Acquisitions, Dispositions and Mortgage Fundings

Real Estate Acquisitions

Second Quarter

In April 2013, the Company purchased a 42,627 square foot inpatient rehabilitation facility in Texas for a purchase price and cash consideration of $16.3 million. The property is 100% leased to one tenant.

First Quarter

In January 2013, the Company purchased a 52,225 square foot medical office building in Tennessee for a purchase price and cash consideration of $16.2 million. The Company recorded approximately $0.5 million of market rate lease intangibles upon acquisition. 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.

The following table details the Company's acquisitions for the six months ended June 30, 2013:



(Dollars in millions)	Date Acquired	Purchase Price		Cash Consideration		Real Estate		Other		Square Footage
Real estate acquisitions
Tennessee	1/29/13	$	16.2	$	16.2	$	15.7	$	0.5	52,225
Texas	4/8/13	16.3		16.3		16.3		—		42,627
		$	32.5	$	32.5	$	32.0	$	0.5	94,852

Asset Dispositions

Second Quarter

In April 2013, the Company disposed of a 17,696 square foot medical office building in Tennessee, in which the Company had an aggregate net investment of $0.4 million. The sales price of $0.6 million was funded by the Company under a mortgage note receivable that matures on April 30, 2018 and bears interest at 7.5% per annum. The approximate $0.2 million gain has been deferred and will be recognized as payments on the mortgage note are made under the installment method. The property was not previously classified as held for sale.

In May 2013, the Company disposed of an 8,000 square foot medical office building in Texas, in which the Company had an aggregate net investment of $0.9 million. The sales price was approximately $1.3 million comprised of $1.2 million in net cash proceeds and closing costs of $0.1 million. The Company recognized a $0.3 million gain on the disposal. The property was not previously classified as held for sale.

In May 2013, the Company disposed of a 100,920 square foot medical office building in Texas. The Company had an aggregate net investment of $3.0 million in this property including the effects of a $0.3 million impairment charge recorded in the first quarter of 2013 based on the execution of the sales agreement, a level 2 input. The sales price was approximately $3.2 million comprised of $3.0 million in net cash proceeds and closing costs of $0.2 million. The Company recognized an immaterial gain on the disposal of this property that was previously classified as held for sale.

In June 2013, the Company disposed of a 9,153 square foot medical office building and a 22,572 square foot medical office building, both in Iowa, in which the Company had an aggregate net investment of approximately $5.3 million. The total sales price and cash consideration for the two properties were $6.9 million. In connection with the sales, the Company repaid a mortgage note payable of $1.1 million and incurred debt extinguishment costs of $0.3 million. The Company recognized a $1.5 million aggregate gain on the disposal of the two properties, including the write-off of a straight-line rent receivable of $0.1 million. The properties were not previously classified as held for sale.

First Quarter

In March 2013, the Company disposed of 15.1 acres of land in Texas in which the Company had an aggregate net investment of approximately $8.1 million. The sales price was approximately $5.0 million, which included $1.1 million in net cash proceeds, the origination of a $3.7 million Company-financed mortgage note receivable and closing costs of $0.2 million. The Company-financed mortgage note receivable bears interest of 5.0% in the first year and 6.0% in the second year and matures in March 2015. The Company recognized a $3.3 million impairment on the disposal based on the contractual sales price, a level 1 input. The land parcel was not previously classified as held for sale.

The following table details the Company's dispositions for the six months ended June 30, 2013:



(Dollars in millions)	Date Disposed	Sales Price		Closing Adjustments			Company-Financed Mortgage Notes			Net Proceeds		Net Real Estate Investment		Other (including receivables)		Gain/ (Impairment)			Square Footage
Real estate dispositions
Texas (land)	3/25/2013	$	5.0	$	(0.2	)	$	(3.7	)	$	1.1	$	8.1	$	—	$	(3.3	)	—
Tennessee (1)	4/30/2013	0.6		—			(0.6		)	—		0.4		—		—			17,696
Texas	5/15/2013	1.3		(0.1		)	—			1.2		0.9		—		0.3			8,000
Texas (1)	5/24/2013	3.2		(0.2		)	—			3.0		3.0		—		—			100,920
Iowa (2) (3)	6/3/2013	6.9		—			—			6.9		5.3		0.1		1.5			31,725
Total dispositions		$	17.0	$	(0.5	)	$	(4.3	)	$	12.2	$	17.7	$	0.1	$	(1.5	)	158,341


(1)	Previously included in assets held for sale.


(2)	Includes two properties.


(3)	Repaid a mortgage note payable upon sale of $1.1 million and incurred debt extinguishment costs of $0.3 million.

Subsequent Dispositions

On July 15, 2013, the Company disposed of an inpatient rehabilitation facility located in Florida that was classified as held for sale and in which the Company had a $7.4 million net investment at June 30, 2013. The base rent was approximately $0.4 million per quarter as of June 30, 2013. The sales price was $11.9 million. This property was sold pursuant to a purchase option contained in the lease which expired on July 15, 2013. The Company expects to record a $4.3 million gain on the disposal.

On July 31, 2013, the Company expects to close on the disposition of an inpatient rehabilitation facility located in Alabama that was classified as held for sale and in which the Company had a $11.2 million net investment at June 30, 2013. The base rent was approximately $0.6 million per quarter as of June 30, 2013. The sales price is $17.5 million. This property will be sold pursuant to a purchase option contained in the lease which expires on July 31, 2013. The Company expects to record a $6.2 million gain on the disposal.

Potential Dispositions

The Company received notice in April 2013 that a tenant is exercising purchase options on two inpatient rehabilitation facilities located in Pennsylvania upon the expiration of the current leases on September 30, 2013. The purchase prices will be the greater of fair market value or $17.6 million for each facility. The Company's aggregate net investment in the two facilities was approximately $24.9 million, and base rent was approximately $1.3 million per quarter as of June 30, 2013. Subsequent to providing notice of its exercise of the purchase options, the operator contacted the Company to continue long-term lease renewal discussions for these two properties. These discussions are on-going as of the date of this report. If the Company does not reach an agreement with the tenant to renew these two leases, the properties are expected to be sold on September 30, 2013 pursuant to the option terms.

Mortgage Note Fundings

During the six months ended June 30, 2013, the Company funded $45.9 million on two outstanding construction mortgage notes for build-to-suit facilities leased to Mercy Health. The total amount outstanding on these facilities in Oklahoma and Missouri is approximately $164.3 million at June 30, 2013. Details on the two projects are as follows:

•

The Company provided $18.1 million in fundings during the six months ended June 30, 2013 on the medical office building under construction in Oklahoma, bringing cumulative fundings to date to $74.9 million. This project, which was originally scheduled to be completed in July 2013, sustained tornado damage in late May 2013. The tornado damage has caused a delay in the completion date and an assessment is ongoing as to the total scope of the damage and the expected final completion date. While subject to change, the current estimated completion date is the middle of 2014. Builder's risk insurance is expected to fund the necessary repairs. Approximately $16.3 million remains available under the loan.

•

The Company provided $27.8 million in fundings during the six months ended June 30, 2013 on the orthopedic facility under construction in Missouri, bringing cumulative fundings to date to $89.4 million. This project was scheduled to be completed in November 2013, but is ahead of schedule and is now expected to be completed in September 2013. The Company anticipates funding the remaining $22.0 million under the loan and expects to acquire the facility for the outstanding loan balance during the third quarter of 2013.

Company-Financed Mortgage Notes

During 2013, the Company:


•	originated a $3.7 million seller-financed mortgage note receivable with the purchaser of the land parcel located in Texas that was sold by the Company as discussed in "Asset Dispositions" above.


•	originated a $0.6 million seller-financed mortgage note receivable with the purchaser of a medical office building located in Tennessee that was sold by the Company as discussed in "Asset Dispositions" above.

Noncontrolling Interest

In January 2013, the Company received a $1.4 million capital contribution from a 40% noncontrolling interest holder in a partnership that owns a medical office building and parking garage in Texas included as a property in stabilization. The partnership owner (HRP MAC III, LLC), in which the Company holds a 60% majority controlling interest, is the borrower under a term loan from the Company of approximately $10.3 million. These buildings were constructed by the Company and were previously subject to a construction mortgage note totaling $13.7 million. The Company's equity in and loan to the partnership are eliminated in consolidation.

Discontinued Operations and Assets Held for Sale

At June 30, 2013 and December 31, 2012, the Company had two and one properties, respectively, classified as held for sale.



(Dollars in thousands)	June 30, 2013			December 31, 2012
Balance Sheet data:
Land	$	—		$	3,835
Buildings, improvements and lease intangibles	29,425			5,566
Personal property	—			207
	29,425			9,608
Accumulated depreciation	(10,780		)	(6,303		)
Assets held for sale, net	18,645			3,305
Other assets, net (including receivables)	43			32
Assets of discontinued operations, net	43			32
Assets held for sale and discontinued operations, net	$	18,688		$	3,337

Accounts payable and accrued liabilities	$	23		$	99
Other liabilities	257			32
Liabilities of discontinued operations	$	280		$	131



	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2013			2012			2013			2012
Statements of Operations data:
Revenues
Rental income	$	934		$	2,179		$	1,947		$	6,631
Other operating	—			5			—			10
	934			2,184			1,947			6,641
Expenses
Property operating	120			611			458			1,741
General and administrative	—			—			1			5
Depreciation	25			699			114			1,648
Amortization	7			26			18			51
Bad debt, net of recoveries	—			—			—			(1		)
	152			1,336			591			3,444
Other Income (Expense)
Loss on extinguishment of debt	(270		)	—			(270		)	—
Interest expense	(17		)	(25		)	(41		)	(49		)
Interest and other income, net	6			49			7			165
	(281		)	24			(304		)	116
Discontinued Operations
Income from discontinued operations	501			872			1,052			3,313
Impairments	—			(167		)	(3,630		)	(4,336		)
Gain on sales of real estate properties	1,783			3			1,783			3,431
Income (Loss) from Discontinued Operations	$	2,284		$	708		$	(795	)	$	2,408