land held for development.

New Pronouncements

   Fair Value Measurements

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), which is effective for fiscal years beginning after November 15, 2007. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The statement applies to other current pronouncements that require or permit fair value measurements but does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 on January 1, 2008 for its financial assets and liabilities. The Company does not anticipate that the full adoption of SFAS No. 157 will have a significant impact on the Company’s financial position or its results of operations.

   The Fair Value Option for Financial Assets and Financial Liabilities

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”). SFAS No. 159, which became effective for the Company on January 1, 2008, provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different fair value measurement attributes for similar types of assets and liabilities. The Company has elected not to report any of its financial assets or liabilities at fair value. As such, SFAS No. 159 has not had an impact on the Company’s Condensed Consolidated Financial Statements.

   Business Combinations and Noncontrolling Interests in Consolidated Financial Statements

     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS No. 141(R)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” (“SFAS No. 160”). These standards were designed to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. SFAS No. 141(R) requires an acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. SFAS No. 160 also eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS No. 141(R) and SFAS No. 160 will be effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of these new standards to impact its Consolidated Financial Statements.

Note 2. Real Estate and Mortgage Notes Receivable Investments

     The Company had investments of approximately $1.8 billion in 181 real estate properties and mortgage notes receivable as of June 30, 2008, excluding assets classified as held for sale and including investments in three unconsolidated limited liability companies. The Company’s 174 owned real estate properties, excluding assets classified as held for sale, are located in 24 states with approximately 10.8 million total square feet. The table below details the Company’s investments.

						Investment
		Number of												Square
(Dollars and Square Feet in thousands)		Investments				Amount				%				Feet
Owned properties
Master leases
Medical office			9			$	67,729				3.7	%			494
Physician clinics			20				137,673				7.8	%			803
Ambulatory care/surgery			7				39,963				2.3	%			160
Specialty outpatient			6				27,700				1.6	%			118
Specialty inpatient			13				232,469				13.2	%			977
Other			10				43,751				2.5	%			498
			65				549,285				31.1	%			3,050
Financial support agreements
Medical office			14				150,398				8.5	%			1,048
			14				150,398				8.5	%			1,048
Multi-tenanted with occupancy leases
Medical office			79				871,983				49.5	%			6,215
Physician clinics			12				38,626				2.2	%			244
Ambulatory care/surgery			4				58,938				3.3	%			268
Other			—				10,047				0.6	%			—
			95				979,594				55.6	%			6,727
Land held for development			—				16,379				0.9	%			—
Corporate property			—				14,256				0.8	%			—
			—				30,635				1.7	%			—
Total owned properties			174				1,709,912				96.9	%			10,825
Mortgage notes receivable
Medical office			2				20,424				1.1	%			—
Physician clinics			2				16,861				1.0	%			—
			4				37,285				2.1	%			—
Unconsolidated LLC investments, net
Medical office			2				10,714				0.6	%			—
Other			1				6,627				0.4	%			—
			3				17,341				1.0	%			—
Total real estate investments			181			$	1,764,538				100.0	%			10,825

Asset Acquisitions

     The Company did not complete any acquisitions during the first six months of 2008 but continued construction on its properties under development.

     On July 25, 2008, the Company purchased two fully-leased, six-story office buildings, each containing 146,000 square feet, and a six-level parking structure, containing 977 parking spaces, in Dallas, Texas for $59.2 million. The Company funded the transaction with proceeds from its unsecured credit facility.

Asset Dispositions

     During the second quarter of 2008, pursuant to a purchase option exercised by a tenant, the Company disposed of an 83,718 square foot building in Texas in which it had a total gross investment of approximately $18.5 million ($10.4 million, net). The sales price was $18.5 million, and the Company recognized an $8.0 million net gain from the sale, net of closing costs of $0.1 million. The Company also recorded expense of approximately $0.3 million to the gain on sale of real estate properties related to state tax adjustments on the sale of the senior living assets in 2007.

     During the first quarter of 2008, the Company disposed of a 36,951 square foot building in Mississippi in which it had a total gross investment of approximately $2.9 million ($1.6 million, net). The sales price was $2.0 million, and the Company recognized a $0.3 million net gain from the sale, net of closing costs of $0.1 million. Also, the Company sold a 7,500 square foot physician clinic in Texas in which it had a total gross investment of approximately $0.5 million ($0.4 million, net). The sales price was $0.5 million, and the Company recognized a $0.1 million net gain from the sale. Finally, the Company disposed of a parcel of land in Pennsylvania for approximately $0.8 million, which approximated the Company’s net book value. During the first quarter of 2008, the Company also recorded a $0.2 million gain due to the collection of certain receivables by the Company relating to senior living properties sold during 2007.

Purchase Options Exercised

     In April 2008, the Company received notice from a tenant of its intent to purchase five properties from the Company pursuant to purchase options contained in its leases with the Company. The Company’s aggregate investment in the buildings was approximately $23.9 million ($16.8 million, net) at June 30, 2008. The Company expects to sell these properties to the tenant in the first quarter of 2009 for approximately $23.1 million in net proceeds, including $0.8 million in lease termination fees, which should result in a gain on sale of approximately $4.6 million. In accordance with SFAS No. 144, the five properties are classified as held for sale and are included in discontinued operations as of and for the three and six months ended June 30, 2008.

     During 2007, the Company received notice from a tenant of its intent to purchase two buildings from the Company pursuant to purchase options. The Company sold one of the buildings to the tenant during the second quarter of 2008 as discussed in Asset Dispositions above. The parties were in dispute as to the enforceability of the purchase option on the second property and, therefore, the Company was uncertain as to when the transaction would close, if at all. As a result, the second property was not reclassified to assets held for sale and its results of operations were not reclassified to discontinued operations on the Company’s Condensed Consolidated Financial Statements. During July 2008, the Company resolved the dispute with the tenant and agreed to sell the property to the tenant for $38.0 million. The Company’s gross investment in the second building was approximately $46.8 million ($32.8 million, net) and the Company carried a mortgage note payable on the building with a principal balance of $19.8 million at June 30, 2008. The transaction is expected to close during the third quarter of 2008, and the Company expects to recognize a gain on sale of approximately $2.5 million.

     The tables below detail the assets, liabilities, and results of operations included in discontinued operations on the Company’s Condensed Consolidated Statements of Income and included in assets and liabilities held for sale and discontinued operations on the Company’s Condensed Consolidated Balance Sheets.

		June 30,				December 31,
(Dollars in thousands)		2008				2007
Balance Sheet data (as of the period ended):
Land		$	3,585			$	3,055
Buildings, improvements and lease intangibles			24,513				22,736
Personal property			8				70
			28,106				25,861
Accumulated depreciation			(8,452	)			(10,462	)
Assets held for sale, net			19,654				15,399
Other assets, net (including receivables)			575				240
Assets included in discontinued operations, net			575				240
Assets held for sale and discontinued operations, net		$	20,229			$	15,639
Notes and bonds payable		$	4,405			$	—
Accounts payable and accrued liabilities			42				—
Other liabilities			64				34
Liabilities of discontinued operations		$	4,511			$	34

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands, except per share data)		2008				2007				2008				2007
Statements of Income data (for the period ended):
Revenues (1)
Master lease rent		$	1,387			$	2,870			$	2,866			$	9,846
Property operating			14				(113	)			29				198
Straight-line rent			3				26				6				52
Mortgage interest			—				331				—				1,841
Other operating			—				4,492				—				9,277
			1,404				7,606				2,901				21,214
Expenses (2)
General and administrative			(25	)			9				(25	)			9
Property operating			105				451				223				847
Other operating			—				4,151				—				8,364
Bad debt expense, net			—				—				(2	)			—
Interest			82				228				171				487
Depreciation			—				404				147				2,548
			162				5,243				514				12,255
Income from Discontinued Operations			1,242				2,363				2,387				8,959
Impairments			—				—				(29	)			(2,792	)
Gain on sales of real estate properties, net (3)			7,715				7,482				8,352				37,871
Income from Discontinued Operations		$	8,957			$	9,845			$	10,710			$	44,038
Income from Discontinued Operations per basic common share		$	0.18			$	0.21			$	0.22			$	0.94
Income from Discontinued Operations per diluted common share		$	0.17			$	0.21			$	0.21			$	0.92

(1) Total revenues for the three months ended June 30, 2007 include $6.2 million from the senior living assets which were disposed of during 2007. Total revenues for the three months ended June 30, 2008 and 2007 also include $0.5 million and $0.5 million, respectively, related to properties sold other than the senior living assets, and $0.9 million and $0.9 million, respectively, related to properties classified as held for sale. Total revenues for the six months ended June 30, 2007 include $18.0 million from the senior living assets which were disposed of during 2007. Total revenues for the six months ended June 30, 2008 and 2007 include $1.8 million and $1.7 million, respectively, related to properties classified as held for sale, and $1.1 million and $1.5 million, respectively, related to properties sold other than the senior living assets.

(2) Total expenses for the three months ended June 30, 2007 include $4.5 million from the senior living assets which were disposed of during 2007 and $0.5 million related other properties sold in 2007. Total expenses for the three months ended June 30, 2008 and 2007 include $0.2 million and $0.2 million, respectively, related to properties classified as held for sale. Total expenses for the six months ended June 30, 2008 and 2007 include $0.1 million and $10.8 million, respectively, from the senior living assets which were disposed of during 2007, and $0.4 million and $0.6 million, respectively, related to properties classified as held for sale. The six months ended June 30, 2007 also includes $0.9 million related to properties sold other than the senior living assets.

(3) The gain for the three months ended June 30, 2008 and June 30, 2007 includes the gain on the disposal of senior living assets, less certain expenses, of ($0.3) million and $7.3 million, respectively, and $8.0 million and $0.2 million, respectively, less certain expenses from other properties sold. The gain for the six months ended June 30, 2007 includes $37.7 million from the senior living assets which were disposed of during 2007. The gain for the six months ended June 30, 2008 and 2007 includes a gain of $8.4 million and $0.2 million related to other properties sold.

Note 4. Notes and Bonds Payable

     The table below details the Company’s notes and bonds payable. At June 30, 2008, the Company had classified 2 mortgage notes payable totaling $4.4 million as held for sale on the Company’s Condensed Consolidated Balance Sheet. As such, those mortgage notes are not reflected in the June 30, 2008 balances in the table below.

		June 30,				Dec. 31,				Maturity				Contractual				Principal				Interest
(In thousands)		2008				2007				Dates				Interest Rates				Payments				Payments
Unsecured Credit Facility due 2009		$	158,000			$	136,000				1/09			LIBOR + 0.90%				At maturity				Quarterly
Senior Notes due 2011, including premium			297,219				300,864				5/11				8.125%			At maturity				Semi-Annual
Senior Notes due 2014, net of discount			297,214				298,976				4/14				5.125%			At maturity				Semi-Annual
Mortgage notes payable			43,219				49,449				5/11-10/32				5.49%-8.50%			Monthly				Monthly
		$	795,652			$	785,289

     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 June 30, 2008, the Company was in compliance with its financial covenant provisions under its various debt instruments.

Unsecured Credit Facility due 2009

     The Company has a $400.0 million credit facility (the “Unsecured Credit Facility due 2009”) with a syndicate of 10 banks that it entered into in January 2006. The Unsecured Credit Facility due 2009 matures in January 2009, but the term may be extended one additional year at the option of the Company. Loans outstanding under the Unsecured Credit Facility due 2009 bear interest at a rate equal to (x) LIBOR or the base rate (defined as the higher of the Bank of America prime rate or the Federal Funds rate plus 0.50%) plus (y) a margin ranging from 0.60% to 1.20% (currently 0.90%), based upon the Company’s unsecured debt ratings. As of June 30, 2008, the weighted average rate on borrowings outstanding on the facility was approximately 3.36%. Additionally, the Company pays a facility fee per annum on the aggregate amount of commitments. The facility fee may range from 0.15% to 0.30% per annum (currently 0.20%), based on the Company’s unsecured debt ratings. On April 17, 2008, the Company entered into an amendment to its credit facility which modified certain financial covenants and had the effect of providing the Company full borrowing capacity under its credit facility. At June 30, 2008, the Company had $158.0 million outstanding under the facility and had borrowing capacity remaining of $242.0 million.

Senior Notes due 2011

     In 2001, the Company publicly issued $300.0 million of unsecured senior notes due 2011 (the “Senior Notes due 2011”). The Senior Notes due 2011 bear interest at 8.125%, payable semi-annually on May 1 and November 1, and are due on May 1, 2011, unless redeemed earlier by the Company. The notes were originally issued at a discount of approximately $1.5 million, which yielded an 8.202% interest rate per annum upon issuance. The Company entered into interest rate swap agreements between 2001 and 2006 for notional amounts totaling $125.0 million to offset changes in the fair value of $125.0 million of the notes. The Company terminated the interest rate swaps in 2006. The net premium resulting from the interest rate swaps, net of the original discount, is combined with the principal balance of the Senior Notes due 2011 on the Company’s Condensed Consolidated Balance Sheets and is being amortized against interest expense over the remaining term of the notes yielding an effective interest rate on the notes of 7.896%.

     The following table reconciles the balance of the Senior Notes due 2011 on the Company’s Condensed Consolidated Balance Sheets.

		June 30,				December 31,
(In thousands)		2008				2007
Senior Notes due 2011 face value		$	296,480			$	300,000
Unamortized net gain (net of discount)			739				864
Senior Notes due 2011 carrying amount		$	297,219			$	300,864

Senior Notes due 2014

     In 2004, the Company publicly issued $300.0 million of unsecured senior notes due 2014 (the “Senior Notes due 2014”). The Senior Notes due 2014 bear interest at 5.125%, payable semi-annually on April 1 and October 1, and are due on April 1, 2014, unless redeemed earlier by the Company. The notes were issued at a discount of approximately $1.5 million, yielding an effective interest rate of 5.19% per annum.

     The following table reconciles the balance of the Senior Notes due 2014 on the Company’s Condensed Consolidated Balance Sheets.

		June 30,				December 31,
(In thousands)		2008				2007
Senior Notes due 2014 face value		$	298,160			$	300,000
Unaccreted discount			(946	)			(1,024	)
Senior Notes due 2014 carrying amount		$	297,214			$	298,976

Mortgage Notes Payable

     The following table details the Company’s mortgage notes payable, with related collateral, at June 30, 2008. At June 30, 2008, the Company had classified two mortgage notes payable totaling $4.4 million to liabilities of discontinued operations on the Company’s Condensed Consolidated Balance Sheet. As such, those mortgage notes are not reflected in the June 30, 2008 balances in the table below:

																						Investment in				Contractual Balance at
						Effective								Number								Collateral
		Original				Interest				Maturity				of Notes								at June 30,				June 30,				Dec. 31,
(Dollars in millions)		Balance				Rate				Date				Payable				Collateral (6)				2008				2008				2007 (7)
Life Insurance Co. (1)		$	23.3				7.765	%			7/26				1			MOB				$	46.8			$	19.8			$	20.0
Life Insurance Co. (2)			4.7				7.765	%			1/17				1			MOB					11.2				2.9				3.0
Commercial Bank (3)			23.4				7.220	%			5/11				3			3 MOBs					31.3				4.4				5.1
Commercial Bank (4)			1.8				5.550	%			10/32				1			OTH					7.3				1.8				1.8
Life Insurance Co. (5)			15.1				5.490	%			1/16				1			ASC					32.5				14.3				14.5
															7							$	129.1			$	43.2			$	44.4

     The contractual interest rates for the seven outstanding mortgages ranged from 5.49% to 8.50% at June 30, 2008.

Other Long-Term Debt Information

Long-Term Debt Maturities

     Future maturities of the Company’s notes and bonds payable as of June 30, 2008 were as follows:

						Discount/				Total
		Principal				Premium				Notes and
(Dollars in thousands)		Maturities				Amortization				Bonds Payable				%
2008		$	1,214			$	44			$	1,258				0.2	%
2009(1)			160,574				102				160,676				20.2	%
2010			2,768				115				2,883				0.4	%
2011			298,601				(73	)			298,528				37.5	%
2012			1,436				(177	)			1,259				0.1	%
2013 and thereafter			331,267				(219	)			331,048				41.6	%
		$	795,860			$	(208	)		$	795,652				100.0	%

⁽¹⁾ Includes $158.0 million outstanding on the Unsecured Credit Facility due 2009 which may be extended one additional year at the Company’s option.

Senior Note Repurchases

     In April 2008, the Company’s Board of Directors authorized the Company to repurchase in the open market up to $20.0 million of its Senior Notes due 2011 and $30.0 million of its Senior Notes due 2014. As of June 30, 2008, the Company had repurchased $3.5 million of its Senior Notes due 2011 and $1.8 million of its Senior Notes due 2014. In conjunction with the repurchases, the Company amortized a pro-rata portion of the premium or discount related to the notes and recognized a $9,000 aggregate net gain. Subsequent to June 30, 2008, the Company repurchased an additional $9.5 million of its Senior Notes due 2014. The Company may elect, from time to time, to repurchase and retire its notes either when market conditions are appropriate or as a means to reinvest available cash.

Note 5. Other Assets

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

		June 30,				December 31,
(In thousands)		2008				2007
Straight-line rent receivables		$	22,463			$	23,222
Investments in unconsolidated LLCs			17,341				18,356
Prepaid assets			11,572				12,868
Accounts receivable, net			9,669				15,417
Above-market intangible assets, net			6,609				6,660
Deferred financing costs, net			3,576				4,067
Goodwill			3,487				3,487
Acquired patient accounts receivable, net			1,803				1,912
Customer relationship intangible assets, net			1,292				1,311
Notes receivable, net			552				624
Other			2,994				2,120
		$	81,358			$	90,044

Unconsolidated Limited Liability Companies

     At June 30, 2008, the Company had investments in three joint venture LLCs that had investments in healthcare-related real estate properties. The Company accounts for two of the investments under the equity method and one of the investments under the cost method. The Company’s net investments in the three LLCs are included in other assets on the Company’s Condensed Consolidated Balance Sheet, and the related income or loss is included in other operating income on the Company’s Condensed Consolidated Income Statement. The Company recognized income of approximately $271,000 and $268,000, respectively, for the three months ended June 30, 2008 and 2007 and $539,000 and $526,000, respectively, for the six months ended June 30, 2008 and 2007, related to the LLC accounted for under the cost method. The Company’s income (loss) recognized and distributions received for each period related to its LLCs

accounted for under the equity method are shown in the table below. The equity in losses for the six months ended June 30, 2008 includes $0.3 million relating to a depreciation adjustment recorded by the joint venture for the prior year recognized during the first quarter of 2008 by the Company.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands)		2008				2007				2008				2007
Net LLC investments, beginning of period		$	17,669			$	19,720			$	18,356			$	20,079
Equity in income (losses) recognized during the period			116				(155	)			(148	)			(252	)
Distributions received during the period			(444	)			(262	)			(867	)			(524	)
Net LLC investments, end of period		$	17,341			$	19,303			$	17,341			$	19,303

Note 6. Commitments and Contingencies

Construction in Progress

     As of June 30, 2008, the Company had nine medical office/outpatient buildings under development with estimated completion dates ranging from the third quarter of 2008 through the fourth quarter of 2010. The Company also had land held for development at June 30, 2008 of approximately $16.4 million on which the Company expects to develop and own medical office buildings and outpatient healthcare facilities. The table below details the Company’s construction in progress and land held for development as of June 30, 2008. The information included in the table below represents management’s estimates and expectations at June 30, 2008 which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates and leasing may not reflect actual results.

		Estimated				Property												CIP at				Estimated				Estimated
		Completion				Type								Approximate				June 30,				Remaining				Total
State		Date				(1)				Properties				Square Feet				2008				Fundings				Investment
(Dollars in thousands)
Under construction:
Colorado			3Q 2008			MOB					2				169,000			$	18,883			$	8,517			$	27,400
Arizona			4Q 2008			MOB					2				188,000				19,578				11,422				31,000
Texas			3Q 2009			MOB					1				135,000				7,387				25,613				33,000
Illinois			3Q 2009			MOB					1				100,000				7,073				19,327				26,400
Texas			4Q 2009			MOB					1				120,000				6,646				21,954				28,600
Hawaii			1Q 2010			MOB					1				133,000				16,472				69,528				86,000
Texas			4Q 2010			MOB					1				90,000				8,927				17,373				26,300
Land held for development:
Texas											—								7,962
Illinois											—								8,417
											9				935,000			$	101,345			$	173,734			$	258,700

Other Construction

     The Company also had various remaining first-generation tenant improvements budgeted as of June 30, 2008 totaling approximately $13.0 million related to properties that were developed by the Company, as well as a tenant improvement obligation totaling approximately $0.8 million related to a project developed by a joint venture which the Company accounts for under the equity method.

Legal Proceedings

     On October 9, 2003, HR Acquisition I Corporation (f/k/a Capstone Capital Corporation, “Capstone”), a wholly owned affiliate of the Company, was served with the Third Amended Verified Complaint in a shareholder derivative suit which was originally filed on August 28, 2002 in the Jefferson County, Alabama Circuit Court by a shareholder of HealthSouth Corporation. The suit alleges that certain officers and directors of HealthSouth, who were also officers and directors of Capstone, sold real estate properties from HealthSouth to Capstone and then leased the properties back to HealthSouth at artificially high values, in violation of their fiduciary obligations to HealthSouth. The Company acquired Capstone in a merger transaction in October 1998. None of the Capstone officers and directors remained in their positions following the Company’s acquisition of Capstone. The complaint seeks unspecified compensatory and punitive damages. Following the settlement of a number of claims unrelated to the claims against Capstone, the court lifted a lengthy stay on discovery in April 2007, and discovery is now proceeding. The Company will defend itself vigorously and believes that the claims brought by the plaintiff are not meritorious.

     In connection with the shareholder derivative suit discussed above, Capstone filed a claim with its directors’ and officers’ liability insurance carrier, Twin City Fire Insurance Company (“Twin City”), an affiliate of the Hartford family of insurance companies, for indemnity against legal and other expenses incurred by Capstone related to the suit and any judgment rendered. Twin City asserted that the Company’s claim was not covered under the D&O policy and refused to reimburse Capstone’s defense expenses. In September 2005, Capstone filed suit against Twin City for coverage and performance under its insurance policy. In the fourth quarter of 2007, the federal district judge in Birmingham, Alabama entered partial summary judgment on Capstone’s claim for advancement of defense costs under the policy. Capstone and Twin City have agreed to an interim plan for Twin City’s payment of defense costs, fees and expenses, subject to Twin City’s appeal of the partial summary judgment ruling. As of June 30, 2008, the Company had received $1.6 million from Twin City and had recorded approximately $1.2 million in additional receivables due from Twin City for incurred but unreimbursed expenses related to the suit. The Company will continue to bill amounts to Twin City for its expenses incurred in defense of the underlying HealthSouth shareholder derivative litigation. The Company is recording these amounts as an offset to property operating expense on the Company’s Condensed Consolidated Statements of Income. The Company does not believe an appellate reversal of the partial summary judgment ruling is probable. However, if the ruling were to be reversed, the Company would be required to repay all monies received from Twin City.

     In May 2006, Methodist Health System Foundation, Inc. (the “Foundation”) filed suit against a wholly owned affiliate of the Company in the Civil District Court for Orleans Parish, Louisiana. The Foundation is the sponsor under financial support agreements which support two of the Company’s medical office buildings adjoining the Methodist Hospital in east New Orleans. The Foundation received substantial cash proceeds from the sale of the Pendleton Memorial Methodist Hospital to an affiliate of Universal Health Services, Inc. in 2003. The Foundation’s assets and income are not primarily dependent upon the operations of Methodist Hospital, which has remained closed since Hurricane Katrina struck in August 2005. The Foundation’s suit alleges that Hurricane Katrina and its aftermath should relieve the Foundation of its obligations under the financial support agreements. The agreements do not contain any express provision allowing for termination upon a casualty event but do allow for a reduction in the Foundation’s obligation for any insurance proceeds received by the Company for business interruption related to a casualty event. During the first quarter of 2008, the Company settled with its insurance carrier and received insurance proceeds totaling approximately $3.8 million, of which approximately $2.5 million was applied to its business interruption claim, offsetting a portion of the Company’s receivable from the Foundation, and $1.3 million applied to its property casualty claim, offsetting a property casualty receivable, which partially reimbursed the Company for costs it incurred related to rebuilding and reopening its medical office buildings which were damaged from Hurricane Katrina. The Company continues to record revenue under its financial support agreements with the Foundation with approximately $0.9 million recognized as revenue in 2008. At June 30, 2008, the Company had a receivable recorded from the Foundation totaling approximately $2.5 million. If the Foundation is relieved of its obligations to pay the remaining outstanding amounts to the Company, the Company’s cash flows and

results of operations could be negatively impacted. The Company believes the Foundation’s claims are not meritorious and will vigorously defend the enforceability of the financial support agreements.

     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 financial condition or results of operations.

Note 7. Stockholders’ Equity

Earnings per share

     The table below sets forth the computation of basic and diluted earnings per share as required by SFAS No. 128, “Earnings Per Share” for the three and six months ended June 30, 2008 and 2007.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(Dollars in thousands, except per share data)		2008				2007				2008				2007
Weighted Average Shares
Weighted Average Shares Outstanding			50,745,354				47,870,653				50,738,733				47,846,837
Unvested Restricted Stock Shares			(1,313,630	)			(1,267,010	)			(1,316,342	)			(1,271,283	)
Weighted Average Shares — Basic			49,431,724				46,603,643				49,422,391				46,575,554
Weighted Average Shares — Basic			49,431,724				46,603,643				49,422,391				46,575,554
Dilutive effect of Restricted Stock Shares			1,000,560				943,539				971,782				970,680
Dilutive effect of Employee Stock Purchase Plan			42,478				30,152				48,635				41,390
Weighted Average Shares — Diluted			50,474,762				47,577,334				50,442,808				47,587,624
Net Income
Income from Continuing Operations		$	4,809			$	3,798			$	9,856			$	5,949
Discontinued Operations			8,957				9,845				10,710				44,038
Net Income		$	13,766			$	13,643			$	20,566			$	49,987
Basic Earnings per Common Share
Income from Continuing Operations per common share		$	0.10			$	0.08			$	0.20			$	0.13
Discontinued Operations per common share			0.18				0.21				0.22				0.94
Net Income per common share		$	0.28			$	0.29			$	0.42			$	1.07
Diluted Earnings per Common Share
Income from Continuing Operations per common share		$	0.10			$	0.08			$	0.20			$	0.13
Discontinued Operations per common share			0.17				0.21				0.21				0.92
Net Income per common share		$	0.27			$	0.29			$	0.41			$	1.05

Common Stock Dividends

     During 2008, the Company’s Board of Directors has declared common stock cash dividends as shown in the table below:

Per Share

Date of

Date Paid

Dividend

Amount

Declaration

Date of Record

(* Payable)

4th Quarter 2007

$

0.385

January 29, 2008

February 15, 2008

March 3, 2008

1st Quarter 2008

$

0.385

April 29, 2008

May 15, 2008

June 3, 2008

2nd Quarter 2008

$

0.385

July 29, 2008

August 15, 2008

* September 3, 2008

Equity Offering

     On September 28, 2007, the Company sold 2,760,000 shares of common stock, par value $0.01 per share, at $24.85 per share to an investment bank. The transaction generated approximately $68.4 million in net proceeds to the Company. The proceeds were used to fund acquisitions under contract and construction underway of medical office and outpatient facilities and for other general purposes; and were used to temporarily repay a portion of amounts outstanding under the Company’s Unsecured Credit Facility due 2009.

Authorization to Repurchase Common Stock

     The Company’s Board of Directors has authorized the repurchase of up to 3,000,000 shares of the Company’s common stock. Such purchases, if any, may be made either in the open market or through privately negotiated transactions. As of June 30, 2008, the Company had not repurchased any shares under this authorization.

Incentive Plans

     The Company has issued and outstanding various employee and non-employee stock-based awards. These awards include restricted stock issued to employees pursuant to the Company’s employee stock incentive plans, restricted stock issued to its Board of Directors under its non-employee director incentive plan, and options issued to employees pursuant to its employee stock purchase plan.

     A summary of the activity under the restricted stock incentive plans for the three and six months ended June 30, 2008 and 2007 is included in the table below.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Nonvested shares, beginning of period			1,302,682				1,253,376				1,289,646				1,261,613
Granted			16,096				45,332				65,800				65,706
Vested			(8,000	)			(1,050	)			(41,388	)			(27,410	)
Forfeited			—				—				(3,280	)			(2,251	)
Nonvested shares, end of period			1,310,778				1,297,658				1,310,778				1,297,658

     Under the Company’s employee stock purchase plan, in January of each year each eligible employee is able to purchase up to $25,000 of Common Stock at the lesser of 85% of the market price on the date of grant or 85% of the market price on the date of exercise of such option. The number of shares subject to each year’s option becomes fixed on the date of grant. Options granted under the employee stock purchase plan expire if not exercised 27 months after each such option’s date of grant. In accordance with SFAS No. 123(R), the Company recorded approximately $216,000 to general and administrative expenses during the first quarter of 2008 relating to the annual grant of options to its employees under the employee stock purchase plan.

     A summary of the activity under the employee stock purchase plan for the three and six months ended June 30, 2008 and 2007 is included in the table below.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Outstanding, beginning of period			360,564				275,875				179,603				171,481
Granted			—				—				194,832				128,928
Exercised			(846	)			(2,866	)			(2,950	)			(7,186	)
Forfeited			(9,064	)			(10,641	)			(20,831	)			(30,855	)
Expired			(74,294	)			(66,911	)			(74,294	)			(66,911	)
Outstanding and exercisable, end of period			276,360				195,457				276,360				195,457