##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended:
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File
    Number: 1-11852
  HEALTHCARE REALTY TRUST
    INCORPORATED
 (Exact name of Registrant as
    specified in its charter)
  Maryland

62-1507028(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    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)
 Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value per share

New York Stock Exchange  Securities Registered Pursuant to Section 12(g) of the
    Act:
 None
 (Title of Class)
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




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##### 





TABLE
    OF CONTENTS
   
 PageItem 1.


Business


3Item 1A.


Risk Factors


23Item 1B.


Unresolved Staff Comments


26Item 2.


Properties


26Item 3.


Legal Proceedings


26Item 4.


Submission of Matters to a Vote of Security
    Holders


27Item 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


28Item 6.


Selected Financial Data


29Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


30Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


52Item 8.


Financial Statements and Supplementary Data


53Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


98Item 9A.


Controls and Procedures


98Item 9B.


Other Information


100Item 10.


Directors, Executive Officers and Corporate
    Governance


100Item 11.


Executive Compensation


101Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


101Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


101Item 14.


Principal Accountant Fees and Services


101Item 15.


Exhibits and Financial Statement Schedules


102SIGNATURES


105EX-21EX-23EX-31.1EX-31.2EX-32   2




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PART I
  ITEM 1.
    BUSINESS  Overview
        Number of(Dollars and square feet in thousands)

Investments


Investment


Square FeetOwned properties:Long-term net master leasesMedical office


13


$
116,400



5.6
%


718Physician clinics


20



136,143



6.7
%


786Ambulatory care/surgery


7



40,166



1.9
%


160Specialty outpatient


7



29,856



1.4
%


127Specialty inpatient


12



218,611



10.7
%


864Other


10



44,222



2.1
%


49869



585,398



28.4
%


3,153Financial support agreementsMedical office


14



151,367



7.3
%


1,04814



151,367



7.3
%


1,048Multi-tenanted with occupancy leasesMedical office


94



1,136,526



55.1
%


7,047Physician clinics


11



37,591



1.8
%


233Ambulatory care/surgery


4



59,191



2.9
%


268109



1,233,308



59.8
%


7,548Land held for development






17,301



0.8
%


Corporate property






14,350



0.7
%






31,651



1.5
%


Total owned properties


192



2,001,724



97.0
%


11,749Mortgage loans:Medical office


1



34,160



1.6
%


Physician clinics


2



16,845



0.8
%


Ambulatory care/surgery


1



7,996



0.4
%


4



59,001



2.8
%


Unconsolidated joint venture investment:Medical office


1



1,702



0.1
%


Other


1



1,082



0.1
%


2



2,784



0.2
%


Total real estate investments


198


$
2,063,509



100.0
%


11,749  3




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Business
    Strategy
    outpatient-related
  and/or
     4




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Acquisitions
    and Dispositions
  2008
    Acquisitions
    2008
    Dispositions
    2009
    Acquisition
    Potential
    Dispositions
    Purchase
    Options
   5




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Construction
    in Progress and Other Commitments
        Contractual
    Obligations
    Competition
      Government
    Regulation
   6




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out-of-pocket
  Legislative
    Developments
   7




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
    cost containment, quality control and payment system refinements
    for Medicaid, Medicare and other governmental and commercial
    payors;
    prohibitions on more types of contractual relationships between
    physicians and the healthcare facilities and providers to which
    they refer, and related information-collection activities;
    universal healthcare coverage through tax subsidies and reform,
    expanded federal health insurance programs, heightened
    regulations on insurance companies, individual and employer
    mandates, and other initiatives;
    reform of the Medicare physician
    fee-for-service
    reimbursement formula that dictates annual updates in payment
    rates for physician services;
    pay-for-performance
    and other quality-based payment system implementation;
    efforts to increase transparency with respect to pricing and
    financial relationships among healthcare providers and
    drug/device manufacturers;
    universal healthcare coverage;
    increased scrutiny of medical errors and conditions acquired
    inside health facilities;
    patient and drug safety efforts;
    Medicare Advantage reforms;
    pharmaceutical drug pricing and compliance activities under
    Medicare Part D;
    tax law changes affecting non-profit providers;
    immigration reform and related healthcare mandates;
    modifications to increase requirements for facility
    accessibility by persons with disabilities;
    facility requirements related to earthquakes and other
    disasters, including structural retrofitting;
    re-importation of pharmaceuticals; and    Environmental
    Matters
  and/or
   8




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and/or
    Insurance
    Employees
    Federal
    Income Tax Information
  and/or
  Introduction
   9




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Taxation
    of the Company
      
    The Company will be taxed at regular corporate rates on any
    undistributed real estate investment trust taxable
    income, including undistributed net capital gains.
    Under certain circumstances, the Company may be subject to the
    alternative minimum tax on its items of tax
    preference, if any.
    If the Company has (i) net income from the sale or other
    disposition of foreclosure property that is held
    primarily for sale to customers in the ordinary course of
    business, or (ii) other non-qualifying income from
    foreclosure property, it will be subject to tax on such income
    at the highest regular corporate rate.
    Any net income that the Company has from prohibited transactions
    (which are, in general, certain sales or other dispositions of
    property, other than foreclosure property, held primarily for
    sale to customers in the ordinary course of business) will be
    subject to a 100% tax. 10




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
    If the Company should fail to satisfy either the 75% or 95%
    gross income test (as discussed below), and has nonetheless
    maintained its qualification as a REIT because certain other
    requirements have been met, it will be subject to a percentage
    tax calculated by the ratio of REIT taxable income to gross
    income with certain adjustments multiplied by the gross income
    attributable to the greater of the amount by which the Company
    fails the 75% or 95% gross income test.
    If the Company fails to distribute during each year at least the
    sum of (i) 85% of its REIT ordinary income for such year,
    (ii) 95% of its REIT capital gain net income for such year,
    and (iii) any undistributed taxable income from preceding
    periods, then the Company will be subject to a 4% excise tax on
    the excess of such required distribution over the amounts
    actually distributed.
    In the event of a more than de minimis failure of any of the
    asset tests, as described below under Asset Tests,
    as long as the failure was due to reasonable cause and not to
    willful neglect, the Company files a description of each asset
    that caused such failure with the Internal Revenue Service
    (IRS), and disposes of the assets or otherwise
    complies with the asset tests within six months after the last
    day of the quarter in which the Company identifies such failure,
    the Company will pay a tax equal to the greater of $50,000 or
    35% of the net income from the nonqualifying assets during the
    period in which the Company failed to satisfy the asset tests.
    In the event the Company fails to satisfy one or more
    requirements for REIT qualification, other than the gross income
    tests and the asset tests, and such failure is due to reasonable
    cause and not to willful neglect, the Company will be required
    to pay a penalty of $50,000 for each such failure.
    To the extent that the Company recognizes gain from the
    disposition of an asset with respect to which there existed
    built-in gain upon its acquisition by the Company
    from a Subchapter C corporation in a carry-over basis
    transaction and such disposition occurs within a maximum
    ten-year recognition period beginning on the date on which it
    was acquired by the Company, the Company will be subject to
    federal income tax at the highest regular corporate rate on the
    amount of its net recognized built-in gain.
    To the extent that the Company has net income from a taxable
    REIT subsidiary (TRS), the TRS will be subject to
    federal corporate income tax in much the same manner as other
    non-REIT Subchapter C corporations, with the exceptions that the
    deductions for interest expense on debt and rental payments made
    by the TRS to the Company will be limited and a 100% excise tax
    may be imposed on transactions between the TRS and the Company
    or the Companys tenants that are not conducted on an
    arms length basis. A TRS is a corporation in which a REIT
    owns stock, directly or indirectly, and for which both the REIT
    and the corporation have made TRS elections.  Requirements
    for Qualification as a REIT
    Organizational
    Requirements and Share Ownership Tests
         11




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Income
    Tests
    
    First, at least 75% of the Companys gross income
    (excluding gross income from certain sales of property held as
    inventory or primarily for sale in the ordinary course of
    business) must be derived from rents from real
    property; interest on obligations secured by
    mortgages on real property or on interests in real
    property; gain (excluding gross income from certain sales
    of property held as inventory or primarily for sale in the
    ordinary course of business) from the sale or other disposition
    of, and certain other gross income related to, real property
    (including interests in real property and in mortgages on real
    property); and income received or accrued within one year of the
    Companys receipt of, and attributable to the temporary
    investment of, new capital (any amount received in
    exchange for stock other than through a dividend reinvestment
    plan or in a public offering of debt obligations having
    maturities of at least five years). 12




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
    Second, at least 95% of the Companys gross income
    (excluding gross income from certain sales of property held as
    inventory or primarily for sale in the ordinary course of
    business) must be derived from dividends; interest; rents
    from real property; gain (excluding gross income from
    certain sales of property held as inventory or primarily for
    sale in the ordinary course of business) from the sale or other
    disposition of, and certain other gross income related to, real
    property (including interests in real property and in mortgages
    on real property); and gain from the sale or other disposition
    of stock and securities.         13




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Asset
    Tests
    
    At least 75% of the value of the Companys total assets
    must consist of real estate assets (including interests in real
    property and interests in mortgages on real property as well as
    its allocable share of real estate assets held by joint ventures
    or partnerships in which the Company participates), cash, cash
    items and government securities.
    Not more than 25% of the Companys total assets may be
    represented by securities other than those includable in the 75%
    asset class.
    Not more than 25% of the Companys total assets may be
    represented by securities of one or more TRS.
    Of the investments included in the 25% asset class, except for
    TRS, (i) the value of any one issuers securities
    owned by the Company may not exceed 5% of the value of the
    Companys total assets, (ii) the Company may not own
    more than 10% of any one issuers outstanding voting
    securities and (iii) the Company may not hold securities
    having a value of more than 10% of the total value of the
    outstanding securities of any one issuer. Securities issued by
    affiliated qualified REIT subsidiaries (QRS), which
    are corporations wholly owned by the Company, either directly or
    indirectly, that are not TRS, are not subject to the 25% of
    total assets limit, the 5% of total assets limit or the 10% of a
    single issuers voting securities limit or the 10% of a
    single issuers value limit. Additionally, straight
    debt and certain other exceptions are not
    securities for purposes of the 10% of a single
    issuers value test. The existence of QRS are ignored, and
    the assets, income, gain, loss and other attributes of the QRS
    are treated as being owned or generated by the Company, for
    federal income tax purposes. The Company currently has 57
    subsidiaries and other affiliates that it employs in the conduct
    of its business. 14




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30-day 30-day
  Distribution
    Requirement
       15




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Federal
    Income Tax Treatment of Leases
    Other
    Issues
        Depreciation
    of Properties
   16




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Failure
    to Qualify as a REIT
  and/or
  Taxation
    of Tax-Exempt Stockholders
        Taxation
    of Non-U.S.
    Stockholders
   17




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(Non-U.S. Stockholders) Non-U.S. Stockholders
  Non-U.S. Stockholders Non-U.S. Stockholders Non-U.S. Stockholder Non-U.S. Stockholders
  Ordinary
    Dividends
  Non-U.S. Stockholder Non-U.S. Stockholder Form W-8BEN Non-U.S. Stockholders
  Non-Dividend
    Distributions
  Non-U.S. Stockholder Non-U.S. Stockholder
  Capital
    Gain Dividends
  Non-U.S. Stockholder Non-U.S. Stockholders Non-U.S. Stockholders
 18




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Disposition
    of Stock of the Company
  Non-U.S. Stockholder Non-U.S. Stockholders.
  Non-U.S. Stockholder Non-U.S. Stockholder Non-U.S. Stockholder Non-U.S. Stockholder Non-U.S. Stockholder Non-U.S. Stockholder Non-U.S. Stockholder
  Non-U.S. Stockholder Non-U.S. Non-U.S. Shareholder
  Non-U.S. Stockholder
  
    if the
    Non-U.S. Stockholders
    investment in the stock of the Company is effectively connected
    with a U.S. trade or business conducted by such
    Non-U.S. Stockholder,
    the
    Non-U.S. Stockholder
    will be subject to the same treatment as a U.S. stockholder
    with respect to such gain, or
    if the
    Non-U.S. Stockholder
    is a nonresident alien individual who was present in the United
    States for 183 days or more during the taxable year and has
    a tax home in the United States, the nonresident
    alien individual will be subject to a 30% tax on the
    individuals capital gain. 19




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Information
    Reporting Requirements and Backup Withholding Tax
    
    is a corporation or falls within certain other exempt categories
    and, when required, can demonstrate this fact, or
    provides a taxpayer identification number, certifies as to no
    loss of exemption from backup withholding, and otherwise
    complies with applicable requirements of the backup withholding
    rules. A U.S. stockholder who does not provide the Company
    with his correct taxpayer identification number also may be
    subject to penalties imposed by the IRS. Any amount paid as
    backup withholding will be creditable against the
    U.S. stockholders federal income tax liability. In
    addition, the Company may be required to withhold a portion of
    any capital gain distributions made to U.S. stockholders
    who fail to certify their non-foreign status to the Company.  Non-U.S. Stockholders, Non-U.S. Stockholders
  State
    and Local Taxes
    Real
    Estate Investment Trust Tax Proposals
    Other
    Legislation
    ERISA
    Considerations
   20




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Employee
    Benefit Plans, Tax-Qualified Retirement Plans and
    IRAs
      Status
    of the Company under ERISA
       21




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Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
  1-800-SEC-0330.
  Corporate
    Governance Principles
    Committee
    Charters
    Executive
    Officers
   22




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ITEM 1A.
    RISK
    FACTORS    The
    unavailability of equity and debt capital, volatility in the
    credit markets, changes in interest rates, or changes in the
    Companys debt ratings could harm its financial
    position.
  and/or
    The
    Companys revenues depend on the ability of its tenants and
    sponsors under its financial support agreements to generate
    sufficient income from their operations to make loan, rent and
    support payments to the Company.
    If a
    healthcare tenant loses its licensure or certification, becomes
    unable to provide healthcare services, cannot meet its financial
    obligations to the Company or otherwise vacates the facility,
    the Company would have to obtain another tenant for the affected
    facility.
   23




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If
    lenders under the Companys Unsecured Credit Facility fail
    to meet their funding commitments, the Companys financial
    position would be negatively impacted.
    The
    Company is subject to risks associated with the development of
    properties.
    
    The construction of properties generally require various
    government and other approvals which may not be received when
    expected, or at all, which could delay or preclude commencement
    of construction;
    Unsuccessful development opportunities could result in the
    recognition of direct expenses which could impact the
    Companys results of operations;
    Construction costs could exceed original estimates, which would
    impact its profitability to the Company;
    Time required to initiate and complete the construction of a
    property and lease up a completed development property may be
    greater than originally anticipated, thereby adversely affecting
    the Companys cash flow and liquidity;
    Occupancy rates and rents of a completed development property
    may not be sufficient to make the property profitable to the
    Company; and
    Favorable capital sources to fund the Companys development
    activities may not be available when needed.  The
    Company may be unsuccessful in operating new and existing real
    estate properties.
    
    The Companys purchase price for acquired facilities may be
    based upon a series of market judgments which may be incorrect;
    The costs of any improvements required to bring an acquired
    facility up to standards necessary to establish the market
    position intended for that facility might exceed budgeted costs;
    The Company may incur unexpected costs in the acquisition,
    construction or maintenance of real estate assets that could
    impact its expected returns on such assets; and
    Leasing of real estate properties may not occur within expected
    timeframes or at expected rental rates.    The
    Companys long-term master leases and financial support
    agreements may expire and not be extended.
   24




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The
    market price of the Companys stock may be affected
    adversely by changes in the Companys dividend
    policy.
    Adverse
    trends in the healthcare service industry may negatively affect
    the Companys lease revenues and the values of its
    investments.
    
    Changing trends in the method of delivery of healthcare services;
    Increased expense for uninsured patients and uncompensated care;
    Increased competition among healthcare providers;
    Continuing pressure by private and governmental payors to
    contain costs and reimbursements while increasing patients
    access to healthcare services;
    Lower operating profit margins in an uncertain economy;
    Investment losses;
    Constrained availability of capital;
    Credit downgrades;
    Increased liability insurance expense; and
    Increased scrutiny and formal investigations by federal and
    state authorities.    The
    Company is exposed to risks associated with entering new
    geographic markets.
  and/or
  The
    Company may experience uninsured or underinsured losses related
    to casualty or liability.
   25




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The
    Company owns facilities that are operated by companies that may
    experience regulatory and legal problems.
    Failure
    to maintain its status as a REIT, even in one taxable year,
    could cause the Company to reduce its dividends
    dramatically.
  Form 10-K.
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES      ITEM 3.
    LEGAL
    PROCEEDINGS   26




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ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   27




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PART II
  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    DistributionsDeclared and PaidHigh


Low


per Share2008First Quarter

$
27.07


$
22.02


$
0.385Second Quarter


29.89



23.55



0.385Third Quarter


32.00



23.45



0.385Fourth Quarter (Payable on March 5, 2009)


29.75



14.29



0.3852007Special Dividend









$
4.750First Quarter

$
44.19


$
34.96



0.660Second Quarter


39.26



27.20



0.385Third Quarter


29.07



18.00



0.385Fourth Quarter


27.76



22.72



0.385     Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities to


Weighted-Average


Future Issuance Under Equitybe Issued upon Exercise of


Exercise Price of


Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding Securities ReflectedPlan Category

Warrants and Rights(1)


Warrants and Rights(1)


in the First Column)Equity compensation plans approved by security holders


250,868







2,685,609Equity compensation plans not approved by security holders










Total


250,868







2,685,609     (1)
    
    The Company is unable to ascertain with specificity the number
    of securities to be issued upon exercise of outstanding rights
    under the 2000 Employee Stock Purchase Plan or the weighted
    average exercise price of outstanding rights under that plan.
    The 2000 Employee Stock Purchase Plan provides that shares of
    Common Stock may be purchased at a per share price equal to 85%
    of the fair market value of the Common Stock at the beginning of
    the offering period or a purchase date applicable to such
    offering period, whichever is lower. 28




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ITEM 6.
    SELECTED
    FINANCIAL DATA    Years Ended December 31,(Dollars in thousands, except per share data)

2008


2007(1)(2)


2006(2)


2005(2)


2004(2)Statement of Income
    Data:Total revenues

$
214,241


$
197,371


$
198,219


$
192,211


$
168,532Total expenses

$
160,499


$
139,294


$
137,859


$
133,221


$
104,025Other income (expense)

$
(35,584
)

$
(46,848
)

$
(49,747
)

$
(44,906
)

$
(40,823
)Income from continuing operations

$
18,158


$
11,229


$
10,613


$
14,084


$
23,684Discontinued operations

$
23,534


$
48,833


$
29,106


$
38,584


$
31,849Net income

$
41,692


$
60,062


$
39,719


$
52,668


$
55,533Per Share
    Data:Basic:Income from continuing operations per common share

$
0.35


$
0.24


$
0.23


$
0.30


$
0.54Discontinued operations per common share

$
0.46


$
1.02


$
0.62


$
0.83


$
0.73Net income per common share

$
0.81


$
1.26


$
0.85


$
1.13


$
1.27Diluted:Income from continuing operations per common share

$
0.35


$
0.23


$
0.22


$
0.30


$
0.53Discontinued operations per common share

$
0.44


$
1.01


$
0.62


$
0.81


$
0.71Net income per common share

$
0.79


$
1.24


$
0.84


$
1.11


$
1.24Weighted average common shares outstanding  Basic


51,547,279



47,536,133



46,527,857



46,465,215



43,706,528Weighted average common shares outstanding  Diluted


52,564,944



48,291,330



47,498,937



47,406,798



44,627,475Balance Sheet Data(as of the end of the period):Real estate properties, net

$
1,634,364


$
1,351,173


$
1,554,620


$
1,513,247


$
1,558,794Mortgage notes receivable

$
59,001


$
30,117


$
73,856


$
105,795


$
40,321Assets held for sale and discontinued operations, net

$
90,233


$
15,639


$



$
21,415


$
61,246Total assets

$
1,864,780


$
1,495,492


$
1,736,603


$
1,747,652


$
1,750,810Notes and bonds payable

$
940,186


$
785,289


$
849,982


$
778,446


$
719,264Total stockholders equity

$
794,820


$
631,995


$
825,672


$
912,468


$
980,616Other Data:Funds from operations  Basic and Diluted(3)

$
85,437


$
73,156


$
101,106


$
107,943


$
110,172Funds from operations per common share  Basic(3)

$
1.66


$
1.54


$
2.17


$
2.32


$
2.52Funds from operations per common share  Diluted(3)

$
1.63


$
1.51


$
2.13


$
2.28


$
2.47Quarterly dividends declared and paid per common share

$
1.54


$
2.09


$
2.64


$
2.63


$
2.55Special dividend declared and paid per common share

$



$
4.75


$



$



$
     (1)
    
    The Company completed the sale of its senior living assets in
    2007 and paid a $4.75 per share special dividend with a portion
    of the proceeds. See Note 4 to the Consolidated Financial
    Statements for more information on this transaction. 29




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##### Table of Contents



(2)
    
    The years ended December 31, 2007, 2006, 2005 and 2004 are
    restated to conform to the discontinued operations presentation
    for 2008. See Note 5 to the Consolidated Financial
    Statements for more information on the Companys
    discontinued operations at December 31, 2008.(3)
    
    See Managements Discussion and Analysis of Financial
    Condition and Results of Operations for a discussion of
    funds from operations (FFO), including why the
    Company presents FFO and a reconciliation of net income to FFO.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Disclosure
    Regarding Forward-Looking Statements
  This report and other materials Healthcare Realty has filed
    or may file with the Securities and Exchange Commission, as well
    as information included in oral statements or other written
    statements made, or to be made, by senior management of the
    Company, contain, or will contain, disclosures that are
    forward-looking statements. Forward-looking
    statements include all statements that do not relate solely to
    historical or current facts and can be identified by the use of
    words such as may, will,
    expect, believe, anticipate,
    target, intend, plan,
    estimate, project, continue,
    should, could and other comparable
    terms. These forward-looking statements are based on the current
    plans and expectations of management and are subject to a number
    of risks and uncertainties, including those set forth below,
    that could significantly affect the Companys current plans
    and expectations and future financial condition and results.
    
    The unavailability of equity and debt capital, volatility in the
    credit markets, changes in interest rates, or changes in the
    Companys debt ratings;
    The financial health of the Companys tenants and sponsors
    and their ability to make loan and rent payments to the Company;
    The ability and willingness of the Companys lenders to
    make their funding commitments to the Company;
    The Companys long-term master leases and financial support
    agreements may expire and not be extended;
    The construction of properties generally requires various
    government and other approvals which may not be received;
    Unsuccessful development opportunities could result in the
    recognition of direct expenses which could impact the
    Companys results of operations;
    Construction costs of a development property may exceed original
    estimates, which could impact its profitability to the Company;
    Time required to lease up a completed development property may
    be greater than originally anticipated, thereby adversely
    affecting the Companys cash flow and liquidity;
    Occupancy rates and rents of a completed development property
    may not be sufficient to make the property profitable to the
    Company;
    Favorable capital sources to fund the Companys development
    activities may not be available when needed;
    Changes in the financial condition or corporate strategy of the
    Companys tenants and sponsors;
    Adverse trends in the healthcare service industry that could
    negatively affect the Companys lease revenues and the
    values of its investments; and
    Changes in the Companys dividend policy. 30




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##### Table of Contents



Overview
  Business
    Overview
      Executive
    Overview
  and/or
     31




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##### Table of Contents



Capital and Credit Market Conditions
    Trends
    and Matters Impacting Operating Results
      Acquisition
    Activity
    Development
    Activity
   32




---



##### Table of Contents



lease-up lease-up lease-up
  Dispositions
    2009
    Potential Acquisitions and Dispositions
    Purchase
    Option Provisions
    Expiring
    Leases and Financial Support Agreements
       33




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##### Table of Contents



Discontinued
    Operations
    Amortization
    of In-Place Leases
    Funds
    from Operations
   34




---



##### Table of Contents



Year Ended December 31,(Dollars in thousands, except per share data)

2008


2007


2006Net income

$
41,692


$
60,062


$
39,719Gain on sales of real estate properties


(10,227
)


(40,405
)


(3,275
)Real estate depreciation and amortization


53,972



53,499



64,662Total adjustments


43,745



13,094



61,387Funds from operations  Basic and Diluted

$
85,437


$
73,156


$
101,106Weighted average common shares outstanding  Basic


51,547,279



47,536,133



46,527,857Weighted average common shares outstanding  Diluted


52,564,944



48,291,330



47,498,937Funds from operations per common share  Basic

$
1.66


$
1.54


$
2.17Funds from operations per common share  Diluted

$
1.63


$
1.51


$
2.13   Results
    of Operations
  2008
    Compared to 2007
   35




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##### Table of Contents



Change(Dollars in thousands)

2008


2007


$


%RevenuesMaster lease rent

$
58,412


$
56,401


$
2,011



3.6
%Property operating


136,745



121,644



15,101



12.4
%Straight-line rent


622



934



(312
)


(33.4
)%Mortgage interest


2,207



1,752



455



26.0
%Other operating


16,255



16,640



(385
)


(2.3
)%214,241



197,371



16,870



8.5
%ExpensesGeneral and administrative


23,514



20,619



2,895



14.0
%Property operating


82,420



71,671



10,749



15.0
%Impairment


1,600







1,600



Bad debts, net of recoveries


1,833



222



1,611



725.7
%Depreciation


48,283



42,254



6,029



14.3
%Amortization


2,849



4,528



(1,679
)


(37.1
)%160,499



139,294



21,205



15.2
%Other Income
    (Expense)Gain on extinguishment of debt, net


4,102







4,102



Interest expense


(42,126
)


(48,307
)


6,181



(12.8
)%Interest and other income, net


2,440



1,459



981



67.2
%(35,584
)


(46,848
)


11,264



(24.0
)%Income From Continuing
    Operations


18,158



11,229



6,929



61.7
%Discontinued
    OperationsIncome from discontinued operations


14,577



15,517



(940
)


(6.1
)%Impairments


(886
)


(7,089
)


6,203



(87.5
)%Gain on sales of real estate properties


9,843



40,405



(30,562
)


(75.6
)%Income From
    Discontinued Operations


23,534



48,833



(25,299
)


(51.8
)%Net Income

$
41,692


$
60,062


$
(18,370
)


(30.6
)%     
    Master lease rental income increased $2.0 million, or 3.6%,
    from 2007 to 2008. The majority of the increase was due to
    annual contractual rent increases from 2007 to 2008 of
    approximately $1.3 million. During 2008, the Company also
    recognized additional master lease rental income totaling 36




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##### Table of Contents



approximately $0.2 million related to its 2008 acquisitions
    and an $0.8 million lease termination fee, offset partially
    by prior year rental income of the property of approximately
    $0.3 million.  
    Property operating income increased $15.1 million, or
    12.4%, from 2007 to 2008. The Companys acquisitions of
    real estate properties during 2008 and 2007 resulted in
    additional property operating income in 2008 compared to 2007 of
    approximately $6.7 million. Also, properties previously
    under construction that commenced operations during 2007 and
    2008 resulted in approximately $2.9 million in additional
    property operating income from 2007 to 2008. The remaining
    increase of approximately $5.5 million was related
    generally to annual contractual rent increases, rental increases
    related to lease renewals and new leases executed with various
    tenants.
    Mortgage interest income increased $0.5 million, or 26.0%,
    from 2007 to 2008 due mainly to additional fundings on
    construction mortgage notes.    
    General and administrative expenses increased $2.9 million,
    or 14.0%, from 2007 to 2008. This increase was attributable
    mainly to higher compensation-related expenses in 2008 of
    approximately $2.3 million related to annual salary
    increases and amortization on restricted shares, an increase in
    pension expense recorded of approximately $0.7 million and
    expenses recognized related to acquisition and development
    efforts of approximately $1.8 million. These amounts were
    partially offset by the voluntary resignation of an officer,
    resulting in a net reduction to expense of $0.5 million
    related to the forfeiture of outstanding share-based payment
    awards and the lump-sum payment of the officers pension
    benefit under the Executive Retirement Plan. See Note 12 to
    the Consolidated Financial Statements for more details. Also,
    the Company recorded a charge in 2007 of approximately
    $1.5 million related to the retirement of an officer and
    the termination of five employees.
    Property operating expenses increased $10.7 million, or
    15.0%, from 2007 to 2008. The Company recognized expense of
    approximately $2.7 million related to properties that were
    previously under construction and commenced operations during
    2007 and 2008. Also, the Companys acquisitions of real
    estate properties during 2008 and 2007 resulted in additional
    property operating expense in 2008 compared to 2007 of
    approximately $2.7 million. In addition, legal expense
    increased approximately $3.5 million in 2008 compared to
    2007 mainly due to legal fee reimbursements received in 2007 and
    a litigation settlement of $1.0 million in 2008. Also, utility
    and real estate tax rate increases in 2008 resulted in
    additional expenses of approximately $1.3 million and
    $0.6 million, respectively.
    An impairment charge totaling $1.6 million was recognized
    in 2008 on patient accounts receivable assigned to the Company
    as part of a lease termination and debt restructuring in late
    2005 related to a physician clinic owned by the Company. See
    Note 6 to the Consolidated Financial Statements.
    Bad debt expense increased $1.6 million from 2007 to 2008
    mainly due to a reserve recorded by the Company in 2008 related
    to additional rental income due from an operator on four
    properties.
    Depreciation expense increased $6.0 million, or 14.3%, from
    2007 to 2008 mainly due to increases related to the acquisitions
    of real estate properties of approximately $1.4 million,
    the commencement of operations of buildings during 2007 and 2008
    that were previously under construction of approximately
    $1.0 million, as well as additional building and tenant
    improvement expenditures during 2007 and 2008 of approximately
    $3.6 million. 37




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##### Table of Contents




    Amortization expense decreased $1.7 million, or 37.1%, from
    2007 to 2008, mainly due to a decrease in amortization of lease
    intangibles related to properties acquired during 2003 and 2004
    which are becoming fully amortized, offset partially by
    amortization of lease intangibles related to properties acquired
    during 2007 and 2008.    
    The Company recognized a net gain on extinguishment of debt of
    approximately $4.1 million related to repurchases of the
    Companys Senior Notes due 2011 and 2014 which is discussed
    in more detail in Note 9 to the Consolidated Financial
    Statements.
    Interest expense decreased $6.2 million, or 12.8%, from
    2007 to 2008. The decrease was mainly attributable to an
    increase in the capitalization of interest of approximately
    $2.7 million related to the Companys construction
    projects, interest savings of approximately $1.0 million
    related to repurchases of the Companys Senior Notes due
    2011 and 2014 and a reduction of interest expense of
    approximately $3.1 million related to the Unsecured Credit
    Facility due mainly to a decrease in interest rates in 2008
    compared to 2007.
    Interest and other income increased $1.0 million, or 67.2%,
    from 2007 to 2008. In connection with the Companys
    acquisition of the remaining interest in a joint venture in
    which it previously had an equity interest and the related
    transition of accounting from the joint venture to the Company,
    the joint venture recorded an adjustment to straight-line rent
    on the properties. As such, the Company recognized its portion
    of the adjustment through equity income on the joint venture of
    approximately $1.1 million (of which $0.8 million is
    related to prior years). Also, the Company recorded a gain on
    the sale of a land parcel of approximately $0.4 million.
    These amounts are partially offset by a reduction in income
    recognized on one joint venture of approximately
    $0.4 million due to the partial repurchase of the
    Companys preferred equity investment.    2007
    Compared to 2006
     38




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##### Table of Contents



Change(Dollars in thousands)

2007


2006


$


%RevenuesMaster lease rent

$
56,401


$
52,676


$
3,725



7.1
%Property operating


121,644



118,389



3,255



2.7
%Straight-line rent


934



2,228



(1,294
)


(58.1
)%Mortgage interest


1,752



5,101



(3,349
)


(65.7
)%Other operating


16,640



19,825



(3,185
)


(16.1
)%197,371



198,219



(848
)


(0.4
)%ExpensesGeneral and administrative


20,619



16,856



3,763



22.3
%Property operating


71,671



65,894



5,777



8.8
%Other operating






173



(173
)


Impairments






4,111



(4,111
)


Bad debts, net of recoveries


222



861



(639
)


(74.2
)%Depreciation


42,254



40,088



2,166



5.4
%Amortization


4,528



9,876



(5,348
)


(54.2
)%139,294



137,859



1,435



1.0
%Other Income
    (Expense)Interest expense


(48,307
)


(50,760
)


2,453



(4.8
)%Interest and other income, net


1,459



1,013



446



44.0
%(46,848
)


(49,747
)


2,899



(5.8
)%Income From Continuing
    Operations


11,229



10,613



616



5.8
%Discontinued
    OperationsIncome from discontinued operations


15,517



27,404



(11,887
)


43.4
%Impairments


(7,089
)


(1,573
)


(5,516
)


350.7
%Gain on sales of real estate properties


40,405



3,275



37,130



1133.7
%Income From
    Discontinued Operations


48,833



29,106



19,727



67.8
%Net Income

$
60,062


$
39,719


$
20,343



51.2
%     
    Master lease rental income increased $3.7 million, or 7.1%,
    from 2006 to 2007. During 2007, the Company recognized
    additional master lease rental income of approximately
    $2.5 million from its 2006 acquisitions and recognized
    approximately $0.5 million in master lease rental income
    from a $7.3 million acquisition in 2007. The Company also
    recognized additional master lease rental income of
    approximately $0.4 million related to new master lease
    agreements executed during 2006 on properties whose income was
    previously reported in property operating income. Annual rent
    increases also attributed to an approximate $1.2 million
    increase from 2006 and 2007. These increases were offset
    partially by a decrease of approximately $0.9 million in
    master lease rental income related to properties whose master
    lease agreements expired during 2007. As such, subsequent to the
    expiration of the master lease, rather than recording rental
    income under a master lease, the underlying tenant rents were
    reported in property operating income. 39




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##### Table of Contents




    Property operating income increased $3.3 million, or 2.7%,
    from 2006 to 2007. During 2007, two properties previously under
    construction commenced operations resulting in approximately
    $1.4 million in rental income. Also, the Companys
    real estate acquisitions in 2007 resulted in additional property
    operating income of approximately $0.6 million, and the
    Company began recognizing in property operating income the
    underlying tenant rents totaling approximately $0.4 million
    relating to properties whose master lease agreements had
    expired. The Company also received a lump sum payment during
    2007 of approximately $0.3 million related to a bankruptcy
    settlement with one tenant. The remaining $0.6 million
    increase was generally related to revenue generated from new
    tenant leases and from annual rent increases.
    Straight-line rent decreased $1.3 million, or 58.1%, from
    2006 to 2007. Straight-line rent decreased approximately
    $0.7 million from 2006 to 2007 due to a positive adjustment
    recorded in 2006 on several leases related to one operator.
    Also, during 2006, the Company recorded positive adjustments to
    straight-line rent totaling approximately $0.5 million
    related to amendments to certain leases which extended the
    maturity dates of the leases.
    Mortgage interest income decreased $3.3 million, or 65.7%,
    from 2006 to 2007 mainly due to a $4.0 million decrease in
    interest income related to the repayment of seven mortgage notes
    receivable in 2006, offset partially by the addition of two
    mortgage notes receivable during 2006 and two mortgage notes
    receivable during 2007 resulting in an increase in interest
    income during 2007 compared to 2006 of approximately
    $0.6 million.
    Other operating income decreased $3.2 million, or 16.1%,
    from 2006 to 2007. During 2006, the Company recognized
    prepayment fees related to the repayment of two mortgage notes
    receivable totaling approximately $2.2 million and
    recognized approximately $1.1 million more in lease
    guaranty income than in 2007. These decreases were offset
    partially by the recognition of an additional $0.6 million
    during 2007 related to replacement rent received from one
    operator.    
    General and administrative expenses increased $3.8 million,
    or 22.3%, from 2006 to 2007. This increase was attributable
    mainly to higher compensation-related expenses in 2007 of
    approximately $2.4 million related to a $1.5 million
    charge recorded in 2007 upon retirement of an officer and
    termination of five employees and $0.9 million due to
    annual increases in the executive retirement plan liability,
    annual salary increases and amortization expense recognized on
    the vesting of restricted shares. Also, the Company accrued
    approximately $0.7 million in additional state taxes as
    discussed in Note 15 to the Consolidated Financial
    Statements.
    Property operating expenses increased $5.8 million, or
    8.8%, from 2006 to 2007. Additional expenses of approximately
    $1.2 million were recognized in 2008 for properties that
    commenced operations during 2007 that were previously under
    construction. The Company began recognizing expenses in 2008 for
    properties whose
    triple-net
    master lease agreements had expired totaling approximately
    $0.8 million. The Companys 2007 acquisitions resulted
    in additional property operating expenses of approximately
    $0.3 million, and utility and real estate tax rates
    increased in 2007 resulting in additional expenses of
    approximately $0.9 million and $1.2 million,
    respectively. Also, during 2007, the Company recorded
    straight-line rent expense of approximately $0.8 million
    (of which $0.6 million was related to prior years)
    associated with ground leases where the Company is the lessee.
    Impairment charges totaling $4.1 million were recognized in
    2006 on patient accounts receivable assigned to the Company as
    part of a lease termination and debt restructuring in late 2005
    related to a physician clinic owned by the Company. See
    Note 6 to the Consolidated Financial Statements.
    Depreciation expense increased $2.2 million, or 5.4%, from
    2006 to 2007 mainly due to the acquisitions of real estate
    properties, the commencement of operations of buildings during
    2007 that were previously under construction, as well as
    additional building and tenant improvement expenditures during
    2006 and 2007. 40




---



##### Table of Contents




    Amortization expense decreased $5.3 million, or 54.2%, from
    2006 to 2007, mainly due to a decrease in amortization expense
    recognized on lease intangibles recorded for properties acquired
    during 2003 and 2004 which are becoming fully amortized.    
    Interest expense decreased $2.5 million, or 4.8%, from 2006
    to 2007. The decrease in interest expense was mainly
    attributable to an increase in the capitalization of interest of
    approximately $2.7 million related to the Companys
    construction projects and a decrease of approximately
    $0.7 million related to the repayment of the Companys
    9.49% Senior Notes due 2006. These decreases in interest
    expense were offset partially by an increase in interest expense
    of approximately $1.2 million on the Unsecured Credit
    Facility due mainly to an increase in the weighted average
    balance outstanding in 2007 compared to 2006.
    Interest and other income increased $0.4 million, or 44.0%,
    from 2006 to 2007. The increase in interest and other income is
    mainly attributable to equity income of approximately
    $0.2 million recognized in 2006 from the acquisition of a
    membership equity interest in a joint venture, as well as
    additional interest income recorded in 2007 compared to 2006 of
    approximately $0.2 million.    Liquidity
    and Capital Resources
    Capital
    and Credit Market Conditions
   41




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##### Table of Contents



Key
    Indicators
    
    Debt metrics;
    Dividend payout percentage; and
    Interest rates, underlying treasury rates, debt market spreads
    and equity markets.    Contractual
    Obligations
    Payments Due by PeriodLess than


1 - 3


3 - 5


More than(Dollars in thousands)

Total


1 Year


Years


Years


5 YearsLong-term debt obligations, including interest(1)

$
1,108,391


$
43,325


$
689,754


$
37,127


$
338,185Operating lease commitments(2)


271,951



3,901



7,179



6,729



254,142Construction in progress(3)


106,519



82,403



18,408



5,708



Tenant improvements(4)


440



440











Deferred gain(5)


2,769



2,769











Pension obligations(6)


2,300



2,300











Construction loan obligations(7)


15,619



15,619











Total contractual obligations

$
1,507,989


$
150,757


$
715,341


$
49,564


$
592,327     (1)
    
    The amounts shown include estimated interest on total debt other
    than the Unsecured Credit Facility. Excluded from the table
    above are the premium on the Senior Notes due 2011 of
    $0.6 million and the discount on the Senior Notes due 2014
    of $0.8 million which are included in notes and bonds
    payable on the Companys Consolidated Balance Sheet as of
    December 31, 2008. Also excluded from the table above are
    discounts on four mortgage notes payable totaling
    $7.4 million. The table above does not include contractual
    obligations relating to four mortgage notes payable classified
    as liabilities of discontinued operations. If these four
    mortgage notes are not repaid, the Company would have additional
    contractual obligations for 2009 of approximately
    $4.3 million. The Companys long-term debt principal
    obligations are presented in more detail in the table below.  ContractualPrincipal

Principal



InterestBalance at

Balance at



Rates atDecember 31,

December 31,

Maturity

December 31,

Interest

Principal(Dollars in millions)

2008

2007

Date

2008

Payments

PaymentsUnsecured credit facility(a)

$
329.0


$
136.0


1/10

LIBOR + 0.90%

Quarterly

At maturitySenior notes due 2011


286.3



300.0


5/11

8.125%

Semi-Annual

At maturitySenior notes due 2014


264.7



300.0


4/14

5.125%

Semi-Annual

At maturityMortgage notes payable


67.7



49.4


5/11-10/32

5.00%-7.625%

Monthly

Monthly$
947.7


$
785.4     (a)
    
    The Company incurred an annual facility fee of 0.20% on the
    Unsecured Credit Facility during 2008. 42




---



##### Table of Contents



(2)
    
    Includes primarily the corporate office and ground leases, with
    expiration dates through 2101, related to various real estate
    investments for which the Company is currently making payments.(3)
    
    Includes cash flow projections related to the construction of
    four buildings, a portion of which relates to tenant
    improvements that will generally be funded after the core and
    shell of the building is substantially completed.(4)
    
    Includes tenant improvement obligations on one property
    developed by a joint venture in which the Company acquired the
    remaining membership interest in 2008. The Company also has
    various first-generation tenant improvements budgeted as of
    December 31, 2008 totaling approximately $17.0 million
    related to properties that were developed by the Company that
    the Company may fund for tenant improvements as leases are
    signed. The Company has not included these budgeted amounts in
    the table above.(5)
    
    As part of the sale of its senior living assets in 2007, the
    Company recorded a $5.7 million deferred gain related to
    one tenant under a lease assigned to one buyer. The amounts the
    Company will pay are based upon the tenants performance
    under its lease through July 31, 2011. As of
    December 31, 2008, the Company had made payments totaling
    $2.9 million to the buyer which reduced the Companys
    deferred gain. The Company has historically made payments
    quarterly. As such, assuming quarterly payments continue in
    2009, the deferred gain would be eliminated during 2009.(6)
    
    At December 31, 2008, two employees and five non-employee
    directors were eligible to retire under the Executive Retirement
    Plan or the Retirement Plan for Outside Directors. If these
    individuals retired at normal retirement age and received full
    retirement benefits based upon the terms of each applicable
    plan, the future benefits to be paid are estimated to be
    approximately $33.6 million as of December 31, 2008,
    of which approximately $84,000 is currently being paid annually
    to one employee who is retired. Because the Company does not
    know when these individuals will retire, it has not projected
    when these amounts would be paid in this table. At
    December 31, 2008, the Company had recorded a
    $17.5 million liability, included in other liabilities,
    related to the pension plan obligations in accordance with
    applicable accounting literature. In November 2008 an officer,
    and a participant in the Executive Retirement Plan, voluntarily
    resigned from employment. The officer was eligible to receive a
    lump-sum distribution of earned benefits under the Executive
    Retirement Plan of approximately $4.5 million. The Company
    granted the officer an equivalent number of shares of common
    stock in satisfaction of this benefit. See Note 11 to the
    Consolidated Financial Statements for more details.
    Additionally, the Company froze the maximum annual benefit
    payable under the Executive Retirement Plan at $896,000. This
    revision has resulted in a curtailment of benefits under the
    retirement plan for the Companys chief executive officer.
    In consideration of the curtailment and as partial settlement of
    benefits under the retirement plan, the Company made a one-time
    cash payment of $2.3 million to its chief executive officer
    in early 2009 which is reflected in the Less than
    1 year column in the table.(7)
    
    The Companys remaining commitment at
    December 31, 2008 related to two construction loans.   43




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##### Table of Contents



Senior
    Note Repurchases
    Equity
    Offering
    At-The-Market
    Equity Offering Program
  at-the-market and/or
  Security
    Deposits and Letters of Credit
    Acquisitions
    and Dispositions
  2008
    Acquisitions
    2008
    Dispositions
   44




---



##### Table of Contents



2009
    Acquisition
    Potential
    Dispositions
    Purchase
    Options
    Construction
    in Progress and Other Commitments
       45




---



##### Table of Contents



Operating
    Leases
    Dividends
    Quarterly


Date of

Date ofQuarter

Dividend


Declaration

Record

Date Paid/*Payable4th

    Quarter 2007

$
0.385


January 29, 2008

February 15, 2008

March 3, 20081st

    Quarter 2008

$
0.385


April 29, 2008

May 15, 2008

June 3, 20082nd

    Quarter 2008

$
0.385


July 29, 2008

August 15, 2008

September 3, 20083rd

    Quarter 2008

$
0.385


November 4, 2008

November 19, 2008

December 3, 20084th

    Quarter 2008

$
0.385


February 3, 2009

February 20, 2009

* March 5, 2009     Liquidity
       46




---



##### Table of Contents



Impact
    of Inflation
    New
    Accounting Pronouncements
    Market
    Risk
        Impact on Earningsand Cash FlowsOutstanding


Calculated


Assuming 10%


Assuming 10%Principal


Annual


Increase


DecreaseBalance


Interest


in Market


in Market(Dollars in thousands)

As of 12/31/08


Expense(1)


Interest Rates


Interest RatesVariable rate debtUnsecured Credit Facility

$
329,000


$
4,409


$
(145
)

$
145Variable rate receivablesMortgage Notes Receivable

$
42,156


$
648


$
18


$
(18
)   47




---



##### Table of Contents



Fair ValueCarrying





Assuming 10%


Assuming 10%Value at





Increase


DecreaseDecember 31,


December 31,


in Market


in Market


December 31,(Dollars in thousands)

2008


2008


Interest Rates


Interest Rates


2007(2)Fixed rate debtSenior Notes due 2011, including premium

$
286,898


$
320,269


$
319,704


$
320,821


$
325,661Senior Notes due 2014, net of discount


263,961



298,025



295,970



300,110



307,946Mortgage Notes Payable(3)


89,060



94,590



91,872



97,498



51,270$
639,919


$
712,884


$
707,546


$
718,429


$
684,877Fixed rate receivablesMortgage Notes Receivable

$
16,845


$
16,597


$
15,789


$
17,461


$
19,279Other Notes Receivable


497



487



472



503



511$
17,342


$
17,084


$
16,261


$
17,964


$
19,790     (1)
    
    Annual interest expense on the variable rate debt and variable
    rate receivables was calculated using a constant principal
    balance and the December 31, 2008 market rates of 1.34% and
    1.54%, respectively.(2)
    
    Except as otherwise noted, fair values as of December 31, 2007
    represent fair values of obligations or receivables that were
    outstanding as of that date, and do not reflect the effect of
    any subsequent changes in principal balances and/or additions or
    extinguishments of instruments.(3)
    
    Mortgage notes payable for 2008 include four mortgage notes
    classified as held for sale with an aggregate carrying value at
    December 31, 2008 of approximately $28.7 million.  Off-Balance
    Sheet Arrangements
    Application
    of Critical Accounting Policies to Accounting Estimates
        Valuation
    of Long-Lived and Intangible Assets and Goodwill
   48




---



##### Table of Contents



Capitalization
    of Costs
         49




---



##### Table of Contents



No. 97-11,
        Depreciation
    of Real Estate Assets and Amortization of Related Intangible
    Assets
       50




---



##### Table of Contents



Allowance
    for Doubtful Accounts and Credit Losses
    Accounts
    Receivable
      
    type of contractual arrangement under which the receivable was
    recorded, e.g., a mortgage note, a triple net lease, a gross
    lease, a sponsor guaranty agreement or some other type of
    agreement;
    tenants or debtors reason for slow payment;
    industry influences and healthcare segment under which the
    tenant or debtor operates;
    evidence of willingness and ability of the tenant or debtor to
    pay the receivable;
    credit-worthiness of the tenant or debtor;
    collateral, security deposit, letters of credit or other monies
    held as security;
    tenants or debtors historical payment pattern;
    other contractual agreements between the tenant or debtor and
    the Company;
    relationship between the tenant or debtor and the Company;
    state in which the tenant or debtor operates; and
    existence of a guarantor and the willingness and ability of the
    guarantor to pay the receivable. 51




---



##### Table of Contents



Mortgage
    Notes and Notes Receivable
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   52




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Report
    ofINDEPENDENT
    REGISTERED PUBLIC ACCOUNTING FIRM
              Internal Control 
    Integrated Framework
  
    53




---



##### Table of Contents



ConsolidatedBALANCE
    SHEETS
  December 31,(Dollars in thousands, except per share amounts)

2008


2007AssetsReal estate properties:Land

$
107,555


$
102,321Buildings, improvements and lease intangibles


1,792,402



1,483,547Personal property


16,985



16,305Construction in progress


84,782



94,4572,001,724



1,696,630Less accumulated depreciation


(367,360
)


(345,457
)Total real estate properties, net


1,634,364



1,351,173Cash and cash equivalents


4,138



8,519Mortgage notes receivable


59,001



30,117Assets held for sale and discontinued operations, net


90,233



15,639Other assets, net


77,044



90,044Total assets

$
1,864,780


$
1,495,492Liabilities and
    Stockholders EquityLiabilities:Notes and bonds payable

$
940,186


$
785,289Accounts payable and accrued liabilities


45,937



37,376Liabilities held for sale and discontinued operations


32,821



34Other liabilities


51,016



40,798Total liabilities


1,069,960



863,497Commitments and contingenciesStockholders 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; 59,246,284 and 50,691,331 shares issued and
    outstanding at December 31, 2008 and 2007, respectively


592



507Additional paid-in capital


1,490,535



1,286,071Accumulated other comprehensive loss


(6,461
)


(4,346
)Cumulative net income


736,874



695,182Cumulative dividends


(1,426,720
)


(1,345,419
)Total stockholders equity


794,820



631,995Total liabilities and stockholders equity

$
1,864,780


$
1,495,492    54




---



##### Table of Contents



ConsolidatedSTATEMENTS
    OF INCOME
  Year Ended December 31,(Dollars in thousands, except per share data)

2008


2007


2006RevenuesMaster lease rent

$
58,412


$
56,401


$
52,676Property operating


136,745



121,644



118,389Straight-line rent


622



934



2,228Mortgage interest


2,207



1,752



5,101Other operating


16,255



16,640



19,825214,241



197,371



198,219ExpensesGeneral and administrative


23,514



20,619



16,856Property operating


82,420



71,671



65,894Other operating










173Impairments


1,600







4,111Bad debts, net of recoveries


1,833



222



861Depreciation


48,283



42,254



40,088Amortization


2,849



4,528



9,876160,499



139,294



137,859Other income
    (expense)Gain on extinguishment of debt, net


4,102







Interest expense


(42,126
)


(48,307
)


(50,760
)Interest and other income, net


2,440



1,459



1,013(35,584
)


(46,848
)


(49,747
)Income From Continuing
    Operations


18,158



11,229



10,613Discontinued
    OperationsIncome from discontinued operations


14,577



15,517



27,404Impairments


(886
)


(7,089
)


(1,573
)Gain on sales of real estate properties


9,843



40,405



3,275Income From
    Discontinued Operations


23,534



48,833



29,106Net Income

$
41,692


$
60,062


$
39,719Basic Earnings per
    Common Share:Income from continuing operations per common share

$
0.35


$
0.24


$
0.23Discontinued operations per common share

$
0.46


$
1.02


$
0.62Net income per common share

$
0.81


$
1.26


$
0.85Diluted Earnings per
    Common Share:Income from continuing operations per common share

$
0.35


$
0.23


$
0.22Discontinued operations per common share

$
0.44


$
1.01


$
0.62Net income per common share

$
0.79


$
1.24


$
0.84Weighted average
    common shares outstanding  Basic


51,547,279



47,536,133



46,527,857Weighted average
    common shares outstanding  Diluted


52,564,944



48,291,330



47,498,937    55




---



##### Table of Contents



ConsolidatedSTATEMENTS
    OF STOCKHOLDERS EQUITY
  AccumulatedAdditional


Other


Cumulative





TotalPreferred


Common


Paid-In


Comprehensive


Net


Cumulative


Stockholders(Dollars in thousands, except per share data)

Stock


Stock


Capital


Loss


Income


Dividends


EquityBalance at December 31, 2005

$



$
478


$
1,207,509


$



$
595,401


$
(890,920
)

$
912,468Issuance of stock










204















204Common stock redemption










(481
)














(481
)Stock-based compensation










4,002















4,002Net income


















39,719







39,719Other comprehensive loss:Adjustment required upon adoption of SFAS No. 158














(1,444
)










(1,444
)Other comprehensive loss














(2,591
)










(2,591
)Comprehensive income


























35,684Dividends to common stockholders ($2.64 per share)






















(126,205
)


(126,205
)Balance at December 31, 2006






478



1,211,234



(4,035
)


635,120



(1,017,125
)


825,672Issuance of stock






29



70,545















70,574Common stock redemption










(386
)














(386
)Stock-based compensation










4,678















4,678Net income


















60,062







60,062Other comprehensive loss














(311
)










(311
)Comprehensive income


























59,751Special dividend to common stockholders ($4.75 per share)






















(227,157
)


(227,157
)Quarterly dividends to common stockholders ($2.09 per share)






















(101,137
)


(101,137
)Balance at December 31, 2007






507



1,286,071



(4,346
)


695,182



(1,345,419
)


631,995Issuance of stock






83



201,966















202,049Common stock redemption










(282
)














(282
)Stock-based compensation






2



2,780















2,782Net income


















41,692







41,692Other comprehensive loss














(2,115
)










(2,115
)Comprehensive income


























39,577Quarterly dividends to common stockholders ($1.54 per share)






















(81,301
)


(81,301
)Balance at December 31, 2008

$



$
592


$
1,490,535


$
(6,461
)

$
736,874


$
(1,426,720
)

$
794,820    56




---



##### Table of Contents



ConsolidatedSTATEMENTS
    OF CASH FLOWS
  Year Ended December 31,(Dollars in thousands)

2008


2007


2006Operating
    ActivitiesNet income

$
41,692


$
60,062


$
39,719Adjustments to reconcile net income to cash provided by
    operating activities:Depreciation and amortization


54,748



53,924



65,529Stock-based compensation


2,780



4,678



4,002Straight-line rent receivable


(643
)


(1,043
)


(1,736
)Straight-line rent liability


423



954



Gain on sales of real estate properties


(9,843
)


(40,405
)


(3,275
)Gain on sales of land


(384
)






Gain on extinguishment of debt


(4,102
)






Impairments


2,486



7,089



5,684Equity in (income) losses from unconsolidated joint ventures


(1,021
)


309



307Provision for bad debt, net of recoveries


1,904



198



1,256State income taxes paid, net of refund


(612
)


(137
)


(22
)Changes in operating assets and liabilities:Other assets


6,794



(94
)


(3,062
)Accounts payable and accrued liabilities


3,097



(2,065
)


(1,758
)Other liabilities


9,291



7,450



2,444Net cash provided by operating activities


106,610



90,920



109,088Investing
    ActivitiesAcquisition and development of real estate properties


(383,702
)


(130,799
)


(126,347
)Funding of mortgages and notes receivable


(36,970
)


(14,759
)


(22,794
)Investment in unconsolidated joint ventures










(10,654
)Distributions received from unconsolidated joint ventures


882



1,414



988Partial redemption of preferred equity investment in
    unconsolidated joint ventures


5,546







Proceeds from sales of real estate


37,133



311,927



32,706Proceeds from mortgage and notes receivable repayments


8,236



65,572



72,553Net cash provided by (used in) investing activities


(368,875
)


233,355



(53,548
)Financing
    ActivitiesNet borrowings (repayments) on unsecured credit facility


193,000



(54,000
)


117,000Borrowings on notes and bonds payable






1,840



Repayments on notes and bonds payable


(3,813
)


(7,440
)


(40,048
)Repurchase of notes payable


(45,460
)






Special dividend paid






(227,157
)


Quarterly dividends paid


(81,301
)


(101,137
)


(126,205
)Proceeds from issuance of common stock


197,255



70,780



567Interest rate swap termination










(10,127
)Common stock redemption


(282
)


(386
)


(481
)Credit facility amendment and extension fees


(1,126
)






Equity issuance costs


(389
)


(206
)


Debt issuance costs










(1,333
)Net cash provided by (used in) financing activities


257,884



(317,706
)


(60,627
)Increase (decrease) in cash and cash equivalents


(4,381
)


6,569



(5,087
)Cash and cash equivalents, beginning of year


8,519



1,950



7,037Cash and cash equivalents, end of year

$
4,138


$
8,519


$
1,950Supplemental Cash Flow
    Information:Interest paid (including interest on interest rate swaps)

$
49,997


$
53,233


$
55,083Capitalized interest

$
6,679


$
4,022


$
1,292Company-financed real estate property sales

$



$



$
16,906Capital expenditures accrued

$
12,500


$
6,699


$
3,470Mortgage notes payable assumed

$
50,825


$



$
Forgiveness of notes receivable upon sale of certain senior
    living assets

$



$
2,640


$
    57




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.  Summary
    of Significant Accounting Policies
  Business
    Overview
  Form 10-K
  Principles
    of Consolidation
    78-9
  Variable
    Interest Entities
    December 31,(Dollars in millions)

2006Number of entities


15Net operating income(1)

$
0.5Maximum exposure to loss(2)

$
7.5     (1)
    
    Included depreciation and amortization of $0.8 million and
    subordinated management fees of $3.4 million. This
    financial information was provided by the VIEs.(2)
    
    Maximum exposure to loss equaled the aggregate amount funded by
    the Company on behalf of the VIEs. 58




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Use of
    Estimates in the Consolidated Financial Statements
    Segment
    Reporting
    Reclassifications
    Real
    Estate Properties
  No. 97-11,
    Land improvements


9.5 to 15 yearsBuildings and improvements


3.3 to 39 yearsLease intangibles (including ground lease intangibles)


1.3 to 93 yearsPersonal property


3 to 15 years   Land
    Held for Development
    Accounting
    for Acquisitions of Real Estate Properties with In-Place
    Leases
   59




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    First, the Company considers whether any of the in-place lease
    rental rates are above- or below-market. An asset (if the actual
    rental rate is above-market) or a liability (if the actual
    rental rate is below-market) is calculated and recorded in an
    amount equal to the present value of the future cash flows that
    represent the difference between the actual lease rate and the
    average market rate.
    Second, the Company estimates an absorption period assuming the
    building is vacant and must be leased up to the actual level of
    occupancy when acquired. During that absorption period the owner
    would incur direct costs, such as tenant improvements, and would
    suffer lost rental income. Likewise, the owner would have
    acquired a measurable asset in that, assuming the building was
    vacant, certain fixed costs would be avoided because the actual
    in-place lessees would reimburse a certain portion of fixed
    costs through expense reimbursements during the absorption
    period. All of these assets (tenant improvement costs avoided,
    rental income lost, and fixed costs recovered through in-place
    lessee reimbursements) are estimated and recorded in amounts
    equal to the present value of future cash flows.
    Third, the Company estimates the value of the building as
    if vacant. The Company uses the same absorption period and
    occupancy assumptions used in step two, adding to those the
    future cash flows expected in a fully occupied building. The net
    present value of these future cash flows, discounted at a market
    rate of return, becomes the estimated as if vacant
    value of the building.
    Fourth, the actual purchase price is allocated based on the
    various asset fair values described above. The building and
    tenant improvements components of the purchase price are
    depreciated over the useful life of the building or the average
    remaining term of the in-places leases, respectively. The above-
    or below-market rental rate assets or liabilities are amortized
    to rental income or property operating expense over the
    remaining term of the leases. The at-market in-place leases are
    amortized to amortization expense over the average remaining
    term of the leases, customer relationship assets are amortized
    to amortization expense over terms applicable to each
    acquisition, and any goodwill recorded would be reviewed for
    impairment at least annually.    Fair
    Value Measurements
      
    Level 1 quoted prices for identical
    instruments in active markets;
    Level 2 quoted prices for similar
    instruments in active markets; quoted prices for identical or
    similar instruments in markets that are not active; and
    model-derived valuations in which significant inputs and
    significant value drivers are observable in active
    markets; and 60




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Level 3 fair value measurements derived
    from valuation techniques in which one or more significant
    inputs or significant value drivers are unobservable.    Cash
    and Cash Equivalents
    Allowance
    for Doubtful Accounts and Credit Losses
  Accounts
    Receivable
      Mortgage
    Notes and Notes Receivable
     61




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Goodwill
    and Other Intangible Assets
      Derivative
    Financial Instruments
    Contingent
    Liabilities
       62




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting
    for Defined Benefit Pension Plans
    Incentive
    Plans
      Accumulated
    Other Comprehensive Loss
  available-for-sale
  Revenue
    Recognition
     63




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Rental
    Income
    Mortgage
    Interest Income
    Other
    Operating Income
       64




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,(Dollars in millions)

2008


2007


2006Property lease guaranty revenue

$
12.8


$
13.2


$
14.4Interest income on notes receivable


0.6



0.3



0.3Management fee income


0.2



0.3



0.4Prepayment penalty income










2.2Replacement rent


2.5



2.5



1.8Other


0.2



0.3



0.7$
16.3


$
16.6


$
19.8   Federal
    Income Taxes
        State
    Income Taxes
    Sales
    and Use Taxes
    Discontinued
    Operations
   65




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Earnings
    per Share
    New
    Pronouncements
  Fair
    Value Measurements
    The Fair
    Value Option for Financial Assets and Financial
    Liabilities
    Business
    Combinations and Noncontrolling Interests in Consolidated
    Financial Statements
   66




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Determining
    Whether Instruments Granted in Share-Based Payment Transactions
    Are Participating Securities
  03-6-1, EITF 03-6-1). EITF 03-6-1 EITF 03-6-1, EITF 03-6-1 EITF 03-6-1
  2.
    Real
    Estate and Mortgage Notes Receivable Investments   67




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Buildings,Improvements,Number of





Lease Intangibles


Personal





Accumulated(Dollars in thousands)

Facilities(1)


Land


and CIP


Property


Total


DepreciationMedical office:Arizona


8


$
3,313


$
63,273


$
72


$
66,658


$
(8,638
)Florida


14



7,111



124,905



154



132,170



(40,553
)North Carolina


14







140,614







140,614



Tennessee


16



9,792



173,364



150



183,306



(35,479
)Texas


30



16,099



419,362



927



436,388



(61,436
)Other states


39



26,488



418,450



219



445,157



(65,911
)121



62,803



1,339,968



1,522



1,404,293



(212,017
)Physician clinics:Florida


8



10,639



44,567







55,206



(13,159
)Indiana


1



533



21,064







21,597



(1,350
)Virginia


3



1,623



29,168



127



30,918



(9,250
)Other states


19



5,243



60,507



263



66,013



(17,718
)31



18,038



155,306



390



173,734



(41,477
)Ambulatory care/surgery:California


2



4,030



30,989



13



35,032



(10,228
)Florida


2



2,310



7,210







9,520



(2,090
)Texas


3



6,847



34,552



74



41,473



(13,156
)Other states


4



3,698



9,634







13,332



(3,874
)11



16,885



82,385



87



99,357



(29,348
)Specialty outpatient:Arkansas


1



647



2,408







3,055



(891
)Florida


1



911



2,500







3,411



(859
)Missouri


2



2,254



14,116







16,370



(4,945
)Other states


3



246



6,774







7,020



(1,606
)7



4,058



25,798







29,856



(8,301
)Specialty inpatient:Indiana


1



1,071



42,335







43,406



(2,714
)Pennsylvania


6



1,214



112,653







113,867



(33,979
)Texas


2



1,623



17,602







19,225



(5,784
)Other states


3







42,113







42,113



(12,402
)12



3,908



214,703







218,611



(54,879
)Other:Alabama


1



181



9,304



8



9,493



(4,459
)Michigan


5



193



12,729



183



13,105



(5,998
)Virginia


2



1,140



9,049



5



10,194



(2,776
)Other states


2



349



10,641



440



11,430



(2,217
)10



1,863



41,723



636



44,222



(15,450
)Land held for development










17,301







17,301



Corporate Property














14,350



14,350



(5,888
)







17,301



14,350



31,651



(5,888
)Total owned properties


192



107,555



1,877,184



16,985



2,001,724



(367,360
)Mortgage notes receivable


4















59,001



Unconsolidated joint venture investments, net


2















2,784



Total real estate investments


198


$
107,555


$
1,877,184


$
16,985


$
2,063,509


$
(367,360
)     (1)
    
    Includes four properties under construction. 68




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    Real
    Estate Property Leases      2009

$
188,8292010


158,9312011


136,5332012


114,3642013


88,2822014 and thereafter


299,184$
986,123   Customer
    Concentrations
    Purchase
    Option Provisions
    4.  Acquisitions
    and Dispositions and Mortgage Repayments
  2008
    Real Estate Acquisitions
    
    two fully-leased, six-story office buildings, each containing
    approximately 146,000 square feet, and a six-level parking
    structure, containing 977 parking spaces, in Dallas, Texas for a
    purchase price of approximately $59.2 million;
    a medical office building and surgery center with
    102,566 square feet in Indiana for a purchase price of
    approximately $28.2 million. The building is 100% occupied
    by three tenants with lease expiration dates ranging from 2017
    to 2024;
    a portfolio of 15 medical office buildings from The
    Charlotte-Mecklenburg Hospital Authority and certain of its
    affiliates (collectively, CHS) for a purchase price
    of approximately $162.1 million, 69




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  including ground lease prepayments of $8.3 million. The
    portfolio includes 764,092 square feet of
    on- and
    off-campus properties which are located in or around Charlotte,
    North Carolina and are approximately 90% occupied. CHS leases
    approximately 71% of the total square feet of the portfolio with
    lease terms averaging approximately 10 years. CHS is the
    third largest public health system in the United States and
    owns, leases and manages 23 hospitals, and operates
    approximately 5,000 patient beds. The weighted average
    remaining lease terms for the non-CHS portion of leased space is
    five years. The following table summarizes the estimated fair
    values of the assets acquired and liabilities assumed as of the
    acquisition date:  Estimated


EstimatedFair Value


Useful Life(In millions)


(In years)Buildings

$
140.4



20-39Prepaid ground lease


8.3



75Intangibles:At-market lease intangibles


11.1



0.9-15Below-market lease intangibles


(0.1
)


3.4Above-market ground lease intangibles


(0.1
)


75Below-market ground lease intangibles


2.5



75Total intangibles


13.4



22.5$
162.1   
    the remaining equity membership interest in a joint venture,
    which owns five on-campus medical office buildings in
    Washington, for a purchase price of approximately
    $14.5 million plus the assumption of outstanding debt of
    approximately $42.2 million, net of fair value adjustments.
    At the time of the acquisition, the Company had a
    $9.2 million net equity investment in the joint venture
    which it accounted for under the equity method. The debt assumed
    has a weighted average interest rate of 5.8% with maturities
    beginning in 2015. In connection with the Companys
    acquisition and related transition of accounting from the joint
    venture to the Company, the joint venture recorded an adjustment
    to straight-line rent on the properties. As such, the Company
    recognized its portion of the adjustment through equity income
    on the joint venture of approximately $1.1 million (of
    which $0.8 million, or $0.02 per diluted share, is related
    to prior years);
    an 80% interest in a joint venture that concurrently acquired
    two medical office buildings, a specialty outpatient facility
    and a physician clinic in Iowa for cash consideration of
    approximately $25.8 million, plus the assumption of
    outstanding debt of approximately $1.2 million, net of a
    fair value adjustment. The debt assumed has an interest rate of
    5.8% which matures in 2016. The accounts of the joint venture
    are included in the Companys Consolidated Financial
    Statements, as well as $1.4 million in minority interest
    which is included in other liabilities; and
    a mortgage note receivable was originated for $8.0 million
    in connection with the construction of an ambulatory
    care/surgery
    center in Iowa. 70




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Mortgage


MortgageDate


Cash


Real


Note


Notes Payable





Square(Dollars in millions)

Acquired


Consideration


Estate


Financing


Assumed


Other


FootageReal estate acquisitionsTexas


7/25/08


$
56.0


$
57.9






$



$
(1.9
)


291,389Indiana


12/19/08



28.1



27.7











0.4



102,566North and South Carolina


12/29/08



162.1



151.5











10.6



764,092Washington (1)


11/26/08



14.5



69.7







(42.2
)


(13.0
)


319,561Iowa (1)


9/30/08, 10/31/08



25.8



28.8







(1.2
)


(1.8
)


145,457286.5



335.6







(43.4
)


(5.7
)


1,623,065Mortgage note financingsIowa


10/30/08



8.0







8.0











Total 2008 Acquisitions





$
294.5


$
335.6


$
8.0


$
(43.4
)

$
(5.7
)


1,623,065     (1)
    
    The mortgage notes payable assumed in the Washington and Iowa
    acquisitions reflect fair value adjustments of $7.2 million
    and $0.2 million, respectively, recorded by the Company
    upon acquisition.    Intangibles


AmortizationAssigned


Periods(In thousands)


(In months)Above-market lease intangibles

$
1,297



24-198Below-market lease intangibles


(6,615
)


52-148At-market lease intangibles


25,277



24-198Above-market ground lease intangibles


(128
)


900Below-market ground lease intangibles


3,850



678-1117$
23,681



212   2008
    Real Estate Dispositions
    
    a 10,818 square foot physician clinic in Texas in which the
    Company had a total gross investment of approximately
    $1.5 million ($1.3 million, net) was sold for
    $1.6 million in net proceeds, and the Company recognized a
    $0.3 million net gain from the sale;
    a 4,913 square foot ambulatory surgery center in California
    in which the Company had a total gross investment of
    approximately $1.0 million ($0.6 million, net) was
    sold for $1.0 million in net proceeds, and the Company
    recognized a $0.4 million net gain from the sale;
    a 36,951 square foot building in Mississippi in which the
    Company had a total gross investment of approximately
    $2.9 million ($1.6 million, net) was sold for
    $1.9 million in net proceeds, and the Company recognized a
    $0.3 million net gain from the sale; 71




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    a 7,500 square foot physician clinic in Texas in which the
    Company had a total gross investment of approximately
    $0.5 million ($0.4 million, net) was sold for
    $0.5 million in net proceeds, and the Company recognized a
    $0.1 million net gain from the sale;
    pursuant to a purchase option exercised by a tenant in the third
    quarter of 2008, a 25,456 square foot physician clinic in
    Tennessee in which the Company had a total gross investment of
    approximately $3.3 million ($2.3 million, net) was
    sold for $3.0 million in net proceeds, and the Company
    recognized a $0.7 million net gain from the sale;
    a parcel of land in Pennsylvania was sold for approximately
    $0.8 million in net proceeds, which approximated the
    Companys net book value;
    pursuant to a purchase option exercised by a tenant in 2007, an
    83,718 square foot medical office building in Texas in
    which the Company had a total gross investment of approximately
    $18.5 million ($10.4 million, net) was sold for net
    proceeds of $18.7 million. The Company recognized an
    $8.0 million net gain from the sale, net of receivables of
    $0.3 million;
    a parcel of land held for development in Illinois was sold for
    $9.0 million in net proceeds. The Companys investment
    in the land was $8.6 million and it recognized
    $0.4 million net gain from the sale, which is recorded in
    other income (expense) on the Companys Consolidated
    Statement of Income; and
    a 7,093 square foot building in Virginia in which the
    Company had a total gross investment of approximately
    $1.0 million ($0.5 million, net) was sold for
    $0.4 million in net proceeds, resulting in a
    $0.1 million impairment.  2008
    Mortgage Note Repayment
    2008
    Joint Venture Equity Interest Disposition
   72




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Net Real


Other


MortgageNet


Estate


(Including


Note


Gain/


Square(Dollars in millions)

Proceeds


Investment


Receivables)


Receivable


(Loss)


FootageReal estate dispositionsTexas

$
1.6


$
1.3


$







$
0.3



10,818California


1.0



0.6











0.4



4,913Mississippi


1.9



1.6











0.3



36,951Texas


0.5



0.4











0.1



7,500Tennessee


3.0



2.3











0.7



25,456Pennsylvania (land)


0.8



0.8











0.0



Texas


18.7



10.4



0.3







8.0



83,718Illinois (land held for development)(1)


9.0



8.6











0.4



Virginia


0.4



0.5











(0.1
)


7,09336.9



26.5



0.3







10.1



176,449Mortgage note repayments


2.5











2.5







Joint venture preferred equity interestUtah


5.5







5.5











Total 2008 Dispositions

$
44.9


$
26.5


$
5.8


$
2.5


$
10.1



176,449     (1)
    
    The gain related to the sale of this land parcel is recognized
    in other income (expense) on the Companys Consolidated
    Statement of Income.  2009
    Acquisition
    2009
    Dispositions or Potential Dispositions
     73




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              2007
    Real Estate Acquisitions
    
    a 76,246 square foot on-campus medical office building in
    Texas for $26.3 million, of which $4.0 million was
    withheld upon completion of certain tenant improvements. The
    building was fully leased upon acquisition and was 100% occupied
    upon completion of the tenant improvements in 2008;
    a 75,000 square foot building in Tennessee for a total
    investment of $7.3 million, including $5.4 million in
    cash consideration and the assumption of a mortgage note payable
    of $1.9 million;
    the real estate assets of three partnerships, which owned three
    adjoining medical office buildings in Virginia, for
    $0.9 million; and 74




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    five parcels of land in Texas and Illinois for an aggregate
    purchase price of approximately $30.4 million. The
    Companys investment in these parcels of land is included
    in construction in progress or in land held for development at
    December 31, 2007.  2007
    Mortgage Note Financings
      Cash


Real


Mortgage





Square(Dollars in millions)

Consideration


Estate


Financing


Other


FootageReal estate acquisitionsTexas

$
22.3


$
22.3


$



$




76,246Texas (land)


16.1



16.1











Illinois (land)


14.3



14.3











Virginia


0.9



0.9











12,365Tennessee


5.4



7.3







(1.9
)


75,00059.0



60.9







(1.9
)


163,611Mortgage note financings


14.2







14.2







Total 2007 Acquisitions

$
73.2


$
60.9


$
14.2


$
(1.9
)


163,611   2007
    Senior Living Asset Dispositions
       75




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Dispositions in 2007
      Lease





MortgageNet Real


Termination/


Other


and OtherNet


Estate


Prepayment


(Including


Notes


Gain/


Square(Dollars in millions)

Proceeds


Investment


Penalties


Receivables)


Receivable


(Loss)


FootageReal estate dispositionsSenior living assets

$
312.3


$
259.9


$



$
5.9


$
6.3


$
40.2



2,535,623Texas


4.1



8.2















(4.1
)


72,862Tennessee


2.1



1.9















0.2



17,464Virginia


0.3



0.3



















3,264318.8



270.3







5.9



6.3



36.3



2,629,213Mortgage note repayments Senior living assets


57.1







0.2







56.9







Total 2007 Dispositions

$
375.9


$
270.3


$
0.2


$
5.9


$
63.2


$
36.3



2,629,213   5.  Discontinued
    Operations
   76




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,(Dollars in thousands)

2008


2007Balance Sheet data(as of the period ended):Land

$
9,503


$
3,055Buildings, improvements and lease intangibles


109,596



22,736Personal property


30



70119,129



25,861Accumulated depreciation


(29,905
)


(10,462
)Assets held for sale, net


89,224



15,399Receivables


915



217Other assets, net


94



23Assets of discontinued operations, net


1,009



240Assets held for sale and discontinued operations, net

$
90,233


$
15,639Notes and bonds payable


5,452



Liabilities held for sale


5,452



Notes and bonds payable


23,281



Accounts payable and accrued liabilities


409



Other liabilities


3,679



34Liabilities of discontinued operations


27,369



34Liabilities held for sale and discontinued operations

$
32,821


$
34   77




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year Ended December 31,(Dollars in thousands, except per share data)

2008


2007


2006Statements of Income data(for the period
    ended):Revenues(1)Master lease rent

$
6,548


$
15,376


$
31,653Property operating


7,999



8,125



8,929Straight-line rent


20



109



68Mortgage interest






1,841



5,913Other operating


8,014



18,813



19,75622,581



44,264



66,319Expenses(2)General and administrative


(27
)






35Property operating


3,773



4,161



4,662Other operating






16,688



17,036Bad debts, net of recoveries


71



(24
)


395Depreciation


2,177



5,783



14,588Amortization


25



38



716,019



26,646



36,787Other Income (Expense)(3)Interest expense


(2,009
)


(2,379
)


(2,923
)Interest and other income, net


24



278



795(1,985
)


(2,101
)


(2,128
)Income from Discontinued Operations


14,577



15,517



27,404Impairments(4)


(886
)


(7,089
)


(1,573
)Gain on sales of real estate properties(5)


9,843



40,405



3,275Discontinued Operations

$
23,534


$
48,833


$
29,106Income from Discontinued Operations per common
    share  basic

$
0.46


$
1.02


$
0.62Income from Discontinued Operations per common
    share  diluted

$
0.44


$
1.01


$
0.62     (1)
    
    Total revenues for the years ended December 31, 2008, 2007
    and 2006 include $0, $27.4 million and $47.0 million,
    respectively, related to the sale of the senior living assets;
    $1.7 million, $3.9 million, and $6.7 million,
    respectively, related to other properties sold; and
    $20.9 million (including a $7.2 million fee received
    from an operator to terminate its financial support agreement
    with the Company), $13.0 million, and $12.6 million,
    respectively, related to 12 properties held for sale at
    December 31, 2008.(2)
    
    Total expenses for the years ended December 31, 2008, 2007
    and 2006 include $0.1 million, $18.9 million, and
    $28.2 million, respectively, related to the sale of the
    senior living assets; $0.3 million, $1.7 million, and
    $2.7 million, respectively, related to other properties
    sold; and $5.6 million, $6.0 million, and
    $5.9 million, respectively, related to 12 properties held
    for sale at December 31, 2008.(3)
    
    Other income (expense) for the years ended December 31,
    2008, 2007 and 2006 includes ($2.0) million,
    ($2.1) million, and ($2.2) million, respectively,
    related to properties held for sale at December 31, 2008,
    and December 31, 2006 also includes $0.2 million
    related to the sale of the senior living assets and
    ($0.1) million related to other properties sold. 78




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (4)
    
    Impairments for the year ended December 31, 2008 include
    approximately $0.8 million related to two properties held
    for sale and $0.1 million related to two properties sold;
    December 31, 2007 includes $6.6 million related to
    four properties sold and $0.5 million related to the
    properties held for sale at December 31, 2007;
    December 31, 2006 includes $1.6 million related to two
    properties sold.(5)
    
    Gain on sales of real estate properties for the year ended
    December 31, 2008 includes $9.8 million related to six
    properties sold; December 31, 2007 includes
    $40.2 million related to the sale of senior living assets
    during 2007 and $0.2 million related to the sale of a
    property pursuant to a purchase option exercised by the
    operator; December 31, 2006 includes $3.3 million
    related to the sale of five properties sold.  6.  Impairment
    Charges
        7.  Other
    Assets
    December 31,(Dollars in millions)

2008


2007Straight-line rent receivables

$
23.2


$
23.2Equity investments in joint ventures


2.8



18.4Accounts receivable


10.3



16.9Prepaid assets


21.0



12.9Above-market intangible assets, net


11.7



6.7Deferred financing costs, net


3.1



4.1Goodwill


3.5



3.5Acquired patient accounts receivable, net


0.1



1.9Customer relationship intangible asset, net


1.2



1.3Allowance for uncollectible accounts


(3.3
)


(1.5
)Notes receivable


0.5



0.6Other


2.9



2.0$
77.0


$
90.0   Unconsolidated
    Joint Ventures
   79




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        December 31,(Dollars in thousands)

2008


2007


2006Net joint venture investments, beginning of period

$
18,356


$
20,079


$
10,720New investments during the period










9,045Additional investments during the period










1,609Equity in income (losses) recognized during the period


1,021



(309
)


(307
)Distributions received during the period


(882
)


(1,414
)


(988
)Acquisition of remaining equity interest in a joint venture


(10,165
)






Partial redemption of preferred equity investment


(5,546
)






Net joint venture investments, end of period

$
2,784


$
18,356


$
20,079   8.  Intangible
    Assets and Liabilities
    GrossBalance at


Accumulated Amortization


WeightedDecember 31,


at December 31,


Avg. Life(Dollars in millions)

2008


2007


2008


2007


(Years)


Balance Sheet ClassificationGoodwill

$
3.5


$
3.5


$



$




N/A


Other assetsDeferred financing costs


11.4



10.7



8.3



6.6



3.4


Other assetsAbove-market lease intangibles


12.2



7.0



0.5



0.3



51.2


Other assetsCustomer relationship intangibles


1.4



1.5



0.2



0.2



34.6


Other assetsBelow-market lease intangibles


(7.2
)


(0.4
)


(0.7
)


(0.2
)


11.4


Other liabilitiesAt-market lease intangibles


65.3



40.3



38.5



35.9



9.2


Real estate properties$
86.6


$
62.6


$
46.8


$
42.8



22.5     9.  Notes
    and Bonds Payable
   80




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,(Dollars in thousands)

2008


2007Unsecured credit facility

$
329,000


$
136,000Senior notes due 2011, including premium


286,898



300,864Senior notes due 2014, net of discount


263,961



298,976Mortgage notes payable, net of discount


60,327



49,449$
940,186


$
785,289     Unsecured
    Credit Facility
    Senior
    Notes due 2011
    December 31,(Dollars in thousands)

2008


2007Senior Notes due 2011 face value

$
286,300


$
300,000Unamortized net gain (net of discount)


598



864Senior Notes due 2011 carrying amount

$
286,898


$
300,864  81




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Senior
    Notes due 2014
    December 31,(Dollars in thousands)

2008


2007Senior Notes due 2014 face value

$
264,737


$
300,000Unaccreted discount


(776
)


(1,024
)Senior Notes due 2014 carrying amount

$
263,961


$
298,976   Senior
    Note Repurchases
    Mortgage
    Notes Payable
    Investment inEffective





Number





Collateral atOriginal


Interest


Maturity


of Notes





December 31,


Balance at December 31,(Dollars in millions)

Balance


Rate


Date


Payable


Collateral(10)


2008


2008


2007(9)Life Insurance Co.(1)

$
4.7



7.765
%


1/17



1



MOB


$
11.3


$
2.7


$
3.0Commercial Bank(2)


11.7



7.220
%


5/11



3



2 MOBs/1 ASC



31.3



3.7



5.0Commercial Bank(3)


1.8



5.550
%


10/32



1



OTH



7.6



1.8



1.8Life Insurance Co.(4)


15.1



5.490
%


1/16



1



ASC



32.5



14.2



14.5Commercial Bank(5)


17.4



6.480
%


6/15



1



MOB



19.7



14.3



Commercial Bank(6)


12.0



6.110
%


8/20



1



MOB



9.6



9.6



Commercial Bank(7)


15.2



7.650
%


7/15



1



MOB



19.7



12.8



Life Insurance Co.(8)


1.5



6.810
%


7/16



1



SOP



2.2



1.2



10






$
133.9


$
60.3


$
24.3     (1)
    
    Payable in monthly installments of principal and interest based
    on a 20-year
    amortization with the final payment due at maturity.(2)
    
    Payable in fully amortizing monthly installments of principal
    and interest due at maturity.(3)
    
    Payable in monthly installments of principal and interest based
    on a 27-year
    amortization with the final payment due at maturity. 82




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (4)
    
    Payable in monthly installments of principal and interest based
    on a 10-year
    amortization with the final payment due at maturity.(5)
    
    Payable in monthly installments of principal and interest based
    on a 9-year
    amortization with the final payment due at maturity. The Company
    acquired this mortgage note in an acquisition during 2008. In
    accordance with SFAS No. 144, the Company recorded the
    note at its fair value, resulting in a $2.7 million
    discount which is included in the balance above.(6)
    
    Payable in monthly installments of principal and interest based
    on a 9-year
    amortization with the final payment due at maturity. The Company
    acquired this mortgage note in an acquisition during 2008. In
    accordance with SFAS No. 144, the Company recorded the
    note at its fair value, resulting in a $2.1 million
    discount which is included in the balance above.(7)
    
    Payable in monthly installments of interest only for
    24 months and then installments of principal and interest
    based on a
    11-year
    amortization with the final payment due at maturity. The Company
    acquired this mortgage note in an acquisition during 2008. In
    accordance with SFAS No. 144, the Company recorded the note
    at its fair value, resulting in a $2.4 million discount
    which is included in the balance above.(8)
    
    Payable in monthly installments of principal and interest based
    on a 9-year
    amortization with the final payment due at maturity. The Company
    acquired this mortgage note in an acquisition during 2008. In
    accordance with SFAS No. 144, the Company recorded the
    note at its fair value, resulting in a $0.2 million
    discount which is included in the balance above.(9)
    
    The contractual balance at December 31, 2007, excludes
    three mortgage notes payable totaling $25.1 million that
    were classified as liabilities held for sale and discontinued
    operations on the Companys Consolidated Balance Sheet at
    December 31, 2008.(10)
    
    MOB-Medical office building;
    ASC-Ambulatory
    Care/Surgery; SOP-Specialty Outpatient; OTH-Other.      Investment inEffective





Number





Collateral at


Contractual Balance atOriginal


Interest


Maturity


of Notes





December 31,


December 31,


December 31,(Dollars in millions)

Balance


Rate


Date


Payable


Collateral(4)


2008


2008


2007Life Insurance Co.(1)

$
23.3



7.765
%


7/26



1



MOB


$
46.8


$
19.5


$
20.0Commercial Bank(2)


11.7



7.220
%


5/11



2



3 MOBs



23.0



3.7



5.1Commercial Bank(3)


5.5



6.500
%


1/27



1



MOB



10.7



5.5



4






$
80.5


$
28.7


$
25.1     (1)
    
    Payable in monthly installments of principal and interest based
    on a 30-year
    amortization with the final payment due at maturity.(2)
    
    Payable in fully amortizing monthly installments of principal
    and interest due at maturity.(3)
    
    Payable in fully amortizing monthly installments of principal
    and interest due at maturity.(4)
    
    MOB-Medical office building   83




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    Long-Term Debt Information
    Discount/


TotalPrincipal


Premium


Notes and(Dollars in thousands)

Maturities


Amortization(2)


Bonds Payable


%2009

$
2,652


$
(594
)

$
2,058



0.2
%2010(1)


331,980



(713
)


331,267



35.2
%2011


288,627



(941
)


287,686



30.6
%2012


1,635



(1,094
)


541



0.1
%2013


1,736



(1,159
)


577



0.1
%2014 and thereafter


321,133



(3,076
)


318,057



33.8
%$
947,763


$
(7,577
)

$
940,186



100.0
%     (1)
    
    Includes $329.0 million outstanding on the Unsecured Credit
    Facility.(2)
    
    Includes discount and premium amortization related to the
    Companys Senior Notes due 2011 and 2014 and discounts
    related to four mortgage notes payable assumed during 2008.  10.  Stockholders
    Equity
  Common
    Stock
    Year Ended December 31,2008


2007


2006Balance, beginning of period


50,691,331



47,805,448



47,768,148Issuance of stock


8,373,014



2,833,434



3,876Restricted stock-based awards, net of forfeitures


(181,939
)


52,449



33,424Balance, end of period


59,246,284



50,691,331



47,805,448   Equity
    Offerings
     84




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##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Dividend
    Declared
    At-The-Market
    Equity Offering Program
  and/or
  Authorization
    to Repurchase Common Stock
    Accumulated
    Other Comprehensive Loss
    11.  Benefit
    Plans
  Executive
    Retirement Plan
       85




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Retirement
    Plan for Outside Directors
    Retirement
    Plan Information
    (Dollars in thousands)

2008


2007


2006Service cost

$
1,288


$
1,022


$
995Interest cost


1,190



943



743Effect of settlement


1,143







Amortization of net gain/loss


758



442



417$
4,379


$
2,407


$
2,155Net loss recognized in other comprehensive loss


2,115



311



2,591Total recognized in net periodic benefit cost and other
    comprehensive loss

$
6,494


$
2,718


$
4,746       (Dollars in thousands)

2008


2007Benefit obligation at beginning of year

$
15,642


$
13,008Service cost


1,288



1,022Interest cost


1,190



943Benefits paid


(4,648
)


(84
)Curtailment gain


(342
)


Settlement loss


1,461



Actuarial gain/loss, net


2,897



753Benefit obligation at end of year

$
17,488


$
15,642  86




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands)

2008

2007Net liabilities included in accrued liabilities

$
(11,027
)

$
(11,296
)Amounts recognized in accumulated other comprehensive loss


(6,461
)


(4,346
)     As of December 31,2008

2007

2006Discount rate


6.0
%


6.0
%


6.4
%Compensation increases


2.7
%


2.7
%


2.7
%     12.  Stock
    and Other Incentive Plans
  2007
    Employees Stock Incentive Plan
       87




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Non-Employee
    Directors Stock Plan
      2008


2007


2006Stock-based awards, beginning of year


1,289,646



1,261,613



1,271,548Granted


812,654



65,706



46,928Vested


(657,888
)


(35,974
)


(56,116
)Forfeited


(332,684
)


(1,699
)


(747
)Stock-based awards, end of year


1,111,728



1,289,646



1,261,613Weighted-average grant date fair value of:Stock-based awards, beginning of year

$
25.12


$
24.85


$
24.37Stock-based awards granted during the year

$
18.18


$
34.99


$
33.75Stock-based awards vested during the year

$
16.54


$
33.17


$
21.22Stock-based awards forfeited during the year

$
24.06


$
34.89


$
34.15Stock-based awards, end of year

$
25.71


$
25.12


$
24.85Grant date fair value of shares granted during the year

$
14,773,448


$
2,298,787


$
1,583,605   stock-based
    401(k)
    Plan
   88




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Dividend
    Reinvestment Plan
    Employee
    Stock Purchase Plan
   89




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007


2006Outstanding, beginning of year


179,603



171,481



158,026Granted


194,832



128,928



148,698Exercised


(10,948
)


(9,947
)


(14,958
)Forfeited


(38,325
)


(43,948
)


(65,135
)Expired


(74,294
)


(66,911
)


(55,150
)Outstanding and exercisable, end of year


250,868



179,603



171,481Weighted-average exercise price of:Options outstanding, beginning of year

$
21.58


$
30.55


$
28.28Options granted during the year

$
21.58


$
33.61


$
28.28Options exercised during the year

$
21.24


$
26.11


$
28.34Options forfeited during the year

$
21.02


$
26.38


$
29.28Options expired during the year

$
20.20


$
23.61


$
30.39Options outstanding, end of year

$
19.96


$
21.58


$
30.55Weighted-average fair value of options granted during the year
    (calculated as of the grant date)

$
5.82


$
8.69


$
6.55Intrinsic value of options exercised during the year

$
38,537


$
37,898


$
167,543Intrinsic value of options outstanding and exercisable
    (calculated as of December 31)

$
883,055


$
684,287


$
1,470,003Range of exercise prices of options outstanding (calculated as
    of December 31)

$
19.96 - $33.61


$
21.58 -$33.61


$
27.07 - $34.60Weighted-average contractual life of outstanding options
    (calculated as of December 31, in years)


0.9



0.8



0.8     2008


2007


2006Risk-free interest rates


3.05
%


4.82
%


4.82
%Expected dividend yields


5.92
%


4.50
%


6.68
%Expected life (in years)


1.43



1.59



1.46Expected volatility


28.6
%


22.3
%


19.9
%Expected forfeiture rates


82
%


79
%


76
%  90




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.  Earnings
    Per Share
    Year Ended December 31,(Dollars in thousands, except per share data)

2008


2007


2006Weighted average Common SharesWeighted average Common Shares outstanding


52,846,988



48,595,003



47,803,671Unvested restricted stock


(1,299,709
)


(1,058,870
)


(1,275,814
)Weighted average Common Shares  Basic


51,547,279



47,536,133



46,527,857Weighted average Common Shares  Basic


51,547,279



47,536,133



46,527,857Dilutive effect of restricted stock


973,353



723,195



930,052Dilutive effect of Employee Stock Purchase Plan


44,312



32,002



41,028Weighted average Common Shares  Diluted


52,564,944



48,291,330



47,498,937Earnings Available to Common StockholdersIncome from continuing operations

$
18,158


$
11,229


$
10,613Discontinued operations


23,534



48,833



29,106Net income

$
41,692


$
60,062


$
39,719Basic Earnings Per Common ShareIncome from continuing operations per common share

$
0.35


$
0.24


$
0.23Discontinued operations per common share


0.46



1.02



0.62Net income per common share

$
0.81


$
1.26


$
0.85Diluted Earnings Per Common ShareIncome from continuing operations per common share

$
0.35


$
0.23


$
0.22Discontinued operations per common share


0.44



1.01



0.62Net income per common share

$
0.79


$
1.24


$
0.84   14.  Commitments
    and Contingencies
  Construction
    in Progress
   91




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Estimated











CIP at


Estimated


EstimatedCompletion


Property





Approximate


December 31,


Remaining


TotalState

Date


Type(1)


Properties


Square Feet


2008


Fundings


Investment(Dollars in thousands)Under construction:Texas


3Q 2009



MOB



1



135,000


$
18,333


$
14,667


$
33,000Illinois


4Q 2009



MOB



1



100,000



10,417



15,983



26,400Texas


4Q 2009



MOB



1



120,000



8,569



20,031



28,600Hawaii


1Q 2010



MOB



1



133,000



30,162



55,838



86,000Land held for development:Texas


















9,184Texas


















8,1174



488,000


$
84,782


$
106,519


$
174,000     (1)
    
    MOB-Medical office building  Other
    Construction
    Operating
    Leases
    2009

$
3,9012010


3,8502011


3,3292012


3,3482013


3,3812014 and thereafter


254,142$
271,951  92




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Legal
    Proceedings
       93




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      15.  Other
    Data
  Taxable
    Income (unaudited)
          Year Ended December 31,(Dollars in  thousands)

2008


2007


2006Net income

$
41,692


$
60,062


$
39,719Items to Reconcile Net Income to Taxable Income:Depreciation and amortization


12,667



13,733



19,499Gain or loss on disposition of depreciable assets


(3,762
)


30,548



5,010Straight-line rent


528



(1,043
)


(2,296
)VIE consolidation






767



1,110Receivable allowances


2,713



(4,625
)


2,603Stock-based compensation


7,651



7,353



3,832Other


(5,206
)


7,062



5,21014,591



53,795



34,968Taxable income(1)

$
56,283


$
113,857


$
74,687Dividends paid(2)

$
81,301


$
328,294


$
126,205     (1)
    
    Before REIT dividend paid deduction. 94




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (2)
    
    Dividends paid for the year ended December 31, 2007 include
    the payment of a one-time special dividend of approximately
    $227.2 million paid from a portion of the proceeds received
    from the sale of the senior living assets.  Characterization
    of Distributions (Unaudited)
      2008


2007


2006Per Share


%


Per Share


%


Per Share


%Common Stock:Ordinary Income

$
1.05



68.4
%

$
1.11



16.3
%

$
1.48



56.2
%Return of Capital


0.41



26.5
%


4.44



64.9
%


1.14



43.0
%20% Capital Gain






















Unrecaptured section 1250 gain


0.08



5.1
%


1.29



18.8
%


0.02



0.8
%Qualified
    5-year
    Capital gain






















Common Stock distributions

$
1.54



100.0
%

$
6.84



100.0
%

$
2.64



100.0
%   State
    Income Taxes
        (Dollars in thousands)

2008


2007


2006State income tax expense:Texas gross margins tax(1)

$
686


$
391


$
Michigan gross receipts deferred tax liability






215



Other


123



88



(66
)Total state income tax expense

$
809


$
694


$
(66
)State income tax payments, net of refunds and collections

$
612


$
137


$
22     (1)
    
    The twelve months ended December 31, 2008 includes $284 in
    state income taxes accrued and paid related to the sale of
    certain senior living assets in 2007. The Company recorded the
    $284 to the gain on sale which is included in discontinued
    operations on the Companys Consolidated Statement of
    Income for the 95




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  year ended December 31, 2008. Additionally, $63 in income
    taxes has been billed to tenants, of which $10 has been
    collected.  16.  Fair
    Value of Financial Instruments
    December 31, 2008


December 31, 2007Carrying


Fair


Carrying


Fair(Dollars in millions)

Value


Value


Value


ValueNotes and bonds payable

$
968.9


$
1,041.9


$
785.3


$
820.9Mortgage notes receivable

$
59.0


$
58.8


$
30.1


$
30.0Notes receivable, net of allowances

$
0.5


$
0.5


$
0.6


$
0.5   17.  Retirement
    and Termination Benefits in 2007
   96




---



##### Table of Contents



NOTES
    TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  18.  Selected
    Quarterly Financial Data (Unaudited)
    Quarter Ended(Dollars in thousands, except per share data)

March 31


June 30


September 30


December 312008Revenues from continuing operations

$
51,367


$
51,884


$
53,916


$
57,074Income from continuing operations

$
4,337


$
4,077


$
2,950


$
6,794Discontinued operations


2,462



9,689



2,577



8,806Net income

$
6,799


$
13,766


$
5,527


$
15,600Basic Earnings per common share:Income from continuing operations

$
0.09


$
0.08


$
0.06


$
0.12Discontinued operations


0.05



0.20



0.05



0.15Net income

$
0.14


$
0.28


$
0.11


$
0.27Diluted Earnings per common share:Income from continuing operations

$
0.09


$
0.08


$
0.06


$
0.12Discontinued operations


0.04



0.19



0.05



0.15Net income

$
0.13


$
0.27


$
0.11


$
0.272007Revenues from continuing operations

$
48,866


$
48,572


$
49,637


$
50,296Income from continuing operations

$
1,378


$
3,029


$
3,555


$
3,267Discontinued operations


34,966



10,614



1,931



1,322Net income

$
36,344


$
13,643


$
5,486


$
4,589Basic Earnings per common share:Income from continuing operations

$
0.03


$
0.07


$
0.08


$
0.07Discontinued operations


0.75



0.22



0.04



0.02Net income

$
0.78


$
0.29


$
0.12


$
0.09Diluted Earnings per common share:Income from continuing operations

$
0.03


$
0.06


$
0.07


$
0.06Discontinued operations


0.73



0.23



0.05



0.03Net income

$
0.76


$
0.29


$
0.12


$
0.09  97




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
    Rules 13a-15(e) 15d-15(e) Form 10-K.
  Changes
    in the Companys Internal Control over Financial
    Reporting
    Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
     98




---



##### Table of Contents



Report
    ofINDEPENDENT
    REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control-Integrated Framework
            
    99




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION    PART III
  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Directors
    Executive
    Officers
    Name

Age

PositionDavid R. Emery


64


Chairman of the Board & Chief Executive OfficerScott W. Holmes


54


Executive Vice President & Chief Financial OfficerJohn M. Bryant, Jr.


42


Executive Vice President & General CounselB. Douglas Whitman, II


40


Executive Vice President & Chief Operating Officer           Code of
    Ethics
   100




---



##### Table of Contents



Section 16(a)
    Compliance
    Stockholder
    Recommendation of Director Candidates
    Audit
    Committee
    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS      ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   101




---



##### Table of Contents



ITEM 15.
    EXHIBITS
    AND FINANCIAL STATEMENT SCHEDULES  Index to Historical Financial Statements, Financial
    Statement Schedules and Exhibits
  Financial Statements:
  Form 10-K.
  
    Consolidated Balance Sheets  December 31, 2008
    and 2007.
    Consolidated Statements of Income for the years ended
    December 31, 2008, December 31, 2007 and
    December 31, 2006.
    Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2008, December 31, 2007 and
    December 31, 2006.
    Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, December 31, 2007 and
    December 31, 2006.
    Notes to Consolidated Financial Statements.  Financial Statement Schedules:
  Schedule II  Valuation and
    Qualifying Accounts at December 31, 2008

107Schedule III  Real Estate and
    Accumulated Depreciation at December 31, 2008

108Schedule IV  Mortgage Loans on
    Real Estate at December 31, 2008

109     (3)
    Exhibits:  Exhibit
    Index
  ExhibitNumber



Description of Exhibits1
.1



Controlled Equity Offering Sales Agreement, dated as of
    December 31, 2008, between the Company and Cantor
    Fitzgerald & Co.(1)3
.1



Second Articles of Amendment and Restatement of the Company.(2)3
.2



Amended and Restated Bylaws of the Company.(3)4
.1



Specimen stock certificate.(2)4
.2



Indenture, dated as of May 15, 2001, by the Company to HSBC
    Bank USA, National Association, as Trustee, (formerly First
    Union National Bank, as Trustee).(4)4
.3



First Supplemental Indenture, dated as of May 15, 2001, by
    the Company to HSBC Bank USA, National Association, as Trustee,
    (formerly First Union National Bank, as Trustee).(4)4
.4



Form of 8.125% Senior Note Due 2011.(4)4
.5



Second Supplemental Indenture, dated as of March 30, 2004,
    by the Company to HSBC Bank USA, National Association, as
    Trustee (formerly Wachovia Bank, National Association, as
    Trustee).(5)4
.6



Form of 5.125% Senior Note Due 2014.(6)10
.1



1995 Restricted Stock Plan for Non-Employee Directors of the
    Company.(7)10
.2



Amendment to 1995 Restricted Stock Plan for Non-Employee
    Directors of the Company.(1)10
.3



Second Amended and Restated Executive Retirement Plan.(1)10
.4



Amended and Restated Retirement Plan for Outside Directors.(1)10
.5



2000 Employee Stock Purchase Plan.(8)10
.6



Dividend Reinvestment Plan.(9) 102




---



##### Table of Contents



ExhibitNumber



Description of Exhibits10
.7



Amended and Restated Employment Agreement by and between David
    R. Emery and the Company.(5)10
.8



Employment Agreement by and between John M. Bryant, Jr. and the
    Company.(10)10
.9



Employment Agreement by and between Scott W. Holmes and the
    Company.(11)10
.10



Employment Agreement by and between B. Douglas Whitman, II
    and the Company.(12)10
.11



Credit Agreement, dated as of January 25, 2006, by and
    among the Company, Bank of America, N.A., as Administrative
    Agent, and the other lenders named therein.(13)10
.12



Amendment No. 2, dated April 17, 2008, to that certain
    Credit Agreement, dated January 25, 2006, by and among the
    Company, Bank of America, N.A., as Administrative Agent, and the
    other lenders named therein.(14)10
.13



2007 Employees Stock Incentive Plan.(15)10
.14



The Companys Long-Term Incentive Program.(16)10
.15



Amendment, dated December 21, 2007, to 2007 Employees Stock
    Incentive Plan.(17)10
.16



Purchase Agreement between the Company, as Purchaser, and The
    Charlotte-Mecklenburg Hospital Authority, Mercy Health Services,
    Inc. and The Carolinas Healthcare Foundation, Inc.,
    collectively, the Seller, dated November 4, 2008.(18)10
.17



Underwriting Agreement, dated September 23, 2008, by and
    among the Company and Wachovia Capital Markets, LLC,
    J.P. Morgan Securities, Inc., Banc of America Securities
    LLC, and UBS Securities LLC, as representatives of the several
    underwriters named therein.(19)11




Statement re computation of per share earnings (contained in
    Note 13 to the Notes to the Consolidated Financial
    Statements for the year ended December 31, 2008 in
    Item 8 to this Annual Report on
    Form 10-K).21




Subsidiaries of the Registrant (filed herewith).23




Consent of BDO Seidman, LLP, independent registered public
    accounting firm (filed herewith).31
.1



Certification of the Chief Executive Officer of the Company
    pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934, as amended, as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    (filed herewith).31
.2



Certification of the Chief Financial Officer of the Company
    pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934, as amended, as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    (filed herewith).32




Certifications pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002 (filed herewith).     (1)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed December 31, 2008 and hereby incorporated by
    reference.(2)
    
    Filed as an exhibit to the Companys Registration Statement
    on
    Form S-11
    (Registration
    No. 33-60506)
    previously filed pursuant to the Securities Act of 1933 and
    hereby incorporated by reference.(3)
    
    Filed as an exhibit to the Companys
    Form 10-Q
    for the quarter ended September 30, 2007 and hereby
    incorporated by reference.(4)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed May 17, 2001 and hereby incorporated by reference.(5)
    
    Filed as an exhibit to the Companys
    Form 10-Q
    for the quarter ended September 30, 2004 and hereby
    incorporated by reference.(6)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed March 29, 2004 and hereby incorporated by reference.(7)
    
    Filed as an exhibit to the Companys
    Form 10-K
    for the year ended December 31, 1995 and hereby
    incorporated by reference.(8)
    
    Filed as an exhibit to the Companys
    Form 10-K
    for the year ended December 31, 1999 and hereby
    incorporated by reference. 103




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##### Table of Contents



(9)
    
    Filed as an exhibit to the Companys Registration Statement
    on
    Form S-11
    (Registration
    No. 33-72860)
    previously filed pursuant to the Securities Act of 1933 and
    hereby incorporated by reference.(10)
    
    Filed as an exhibit to the Companys
    Form 10-Q
    for the quarter ended September 30, 2003 and hereby
    incorporated by reference.(11)
    
    Filed as an exhibit to the Companys
    Form 10-K
    for the year ended December 31, 2002 and hereby
    incorporated by reference.(12)
    
    Filed as an exhibit to the Companys
    Form 10-K
    filed March 1, 2007 and hereby incorporated by reference.(13)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed January 26, 2006 and hereby incorporated by reference.(14)
    
    Filed as an exhibit to the Companys Form 8-K filed
    April 21, 2008 and hereby incorporated by reference.(15)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed May 21, 2007 and hereby incorporated by reference.(16)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed December 14, 2007 and hereby incorporated by
    reference.(17)
    
    Filed as an exhibit to the Companys Proxy Statement
    relating to the Annual Meeting of Stockholders held on
    May 13, 2008 filed with the SEC on April 2, 2008 and
    hereby incorporated by reference.(18)
    
    Filed as an exhibit to the Companys
    Form 10-Q
    filed November 10, 2008 and hereby incorporated by
    reference.(19)
    
    Filed as an exhibit to the Companys
    Form 8-K
    filed September 24, 2008 and hereby incorporated by
    reference.  Executive
    Compensation Plans and Arrangements
  Form 10-K:
                         104




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##### Table of Contents



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the
    Securities Exchange Act of 1934, the Company has duly caused
    this Report to be signed on its behalf by the undersigned,
    thereunto duly authorized, in the City of Nashville, State of
    Tennessee, on February 23, 2009.



HEALTHCARE REALTY TRUST
    INCORPORATED By:
    /s/  David
    R. Emery       Signature

Title

Date/s/  David
    R. EmeryDavid
    R. Emery

Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)

February 23, 2009/s/  Scott
    W. HolmesScott
    W. Holmes

Executive Vice President and Chief Financial Officer
    (Principal
    Financial Officer)

February 23, 2009/s/  David
    L. TravisDavid
    L. Travis

Vice President and Chief
    Accounting Officer (Principal 
    Accounting Officer)

February 23, 2009/s/  Errol
    L. Biggs, Ph.D.Errol
    L. Biggs, Ph.D.

Director

February 23, 2009/s/  Charles
    Raymond Fernandez, M.D.Charles
    Raymond Fernandez, M.D.

Director

February 23, 2009/s/  Batey
    M. Gresham, Jr.Batey
    M. Gresham, Jr.

Director

February 23, 2009/s/  Marliese
    E. MooneyMarliese
    E. Mooney

Director

February 23, 2009/s/  Edwin
    B. Morris, IIIEdwin
    B. Morris, III

Director

February 23, 2009 105




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##### Table of Contents



Signature

Title

Date/s/  John
    Knox SingletonJohn
    Knox Singleton

Director

February 23, 2009/s/  Bruce
    D. SullivanBruce
    D. Sullivan

Director

February 23, 2009/s/  Dan
    S. WilfordDan
    S. Wilford

Director

February 23, 2009  106




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##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts at December 31,
    2008(Dollars
    in thousands) Balance at


Additions


UncollectibleBeginning


Charged to Costs


Charged to Other


Accounts


Balance at EndDescription

of Period


and Expenses


Accounts


Written-off


of Period2008


Accounts and notes receivable allowance

$
1,499


$
1,904


$



$
80


$
3,323Preferred stock investment reserve


1,000











1,000



$
2,499


$
1,904


$



$
1,080


$
3,3232007


Accounts and notes receivable allowance

$
2,522


$
986


$



$
2,009


$
1,499Preferred stock investment reserve


1,000















1,000$
3,522


$
986






$
2,009


$
2,4992006


Accounts and notes receivable allowance

$
1,998


$
1,256


$



$
732


$
2,522Preferred stock investment reserve


1,000















1,000$
2,998


$
1,256


$



$
732


$
3,522  107




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##### Table of Contents



Schedule III 
    Real Estate and Accumulated Depreciation at December 31,
    2008  (Dollars
    in thousands)  Buildings, Improvements,Land


Lease Intangibles and CIPCost








CostCapitalized








Capitalized








(3)(4)


(1)(4)Number of




Initial


Subsequent to





Initial


Subsequent





Personal


Total


Accumulated


(5)


Date


DateProperty Type

Properties


State

Investment


Acquisition


Total


Investment


to Acquisition


Total


Property


Assets


Depreciation


Encumbrances


Acquired


ConstructedMedical Office


130


AZ, CA, CO, DC, FL, GA, HI, IL, IN, KS, LA, MD, MI, MO, MS, NC,
    NV, SC, TN, PA, TX, VA, IA, WA, WY

$
66,241


$
1,073


$
67,314


$
1,296,686


$
141,690


$
1,438,376


$
1,552


$
1,507,242


$
237,919


$
69,567



1993-2008



1905-2008 
    4 Under
    Const.(2
)Physician Clinics


33


AL, AZ, CA, FL, GA, IA, IN, MA, TN, TX, VA


18,145



480



18,625



151,586



5,454



157,040



390



176,055



42,425







1993-2008



1968-2003Ambulatory Care/Surgery


11


CA, FL, GA, IL, MO, NV, TX


16,375



510



16,885



76,230



6,155



82,385



87



99,357



29,348



16,537



1993-2001



1980-1997Specialty Outpatient


7


AL, AR, FL, IA, MO, VA


2,989



1,069



4,058



25,798







25,798







29,856



8,301



1,191



1998-2008



1986-2006Specialty Inpatient


13


AL, CA, FL, IN, PA, MI, TX


8,163



150



8,313



224,157







224,157







232,470



57,934







1994-2006



1983-2005Other


10


AL, IN, MI, TN, VA


1,828



35



1,863



36,323



5,400



41,723



636



44,222



15,450



1,765



1993-2008



1967-1999Total Real Estate


204





113,741



3,317



117,058



1,810,780



158,699



1,969,479



2,665



2,089,202



391,377



89,060Land Held for Development




















17,301







17,301







17,301







Corporate Property
































14,350



14,350



5,888



Total Property


204




$
113,741


$
3,317


$
117,058


$
1,828,081


$
158,699


$
1,986,780


$
17,015


$
2,120,853


$
397,265


$
89,060     (1)
    
    Includes 12 assets held for sale at 12/31/08 of approximately
    $119.1 million (gross) and accumulated depreciation of
    $29.9 million and six assets at 12/31/07 of
    $25.9 million (gross) and accumulated depreciation of
    $10.5 million. There were no assets held for sale at
    12/31/06.(2)
    
    Development at 12/31/08.(3)
    
    Total assets at 12/31/08 have an estimated aggregate total cost
    of $2.0 billion for federal income tax purposes.(4)
    
    Depreciation is provided for on a straight-line basis on
    buildings and improvements over 3.3 to 39.0 years, lease
    intangibles over 1.3 to 93 years, and personal property
    over 3 to 15 years, and land improvements over 9.5 to
    15 years.(5)
    
    Includes discounts totaling $7.4 million as of
    December 31, 2008.(6)
    
    Reconciliation of Total Property and Accumulated Depreciation
    for the twelve months ended December 31, 2008, 2007 and
    2006:  Year to Date


Year to Date


Year to DateEnding 12/31/08(1)


Ending 12/31/07(1)


Ending 12/31/06(1)Total


Accumulated


Total


Accumulated


Total


Accumulated(Dollars in thousands)

Property


Depreciation


Property


Depreciation


Property


DepreciationBeginning Balance

$
1,722,491


$
355,919


$
1,928,326


$
373,706


$
1,855,149


$
320,487Additions during the period:Real Estate


362,073



52,451



58,615



51,901



87,903



62,676Corporate Property


320



651



765



184



300



576Construction in Progress


74,085







74,955







40,133



Retirements/dispositions:Real Estate


(38,103
)


(11,746
)


(339,060
)


(69,523
)


(55,106
)


(9,980
)Corporate Property


(13
)


(10
)


(1,110
)


(349
)


(53
)


(53
)Ending Balance

$
2,120,853


$
397,265


$
1,722,491


$
355,919


$
1,928,326


$
373,706  108




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##### Table of Contents



Schedule IV 
    Mortgage Loans on Real Estate at December 31, 2008(Dollars
    in thousands) Periodic


OriginalInterest


Maturity


Payment


Face


CarryingDescription

Rate


Date


Terms


Amount


Amount


BalloonPhysician clinic facility located in California


8.30
%


5/12/2016



(1
)

$
14,920


$
14,920


$
13,895
(4)Physician clinic facility located in Texas


8.50
%


9/1/2031



(2
)


1,986



1,925




(5)Medical office building in Iowa (construction loan)


1.54
%(7)


6/30/2009



(3
)


43,764



34,160



34,160
(6)Ambulatory care/surgery center in Iowa (construction loan)


1.54
%(8)


10/31/2009



(3
)


14,011



7,996



7,996
(7)Total Mortgage Notes Receivable

















$
59,001     (1)
    
    Interest only until May 12, 2011, then principal and
    interest amortized monthly based on a 25-year amortization
    schedule.(2)
    
    Paid in monthly installments of principal and interest. Fully
    amortized over 300 months.(3)
    
    Interest only until maturity. Principal payments may be made
    during term without penalty with remaining principal balance due
    at maturity.(4)
    
    Prepayment of all or part of the principal, with premium, may be
    made anytime after May 12, 2008. The balloon amount above
    represents the principal amount due at maturity.(5)
    
    Prepayment may be made at anytime after July 5, 2010.(6)
    
    Prepayment may be made at anytime.(7)
    
    Interest rate at December 31, 2008 based on LIBOR + 1.10%.
    As of March 1, 2009, the interest rate will be based on
    LIBOR + 6.00%, capped at 8.00%.(8)
    
    Upon repayment in full, the borrower shall pay holder an exit
    fee.(9)
    
    A rollforward of Mortgage Loans on Real Estate for the
    three years ended December 31, 2008:  Years Ended December 31,(Dollars in thousands)

2008


2007


2006Balance at beginning of period

$
30,117


$
73,856


$
105,795Additions during period:New or acquired mortgages


7,996



14,150



37,787Increased funding on existing mortgages


28,974







36,970



14,150



37,787Deductions during period:Scheduled principal payments


(29
)


(84
)


(347
)Principal repayments and reductions(10)


(8,057
)


(57,805
)


(69,124
)Amortization










(255
)(8,086
)


(57,889
)


(69,726
)Balance at end of period

$
59,001


$
30,117


$
73,856   (10)
    
    Principal repayments for the years ended December 31, 2008
    and 2007 includes unscheduled principal reductions on mortgage
    notes of $5.6 million and $0.9 million, respectively. 109