Acquisitions, Dispositions and Mortgage Repayments

2012 Real Estate Acquisitions

During 2012, the Company acquired the following properties:


•	a 58,285 square foot medical office building in South Dakota for a purchase price and cash consideration of approximately $15.0 million. The property is 100% leased under a single-tenant net lease with an affiliate of “AA-” rated Sanford Health, with a parent guarantee, and the lease expires in 2022. The property is connected to a Sanford Health acute care hospital that opened in June 2012;

•

a 23,312 square foot medical office building in North Carolina for a purchase price and cash consideration of approximately $6.4 million. The building is 100% occupied by two tenants with an affiliate of “AA-” rated Carolinas Healthcare System (“CHS”) which occupied 93% of the building as of the acquisition. The property is adjacent to a CHS hospital campus in which the Company owns six additional medical office buildings totaling approximately 187,000 square feet;


•	the fee simple interest in 9.14 acres of land in Pennsylvania for a purchase price and cash consideration of approximately $1.1 million. The Company previously held a ground lease interest in this property;

•

a 76,484 square foot medical office building in Texas for a purchase price of approximately $10.7 million. Concurrent with the acquisition, the Company's construction mortgage note receivable totaling $9.9 million, which was secured by the building, was repaid, resulting in cash consideration paid by the Company of approximately $0.8 million. The building was 100% leased at the time of the acquisition;


•	a 39,345 square foot medical office building in Tennessee for a purchase price and cash consideration of approximately $11.0 million. The building was 100% occupied at the time of acquisition with lease expirations through 2025;


•	a 47,225 square foot medical office building in Washington for a purchase price and cash consideration of approximately $9.4 million. The building was 89% occupied at the time of acquisition with lease expirations through 2021;


•	a 66,095 square foot inpatient rehabilitation facility in Texas for a purchase price and cash consideration of approximately $30.6 million. The facility was 100% leased at the time of acquisition and the lease expires in 2032; and

•

an 83,318 square foot medical office building in Iowa for a purchase price of approximately $20.4 million, including cash consideration of $15.5 million and the assumption of debt of $4.9 million (excluding a $0.3 million fair value adjustment premium recorded upon acquisition). The mortgage note payable assumed by the Company bears a contractual interest rate of 5.74% and matures in 2020. The building was 100% leased at the time of acquisition by a wholly-owned entity of Mercy Medical Center and the lease expires in 2020.

A summary of the Company’s 2012 acquisitions is shown in the table below:



(Dollars in millions)	Date Acquired	Purchase Price		Construction Mortgage Note Receivable Repayments			Mortgage Notes Payable Assumed			Cash Consideration (1)		Real Estate		Other			Square Footage
Real estate acquisitions
South Dakota	1/20/12	$	15.0	$	—		$	—		$	15.0	$	15.0	$	—		58,285
North Carolina	2/10/12	6.4		—			—			6.4		6.4		—			23,312
Pennsylvania	3/16/12	1.1		—			—			1.1		1.1		—			—
Texas	5/23/12	10.7		(9.9		)	—			0.8		10.7		—			76,484
Tennessee	10/9/12	11.0		—			—			11.0		11.0		—			39,345
Washington	10/12/12	9.4		—			—			9.4		9.4		—			47,225
Texas	12/20/12	30.6		—			—			30.6		30.6		—			66,095
Iowa	12/21/12	20.4		—			(4.9		)	15.5		20.6		(0.2		)	83,318
		$	104.6	$	(9.9	)	$	(4.9	)	$	89.8	$	104.8	$	(0.2	)	394,064

(1) Cash Consideration excludes receivables acquired and liabilities assumed in the acquisitions.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the real estate acquisitions for 2012 as of the acquisition date:



	Estimated Fair Value			Estimated Useful Life
	(In millions)			(In years)
Buildings	$	85.1		20.0-38.0
Land	13.5			—
Prepaid ground leases	0.7			54.0
Intangibles:
At-market lease intangibles	6.2			4.9-19.3
Total intangibles	6.2
Mortgage notes payable assumed, including fair value adjustments	(5.2		)
Mortgage notes payable repayments	(9.9		)
Accounts payable, accrued liabilities and other liabilities assumed	(0.9		)
Prorated rent, net of expenses paid	0.3
Total cash consideration (1)	$	89.8

(1) Total cash consideration includes receivables acquired and liabilities assumed in the acquisition as well as rental prorations and expense disbursements but excludes acquisition and closing costs expensed totaling approximately $0.5 million.

2011 Real Estate Acquisitions

The Company acquired a seven outpatient property portfolio in Richmond, Virginia from affiliates of Woolfolk Medical Group, LLC for an aggregate purchase price of approximately $148.3 million, including the assumption of debt of approximately $52.4 million, but excluding fair value adjustments and prepaid ground rent of approximately $12.8 million, resulting in cash consideration of $95.9 million. The properties are all on hospital campuses, comprise approximately 548,209 square feet, and at the time of the acquisitions were approximately 95.4% leased, with Bon Secours Health System (“BSHS”) and its affiliates leasing approximately 35.0% of the total square footage of the portfolio. BSHS is a not-for-profit, “A-” rated, health system, based in Marriottsville, Maryland, that generated approximately $2.8 billion in revenue during 2010 and operated 18 acute care hospitals with approximately 2,938 beds in seven states as of December 31, 2010. The Company expensed approximately $1.3 million and $0.3 million, respectively, in project costs related to the acquisition of the Richmond portfolio during 2011 and 2010.

The Company acquired, in two separate transactions, the fee simple interest in 7.8 acres and 16.2 acres of land in Pennsylvania for a purchase price and cash consideration of $1.9 million and $3.6 million, respectively, which are related to two specialty inpatient facilities owned by the Company. The Company previously ground leased the land parcels.

The Company purchased the remaining noncontrolling equity interests in two consolidated joint ventures for a total aggregate purchase price of $5.1 million. The carrying 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 due to the Company totaling $3.5 million that had been secured by the noncontrolling joint venture equity interests. The Company had previously consolidated these joint ventures in its financial statements. At the time of the acquisition, one of the joint ventures owned nine 100% leased outpatient facilities located in Iowa with an aggregate investment of approximately $87.6 million and 369,000 square feet and the second joint venture was constructing two medical office buildings and a parking garage located in Colorado with an aggregate budget of approximately $54.9 million.

A summary of the Company’s 2011 acquisitions follows:



(Dollars in millions)	Date Acquired	Purchase Price		Mortgage Notes Payable Assumed				Cash Consideration (2)			Real Estate			Note Receivable Repayment				Non-controlling interests			APIC			Other				Square Footage
Real estate acquisitions
Pennsylvania	4/28/11	$	1.9	$	—			$	1.9		$	1.9		$	—			$	—		$	—		$	—			—
Virginia	6/30/11	32.0		—				32.0			31.9			—				—			—			0.1				142,015
Virginia (1)	8/4/11	26.2		(12.2		)		14.0			26.4			—				—			—			(0.2		)		87,816
Virginia (1)	8/4/11	43.4		(18.6		)		24.8			43.8			—				—			—			(0.4		)		142,856
Virginia (1)	8/30/11	14.0		(7.0		)		7.0			14.6			—				—			—			(0.6		)		59,240
Virginia (1)	9/30/11	14.9		(7.5		)		7.4			15.1			—				—			—			(0.2		)		42,957
Virginia (1)	10/26/11	11.3		(4.5		)		6.8			11.6			—				—			—			(0.3		)		41,882
Virginia (1)	10/26/11	6.5		(2.6		)		3.9			6.6			—				—			—			(0.1		)		31,443
Pennsylvania	11/15/11	3.6		—				3.6			3.6			—				—			—			—				—
		153.8		(52.4		)		101.4			155.5			—				—			—			(1.7		)		548,209
Purchase of noncontrolling interests		5.1		—				1.3			—			(3.5		)		3.6			1.5			(0.3		)		—
		$	158.9	$	(52.4	)	—	$	102.7	—	$	155.5	—	$	(3.5	)	—	$	3.6	—	$	1.5	—	$	(2.0	)	—	548,209


(1)	The mortgage notes payable assumed in these acquisitions do not reflect fair value adjustments totaling $2.0 million recorded by the Company upon acquisition (included in Other).


(2)	Cash Consideration excludes receivables acquired and liabilities assumed in the acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the real estate acquisitions as of the acquisition date for 2011:



	Estimated Fair Value			Estimated Useful Life
	(In millions)			(In years)
Buildings	$	139.5		25.0-33.0
Land	5.5			—
Prepaid ground leases	12.8			94.2-94.5
Intangibles:
At-market lease intangibles	10.5			2.0-5.0
Above-market lease intangibles	0.3			0.9-4.7
Below-market lease intangibles	(0.1		)	2.7-6.3
Total intangibles	10.7
Accounts receivable and other assets acquired	0.3
Mortgage notes payable assumed, including fair value adjustments	(54.4		)
Accounts payable, accrued liabilities and other liabilities assumed	(0.5		)
Prorated rent, net of expenses paid	0.6
Total cash consideration (1)	$	114.5


(1)	Total cash consideration includes receivables acquired and liabilities assumed in the acquisition as well as rental prorations and expense disbursements.

2012 Asset Dispositions

During 2012, the Company disposed of the following properties:

•

a 14,748 square foot on-campus medical office building and an 18,978 square foot off-campus medical office building, both in Texas, in which the Company had an aggregate net investment of approximately $2.5 million. The sales price for the two properties was approximately $3.5 million, which included $0.4 million in net cash proceeds, the origination of a $3.0 million seller-financed mortgage note receivable as discussed below in “Seller-Financed Mortgage Notes," and closing costs of approximately $0.1 million. The Company recognized a $0.9 million net gain on the disposal;

•

a 35,752 square foot on-campus medical office building in Florida, in which the Company had a net investment of approximately $3.0 million. The sales price for the building was approximately $7.2 million, which included $5.7 million in net cash proceeds and a lease termination fee of $1.5 million, included in income from discontinued operations. The Company recognized a $2.5 million net gain on the disposal;


•	a 33,895 square foot off-campus medical office building in Florida in which the Company had a net investment of approximately $0.5 million. The sales price and net cash proceeds received from the sale were approximately $0.5 million;

•

an 82,664 square foot off-campus medical office building in Texas, in which the Company had a net investment of approximately $4.8 million. The sales price for the building was approximately $4.7 million, which included the origination of a $4.5 million seller-financed mortgage note receivable as discussed below in “Seller-Financed Mortgage Notes," and closing costs of approximately $0.2 million. The Company recognized a $0.4 million impairment on the disposal, including the write-off of straight-line rent receivables;


•	an 18,476 square foot off-campus medical office building in Tennessee, in which the Company had a net investment of approximately $0.8 million. The sales price for the building was approximately $0.9 million, which included net cash proceeds of approximately $0.8 million and closing costs of approximately $0.1 million;

•

four off-campus medical office buildings and one on-campus medical office building totaling 272,571 square feet, located in Florida, in which the Company had a net aggregate investment of approximately $31.2 million, were sold to a single buyer. The sales price for the buildings was approximately $33.3 million, which included net cash proceeds of $28.7 million, the origination of a $3.7 million seller-financed mortgage note, a $0.6 million contingent liability, and closing costs of approximately $0.3 million. The Company recognized a $0.1 million impairment on the disposal, including the write-off of straight-line rent receivables. These properties were not previously classified as held for sale;


•	a 16,578 square foot on-campus medical office building in Texas, in which the Company had an aggregate net investment of approximately $0.5 million. The sales price for the building was approximately $0.6 million, which included net cash proceeds of approximately $0.5 million and closing costs of approximately $0.1 million;


•	an 8,990 square foot off-campus medical office building in Florida, in which the Company had an aggregate net investment of approximately $0.9 million. The sales price and net cash proceeds for the building were approximately $0.5 million. The Company recognized a $0.4 million impairment on the disposal;

•

an 80,740 square foot off-campus medical office building in Texas, in which the Company had an aggregate net investment of approximately $12.0 million. The sales price for the building was approximately $21.4 million, which included net cash proceeds of approximately $19.0 million, amounts escrowed for tenant improvements of approximately $2.0 million, and closing costs of approximately $0.4 million. The Company recognized a $6.3 million gain on the disposal, net of straight-line rent receivables written off. This property was not previously classified as held for sale;

•

a 61,763 square foot off-campus medical office building and a 9,582 square foot off-campus medical office building, both in Florida in a single transaction, in which the Company had an aggregate net investment of approximately $10.8 million. The sales price for the buildings was approximately $8.8 million, which included net cash proceeds of approximately $8.7 million and closing costs and other adjustments of approximately $0.1 million. The Company recognized a $2.5 million impairment on the disposals, net of straight-line rent receivables and other assets written off. These properties were not previously classified as held for sale;

•

a 31,650 square foot on-campus medical office building and a 9,168 square foot medical office building, both in Iowa, in which the Company had an aggregate net investment of approximately $6.7 million. The sales price and net cash proceeds for the two properties were approximately $8.0 million. The Company recognized a $1.2 million gain on the disposal. These properties were not previously classified as held for sale; and

•

a 62,271 square foot on-campus medical office building in Florida, in which the Company had an aggregate net investment of approximately $9.7 million. The sales price for the building was approximately $2.1 million, which included net cash proceeds of approximately $2.0 million and closing costs of approximately $0.1 million. The Company recognized a $7.7 million impairment on the disposal. This property was not previously classified as held for sale.

Also, during 2012, five mortgage notes receivable totaling approximately $14.8 million were repaid and one mortgage note receivable of $9.9 million was repaid in full in conjunction with the acquisition of a medical office building in Texas as discussed in "2012 Real Estate Acquisitions" above.

Additionally, a construction mortgage note receivable totaling approximately $35.1 million was repaid in full in January 2012. The construction mortgage note was funding the ongoing development of an inpatient facility in South Dakota that was leased by Sanford Health. In September 2011, the Company began consolidating the construction project upon its conclusion that it was the primary beneficiary of the VIE that was constructing the facility. As a result of the consolidation of the VIE, the Company also eliminated the construction mortgage note and related interest on its Consolidated Financial Statements. Upon repayment of the mortgage note in 2012, the Company deconsolidated the VIE and recognized net mortgage interest income of $0.4 million and overhead expense of $0.1 million, resulting in a net gain to the Company of $0.3 million.

A summary of the Company’s 2012 dispositions follows:



(Dollars in millions)	Date Disposed	Sales Price		Closing Adjustments			Mortgage Notes			Net Proceeds		Net Real Estate Investment		Other (including receivables)			Gain/ (Impairment)			Square Footage
Real estate dispositions
Texas (1) (2) (3)	1/10/12	$	3.5	$	(0.1	)	$	(3.0	)	$	0.4	$	2.5	$	—		$	0.9		33,726
Florida (1)	1/19/12	7.2		(1.5		)	—			5.7		3.0		0.2			2.5			35,752
Florida (1)	3/2/12	0.5		—			—			0.5		0.5		—			—			33,895
Texas (1) (4)	3/16/12	4.7		(0.2		)	(4.5		)	—		4.8		0.1			(0.4		)	82,664
Tennessee (1)	4/13/12	0.9		(0.1		)	—			0.8		0.8		—			—			18,476
Florida (5)	4/18/12	33.3		(0.9		)	(3.7		)	28.7		31.2		1.3			(0.1		)	272,571
Texas (1)	7/20/12	0.6		(0.1		)	—			0.5		0.5		—			—			16,578
Florida (1)	8/22/12	0.5		—			—			0.5		0.9		—			(0.4		)	8,990
Texas	8/27/12	21.4		(2.4		)	—			19.0		12.0		0.7			6.3			80,740
Florida (2)	9/14/12	8.8		(0.1		)	—			8.7		10.8		0.4			(2.5		)	71,345
Iowa (2)	12/12/12	8.0		—			—			8.0		6.7		0.1			1.2			40,818
Florida	12/17/12	2.1		(0.1		)	—			2.0		9.7		—			(7.7		)	62,271
		91.5		(5.5		)	(11.2		)	74.8		83.4		2.8			(0.2		)	757,826
Mortgage note repayments		—		—			24.7			24.7		—		—			—			—
Deconsolidation of VIE (6)		—		—			—			35.1		38.2		(3.4		)	0.3			113,602
		$	91.5	$	(5.5	)	$	13.5		$	134.6	$	121.6	$	(0.6	)	$	0.1		871,428


(1)	Previously included in assets held for sale.


(2)	Includes two properties.


(3)	Mortgage note was repaid in November 2012.


(4)	Mortgage note was repaid in April 2012.


(5)	Includes five properties.


(6)	“Other” includes construction liabilities transferred upon deconsolidation. “Gain” includes $0.4 million of net mortgage interest income recognized, partially offset by $0.1 million of general and administrative overhead expense that had been capitalized into the project that was reversed upon deconsolidation.

2012 Seller-Financed Mortgage Notes

During 2012, the Company:


•	originated a $3.0 million seller-financed mortgage note receivable with the purchaser of two medical office buildings located in Texas that were sold by the Company as discussed in “2012 Asset Dispositions” above. This note was repaid in November 2012;


•	originated a $4.5 million seller-financed mortgage note receivable with the purchaser of a medical office building located in Texas that was sold by the Company as discussed in “2012 Asset Dispositions” above. This note was repaid in April 2012; and


•	originated a $3.7 million seller-financed mortgage note receivable with the purchaser related to two of five medical office buildings located in Florida that were sold by the Company as discussed in "2012 Asset Dispositions" above. The note is interest only with a stated fixed interest rate of 7.5% and matures in April 2015.

2011 Asset Dispositions

During 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 sales price for the building was approximately $3.7 million, which included net cash proceeds of approximately $3.4 million and closing costs of approximately $0.3 million. The Company recognized a $0.1 million impairment on the disposal;


•	a 28,861 square foot medical office building in Florida, in which the Company had a net investment of approximately $3.1 million. The sales price for the building was approximately $3.2 million which included $0.4 million in net cash proceeds, the origination of a $2.7 million seller-financed mortgage note receivable, and closing costs of approximately $0.1 million;


•	a 16,256 square foot medical office building in Florida in which the Company had a net investment of approximately $2.8 million. The sales price for the building was approximately $1.3 million, which included net cash proceeds of approximately $1.2 million and closing costs of approximately $0.1 million. The Company recognized a $1.6 million impairment on the disposal;


•	a 24,900 square foot medical office building in Massachusetts in which the Company had a net investment of approximately $1.6 million. The sales price and net cash proceeds received from the sale were approximately $3.2 million. The Company recognized a $1.6 million gain on the disposal; and


•	a 75,842 square foot medical office building in Massachusetts in which the Company had a net investment of approximately $6.3 million. The sales price and net cash proceeds received from the sale were approximately $11.4 million. The Company recognized a $4.0 million gain on the disposal, including the write-off of straight-line rent receivables.

Also, two mortgage notes receivable totaling approximately $17.2 million were repaid. Upon repayment of one of the mortgage notes receivable, the Company recognized a gain of $1.4 million that had been deferred from the original sale of the building in 2006.

A summary of the Company’s 2011 dispositions follows:



(Dollars in millions)	Date Disposed	Sales Price		Closing Adjustments			Mortgage Notes			Net Proceeds		Net Real Estate Investment		Other (Including Receivables)		Gain/(Impairment)			Square Footage
Real estate dispositions
Maryland	1/19/2011	$	3.7	$	(0.3	)	$	—		$	3.4	$	3.5	$	—	$	(0.1	)	35,761
Florida	2/3/2011	3.2		(0.1		)	(2.7		)	0.4		3.1		—		—			28,861
Florida	8/9/2011	1.3		(0.1		)	—			1.2		2.8		—		(1.6		)	16,256
Massachusetts	12/12/2011	3.2		—			—			3.2		1.6		—		1.6			24,900
Massachusetts	12/12/2011	11.4		—			—			11.4		6.3		1.1		4.0			75,842
		22.8		(0.5		)	(2.7		)	19.6		17.3		1.1		3.9			181,620
Mortgage note repayments		—		—			—			17.2		—		—		1.4			—
		$	22.8	$	(0.5	)	$	(2.7	)	$	36.8	$	17.3	$	1.1	$	5.3		181,620

2011 Seller-Financed Mortgage Notes

During 2011, the Company originated a $2.7 million seller-financed mortgage note receivable with the purchaser in conjunction with the disposal of a medical office building located in Florida. The loan had a stated fixed interest rate of 7.0% and was repaid in August 2012.

2011 Other Mortgage Note Originations

During 2011, the Company provided funding for the following mortgage loans:

•

approximately $40.5 million was funded during the year towards the development of two build-to-suit facilities, affiliated with Mercy Health, with an aggregate construction budget of approximately $202.6 million. The two projects include a 200,000 square foot medical office building in Oklahoma with a construction budget of approximately $91.2 million and a 186,000 square foot orthopedic surgical facility in Missouri with a construction budget of approximately $111.4 million. The loans have stated interest rates of 6.75% and are scheduled to mature upon substantial completion, which is estimated to be in the latter half of 2013. The Company has agreed to acquire the facilities upon substantial completion of construction at a price equal to the amount outstanding under the mortgage notes. The facilities are leased by affiliates of Mercy Health under 14-year absolute net leases with options to purchase the buildings contingent on certain provisions in the lease agreements. Mercy Health, based in St. Louis, Missouri, is the eighth largest Catholic healthcare system in the U.S., has a net worth of more than $2 billion, and maintains a “AA-” credit rating. During 2010, Mercy Health operated 26 acute care hospitals and two heart hospitals in a seven-state area;


•	a $40.0 million mortgage loan was funded 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 in January 2014 and has a stated fixed interest rate of 7.7%; and


•	approximately $2.3 million was funded towards the construction of a medical office building located in Missouri. The 11.0% fixed rate loan, which matured in 2012, was repaid in October 2011.

2013 Acquisitions

In January 2013, the Company purchased a 52,225 square foot medical office building in Tennessee for a purchase price of $16.2 million. The property is 100% leased to four tenants and is adjacent to a 39,345 square foot medical office building the Company purchased in October 2012.

Potential Dispositions

The Company received notice in January 2013 that a tenant is exercising purchase options on two inpatient rehabilitation hospitals, one in Florida and one in Alabama, at the expiration of the current leases on July 15, 2013 and July 31, 2013. The purchase prices will be the greater of fair market value or $11.7 million for the facility in Florida and $17.5 million for the facility in Alabama. The Company's aggregate net investment in the two facilities was approximately $18.7 million, and base rent was approximately $1.0 million per quarter as of December 31, 2012.

The Company is also in discussions with the same tenant on the renewal of its leases on two additional inpatient rehabilitation facilities that expire on September 30, 2013. If the Company and the tenant are unable to come to an agreement on the lease renewals, the Company expects the tenant will exercise its purchase options on the two additional facilities. The purchase price for each of the two additional facilities would be the greater of fair market value or $17.6 million. The Company's aggregate net investment in the two additional facilities was approximately $25.4 million, and base rent was approximately $1.3 million per quarter as of December 31, 2012.

The Company may from time to time sell additional properties and redeploy cash from property sales and mortgage repayments into investments. To the extent revenues related to the properties being sold and the mortgages being repaid exceed income from these investments, the Company’s results of operations and cash flows could be adversely affected.