Real Estate Investments

2015 Acquisitions

Third Quarter

In September 2015, the Company acquired a 52,813 square foot medical office property in Seattle, Washington for a purchase price of $28.0 million, including cash consideration of $18.6 million and the assumption of debt of $9.4 million (excluding a $0.3 million fair value premium recorded upon acquisition). The mortgage note payable assumed by the Company bears a contractual annual interest rate of 5.00% and matures on July 10, 2019. The property is located on the campus of Providence Health's Swedish Medical Center, a 624-bed acute care hospital. Upon acquisition, the property was 100% leased by one tenant whose lease expires in 2023.

Also in September 2015, the Company acquired a 47,508 square foot medical office building in Denver, Colorado for a purchase price of $6.5 million, including cash consideration of $6.3 million and purchase price credits of $0.2 million. The property is located in close proximity to Catholic Health Initiatives' St. Anthony Hospital, a 224-bed acute care hospital. Upon acquisition, the building was 73% leased.

Second Quarter

In June 2015, the Company acquired a 35,558 square foot medical office property in Seattle, Washington for a purchase price of $14.0 million, including cash consideration of $4.4 million, a purchase price credit of $0.1 million, and the assumption of debt of $9.5 million (excluding a $0.2 million fair value premium recorded upon acquisition). The mortgage note payable assumed by the Company bears a contractual annual interest rate of 5.75% and matures on March 3, 2020. The property is located on the Catholic Health Initiatives campus of Highline Medical Center, a 177-bed general acute care hospital. Upon acquisition, the property was 93% leased, with leases to the hospital comprising 69% of the rentable square feet.

First Quarter

In January 2015, the Company acquired a 110,679 square foot medical office building in San Jose, California for a purchase price of $39.3 million, including cash consideration of $39.0 million and purchase price credits of $0.3 million. The property is located adjacent to two hospital campuses, Kaiser Permanente, a 106-bed hospital, and Washington Hospital Healthcare System, a 353-bed hospital. Upon acquisition, this property was 97% leased, with leases to the two hospitals comprising 59% of the rentable square feet.

The following table details the Company's acquisitions for the nine months ended September 30, 2015:



(Dollars in millions)	Date Acquired	Purchase Price		Purchase Price Credits			Mortgage Notes Payable Assumed ⁽¹⁾			Cash Consideration ⁽²⁾		Real Estate		Other ⁽³⁾			Square Footage
Real estate acquisitions
California	1/15/15	$	39.3	$	(0.3	)	$	—		$	39.0	$	39.2	$	(0.2	)	110,679
Washington	6/26/15	14.0		(0.1		)	(9.5		)	4.4		13.8		0.1			35,558
Washington	9/1/15	28.0		—			(9.4		)	18.6		27.8		0.2			52,813
Colorado	9/14/15	6.5		(0.2		)	—			6.3		6.3		—			47,508
		$	87.8	$	(0.6	)	$	(18.9	)	$	68.3	$	87.1	$	0.1		246,558

______


(1)	The mortgage notes payable assumed in the acquisitions do not reflect the fair value adjustment of $0.5 million recorded by the Company upon acquisition (included in Other).


(2)	Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.


(3)	Includes assets acquired, liabilities assumed, intangibles recognized at acquisition and fair value adjustments on debt assumed.

Subsequent Acquisitions

In October 2015, the Company acquired a 33,169 square foot medical office building in Tacoma, Washington for a purchase price of $8.8 million, including cash consideration of $7.5 million. Upon acquisition, this property was 100% leased. As part of this transaction, the Company also acquired a neighboring 12,077 square foot vacant office building that the Company intends to demolish and hold for future development. The buildings are located adjacent to Tacoma General Hospital, a 340-bed hospital owned by MultiCare Health.

In November 2015, the Company acquired a 99,942 square foot medical office building in Oakland, California for a purchase price of $47.0 million, including cash consideration of $43.1 million. Upon acquisition, the property was 97% leased with expirations through 2026. The building is located on the Sutter Health's Alta Bates Summit Medical Center campus, a 326-bed acute care hospital.

2015 Dispositions

Third Quarter

In July 2015, the Company disposed of an on-campus, 63,914 square foot medical office building located in Pennsylvania pursuant to an exercised purchase option. The property was previously classified as held for sale, and the Company had a $7.4 million net investment. The sales price and net cash proceeds were approximately $18.4 million. The Company recognized a $10.6 million gain upon the disposal of this property, net of straight-line rent receivables and other assets.

In September 2015, the Company completed the following dispositions:

•

an on-campus, 119,903 square foot medical office building located in Florida, in which the Company had a net investment of $10.5 million. The sales price for the building was approximately $16.3 million comprised of net cash proceeds of $15.8 million and closing costs of approximately $0.5 million. The Company recognized a $5.1 million gain upon the disposal of this property, net of straight-line rent receivables and other assets;


•	an on-campus, 40,782 square foot medical office building located in Arizona, in which the Company had a net investment of $2.0 million. The sales price and cash proceeds were approximately $3.0 million. The Company recognized a $0.8 million gain on the disposal, net of straight-line receivables and other assets;

•

an off-campus, 13,478 square foot medical office building located in Missouri, in which the Company had a net investment of $2.9 million. The sales price for the building was approximately $3.0 million comprised of net cash proceeds of $2.8 million and tenant improvement credits of $0.2 million. The Company recorded a $0.3 million impairment on the disposal, net of straight-line rent receivables and other assets; and


•	a Company-financed mortgage note receivable totaling $1.9 million was repaid.

Second Quarter

In May 2015, the Company disposed of an off-campus, 5,323 square foot building located in Virginia in which the Company had a $0.3 million net investment. The sales price and cash proceeds were approximately $1.0 million. The Company recognized a $0.7 million gain on the disposal of this property.

In June 2015, the Company disposed of an on-campus, 58,474 square foot medical office building and a 117,525 square foot surgical facility, located in Indiana, in which the Company had an aggregate net investment of $50.5 million. The sales price for the buildings was approximately $97.0 million comprised of net cash proceeds of $93.3 million, closing costs of approximately $0.6 million, and a tenant improvement allowance credit of $3.1 million. The Company recognized a $40.9 million gain on the disposal, net of straight-line rent receivables and other assets.

The following table details the Company's dispositions for the nine months ended September 30, 2015:



(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
Virginia	5/21/2015	$	1.0	$	—		$	—	$	1.0	$	0.3	$	—	$	0.7		5,323
Indiana ⁽¹⁾	6/30/2015	97.0		(3.7		)	—		93.3		50.5		1.9		40.9			175,999
Pennsylvania ⁽²⁾	7/17/2015	18.4		—			—		18.4		7.4		0.4		10.6			63,914
Florida	9/16/2015	16.3		(0.5		)	—		15.8		10.5		0.2		5.1			119,903
Arizona	9/25/2015	3.0		—			—		3.0		2.0		0.2		0.8			40,782
Missouri	9/30/2015	3.0		(0.2		)	—		2.8		2.9		0.2		(0.3		)	13,478
Total dispositions		138.7		(4.4		)	—		134.3		73.6		2.9		57.8			419,399
Mortgage note repayments		—		—			1.9		1.9		—		—		—			—
		$	138.7	$	(4.4	)	$	1.9	$	136.2	$	73.6	$	2.9	$	57.8		419,399

______


(1)	Includes two properties.


(2)	Previously included in assets held for sale.

Assets Held for Sale

At September 30, 2015 and December 31, 2014, the Company had two properties classified as held for sale. The two properties classified as held for sale as of September 30, 2015 are:

•

an off-campus medical office building located in Arizona that was reclassified to held for sale in connection with management's decision to sell the property. The Company is under contract to sell the property for $5.3 million and expects to close the sale in the fourth quarter of 2015. The Company recorded an impairment charge of $3.3 million in the first quarter of 2015 to record the property at estimated fair value less costs to sell, which was based on a purchase and sale agreement, a level 3 input, that was subsequently terminated; and


•	an on-campus medical office building located in Georgia.

The table below reflects the assets and liabilities of the properties classified as held for sale as of September 30, 2015 and December 31, 2014.



(Dollars in thousands)	September 30, 2015			December 31, 2014
Balance Sheet data:
Land	$	2,524		$	422
Buildings, improvements and lease intangibles	10,728			12,822
Personal property	7			13
	13,259			13,257
Accumulated depreciation	(6,928		)	(4,464		)
Assets held for sale, net	6,331			8,793
Other assets, net (including receivables)	49			353
Assets of discontinued operations, net	49			353
Assets held for sale and discontinued operations, net	$	6,380		$	9,146

Accounts payable and accrued liabilities	$	175		$	86
Other liabilities	41			286
Liabilities of discontinued operations	$	216		$	372

Discontinued Operations

The Company adopted Accounting Standards Update No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” ("ASU 2014-08") during the first quarter of 2015. As of December 31, 2014, the Company had two properties classified as held for sale and recorded in discontinued operations. One of the properties, which is located in Pennsylvania, was sold in July 2015 and the other property, which is located in Georgia, will remain classified as discontinued operations until the property is sold. See "2015 Dispositions" above. During the nine months ended September 30, 2015, the Company reclassified a property to held for sale upon management's decision to sell the property that did not meet the amended criteria under ASU 2014-08 as a discontinued operation. Therefore, the operating results of the property are not included in the table below which reflects the results of operations of the properties included in discontinued operations on the Company's Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014.



	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2015			2014			2015			2014
Statements of Operations data:
Revenues
Rental income	$	62		$	1,357		$	752		$	4,326
Other operating	—			1			—			4
	62			1,358			752			4,330
Expenses
Property operating	2			724			48			2,631
General and administrative	—			6			—			18
Depreciation	—			419			—			1,449
Bad debts, net of recoveries	(1		)	(4		)	(1		)	3
	1			1,145			47			4,101
Other Income (Expense)
Interest and other income, net	—			8			20			9
	—			8			20			9
Discontinued Operations
Income from discontinued operations	61			221			725			238
Impairments of real estate assets	—			(4,505		)	—			(11,034		)
Gain on sale of properties	10,571			—			10,571			3
Income (Loss) from Discontinued Operations	$	10,632		$	(4,284	)	$	11,296		$	(10,793	)