Business Combinations

6 Months Ended

Jun. 30, 2011

Business Combinations [Abstract]

Business Combinations

16.  Business Combinations

For the six months ended June 30, 2011, we completed the acquisition of one new property portfolio as well as expanded two of our existing property portfolios through the purchase of an additional medical office building within each, adding a total of approximately 188,000 square feet of GLA to our property portfolio. The aggregate purchase price for these acquisitions was $36,314,000 plus closing costs of $336,000. See Note 3, Real Estate Investments, Net, Assets Held for Sale, and Discontinued Operations, for a listing of the properties acquired and the dates of acquisition. Results of operations for the property acquisitions are reflected in our interim condensed consolidated statements of operations for the three and six months ended June 30, 2011 for the periods subsequent to the acquisition dates.

As of June 30, 2011, the aggregate purchase price was allocated in the amount of $945,000 to land, $24,539,000 to building and improvements, $1,794,000 to tenant improvements, $852,000 to lease commissions, $4,867,000 to leases in place, $2,887,000 to tenant relationships, $603,000 to above market leasehold interest in land, $(76,000) to above market debt, $20,000 to above market leases, and $(117,000) to below market leases.

For the six months ended June 30, 2010, we completed the acquisition of 12 new property portfolios as well as purchased an additional medical office building within two of our existing property portfolios. In addition, we purchased the remaining 20% interest in the JV Company that owns the Chesterfield Rehabilitation Center. These purchases added a total of approximately 1,160,000 square feet of GLA to our overall property portfolio. The aggregate purchase price associated with these acquisitions was $252,109,000 plus closing costs of $2,992,000. The aggregate purchase price was allocated in the amount of $12,297,000 to land, $184,183,000 to building and improvements, $10,258,000 to tenant improvements, $6,485,000 to lease commissions, $13,549,000 to leases in place, $18,320,000 to tenant relationships, $218,000 to leasehold interest in land, $(3,740,000) to above market debt, $5,139,000 to above market leases, and $(51,000) to below market leases. These amounts pertained to all acquisitions during the period except for the Chesterfield Rehabilitation Center noncontrolling interest purchase, which was accounted for as an equity transaction and thus it is not included within the aggregate purchase price allocation disclosed herein. Additionally, the allocable portion of the aggregate purchase price did not include $1,551,000 in certain credits representative of contingent purchase price adjustments and liabilities assumed by us that served to reduce the total cash tendered for these acquisitions.

In accordance with ASC 805, Business Combinations, or ASC 805, we, with assistance from independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the value of the property as if it were to be replaced and vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in place leases, the value of in place leases, tenant relationships, above or below market debt assumed, and any contingent consideration transferred in the combination.

As of June 30, 2011, we owned one property, purchased during the third quarter of 2010, which is subject to an earnout provision obligating us to pay additional consideration to the seller contingent on the future leasing and occupancy of vacant space at the property. This earnout payment is based on a predetermined formula and has a set 24-month time period regarding the obligation to make these payments. If, at the end of this time period, which expires August 4, 2012, certain space has not been leased and occupied, we will have no further obligation. The total liability balance associated with the earnout at June 30, 2011 was $2,481,000. As of June 30, 2011 no payments under the earnout agreement have been made.

Brief descriptions of the property acquisitions completed for the six months ended June 30, 2011 are as follows:

•  An approximately 20,000 square foot medical office building located in Phoenix, Arizona, which was purchased on February 11, 2011 for $3,762,000. This acquisition represented the final building of three in our existing Phoenix portfolio; the other two buildings comprising this portfolio were purchased during the fourth quarter of 2010.

•  An approximately 47,000 square foot building located in North Adams, Massachusetts, which was purchased on February 16, 2011 for $9,182,000. This building was the final building within a portfolio of nine medical office buildings located in Albany and Carmel, New York, North Adams, Massachusetts, and Temple Terrace, Florida; the other eight buildings comprising the portfolio were purchased during the fourth quarter of 2010.

•  A two-building portfolio located in Bristol, Tennessee, which was purchased on March 24, 2011 for an aggregate price of $23,370,000. The first building, an approximately 40,000 square foot medical office building, was purchased for $5,925,000, and the second, an approximately 81,000 square foot medical office building, was purchased for $17,445,000. Both buildings within this portfolio are located near the campus of Wellmont Health System’s Bristol Regional Medical Center.

We recorded revenues and net losses for the three months ended June 30, 2011 of approximately $1,215,000 and $(72,000), respectively, related to the above acquisitions. Net losses include $20,000 in closing cost expenses related to the acquisitions.

We recorded revenues and net losses for the six months ended June 30, 2011 of approximately $1,448,000 and $(397,000), respectively, related to the above acquisitions. Net losses include $265,000 in closing cost expenses related to the acquisitions.

Supplementary Pro-Forma Information

Assuming the property acquisitions discussed above had occurred on January 1, 2011, for the three months ended June 30, 2011, pro forma revenues, net income and net income per basic and diluted share would have been $66,426,000, $1,162,000 and $0.01, respectively. Supplemental pro forma earnings for the three months ended June 30, 2011 were adjusted to exclude $20,000 of acquisition-related costs incurred during the three months ended June 30, 2011. For the six months ended June 30, 2011, pro forma revenues, net income and net income per basic and diluted share would have been $136,575,000, $3,413,000 and $0.02, respectively. Supplemental pro forma earnings for the six months ended June 30, 2011 were adjusted to exclude $265,000 of acquisition-related costs incurred during the six months ended June 30, 2011.

Assuming the property acquisitions discussed above had occurred on January 1, 2010, for the three months ended June 30, 2010, pro forma revenues, net income and net income per basic and diluted share would have been $46,863,000, $209,000 and $0.00, respectively. Supplemental pro forma earnings for the three months ended June 30, 2010 were adjusted to exclude $20,000 of acquisition-related costs incurred during the three months ended June 30, 2011. For the six months ended June 30, 2010, pro forma revenues, net loss and net loss per basic and diluted share would have been $91,147,000, $(308,000) and $0.00, respectively. Supplemental pro forma earnings for the six months ended June 30, 2010 were adjusted to exclude $265,000 of acquisition-related costs incurred during the six months ended June 30, 2011.

The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.