UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC
20549





FORM 10-K





þ
            
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2009oro
            
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the
      transition period
      from          to





Commission file number
001-32649





COGDELL SPENCER
INC.
 (Exact name of
registrant as specified in its charter)





Maryland
              (State
      or other jurisdiction of
              incorporation
      or organization)
            
            20-3126457
              (I.R.S.
      Employer
              Identification
      No.)4401
      Barclay Downs Drive, Suite 300
              Charlotte,
      North Carolina
              (Address of
      principal executive offices)
            
            28209
              (Zip
    code)





Registrant’s telephone number,
including area code:
 (704) 940-2900





Securities Registered Pursuant to
Section 12(b) of the Act:





Title of Each
      Class
            
            Name of Exchange on Which
      RegisteredCommon Stock, $0.01 par
      value
            
            New York Stock Exchange,
      Inc.





Securities Registered Pursuant to
Section 12(g) of the Act:
 None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o     No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o     No þ





Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes þ     No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes o     No o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K.  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer o
            
            Accelerated
      filer þ
            
            Non-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
            
            Smaller
      reporting company o








Indicate
by check mark whether the registrant is a Shell Company (as defined in
rule 12b-2 of the Exchange Act).  Yes o     No þ





The
aggregate market value of the common equity held by non-affiliates of the
registrant as of June 30, 2009, the last business day of the registrant’s most
recently completed second fiscal quarter, was $182,435,326 (based on the closing
sale price of the registrant’s common stock on that date as reported on the New
York Stock Exchange).





Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of the latest practicable date: 42,782,497 shares of common stock, par
value $0.01 per share, outstanding as of March 08, 2010.





DOCUMENTS INCORPORATED BY
REFERENCE





Portions
of the registrant’s definitive proxy statement for the registrant’s 2010 Annual
Meeting, to be filed within 120 days after the registrant’s fiscal year,
are incorporated by reference into Part III of this Annual Report on
Form 10-K.


COGDELL
SPENCER INC.





TABLE OF
CONTENTS





PagePART IItem 1
            Business
            2Item 1A
            Risk
      Factors
            10Item 1B
            Unresolved
      Staff Comments
            33Item 2
            Properties
            34Item 3
            Legal
      Proceedings
            37Item 4
            Removed
      and Reversed
            38PART IIItem 5
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            38Item 6
            Selected
      Financial Data
            40Item 7
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            42Item 7A
            Quantitative
      and Qualitative Disclosures about Market Risk
            60Item 8
            Financial
      Statements and Supplementary Data
            61Item 9
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            103Item 9A
            Controls
      and Procedures
            103Item 9B
            Other
      Information
            105PART IIIItem 10
            Directors,
      Executive Officers and Corporate Governance
            105Item 11
            Executive
      Compensation
            105Item 12
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            105Item 13
            Certain
      Relationships, Related Transactions, and Director Independence
            105Item 14
            Principal
      Accounting Fees and Services
            106PART IVItem 15
            Exhibits
      and Financial Statement Schedules
            106 SIGNATURES
            110





Statements Regarding Forward-Looking
Information





When used in this discussion and
elsewhere in this Annual Report on Form 10-K, the words “believes,”
“anticipates,” “projects,” “should,” “estimates,” “expects,” and similar
expressions are intended to identify forward-looking statements with the meaning
of that term in Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and in Section 21F of the Securities and Exchange Act of
1934, as amended. Actual results may differ materially due to uncertainties
including:




•
            the
      Company’s business strategy;•
            the
      Company’s ability to comply with financial covenants in its debt
      instruments;•
            the
      Company’s access to capital;•
            the
      Company’s ability to obtain future financing
  arrangements;•
            estimates
      relating to the Company’s future distributions;•
            the
      Company’s understanding of the Company’s competition;•
            the
      Company’s ability to renew the Company’s ground leases;•
            legislative
      and regulatory changes (including changes to laws governing the taxation
      of REITs and individuals);•
            increases
      in costs of borrowing as a result of changes in interest rates and other
      factors;•
            the
      Company’s ability to maintain its qualification as a REIT due to economic,
      market, legal, tax or other considerations;•
            changes
      in the reimbursement available to the Company’s tenants by government or
      private payors;•
            the
      Company’s tenants’ ability to make rent payments;•
            defaults
      by tenants and customers;•
            access
      to financing by customers;•
            delays
      in project starts and cancellations by customers;•
            market
      trends; and•
            projected
      capital expenditures.




Forward-looking
statements are based on estimates as of the date of this report. The Company
disclaims any obligation to publicly release the results of any revisions to
these forward-looking statements reflecting new estimates, events or
circumstances after the date of this report.
  The risks
included here are not exhaustive. Other sections of this report may include
additional factors that could adversely affect the Company’s business and
financial performance. Moreover, the Company operates in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on the Company’s business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results.
  1
 PART I
 Item 1.
                  Business
 
 The
Company
 Cogdell
Spencer Inc., incorporated in Maryland in 2005, together with its subsidiaries
(the “Company”) is a fully-integrated, self-administered, and self-managed real
estate investment trust (“REIT”) that invests in specialty office buildings for
the medical profession, including medical offices and ambulatory surgery and
diagnostic centers.  The Company focuses on the ownership, delivery,
acquisition, and management of strategically located medical office buildings
(“MOBs”) and other healthcare related facilities in the United States of
America.  The Company has been built around understanding and
addressing the full range of specialized real estate needs of the healthcare
industry.  The Company operates its business through Cogdell Spencer
LP, its operating partnership subsidiary (the “Operating Partnership”), and its
subsidiaries.
  The
Company’s growth strategy includes leveraging strategic relationships and its
integrated ownership and design-build platform for new wholly-owned or
partially-owned developments, new design-build construction projects for third
parties, and off-market acquisitions. The Company will also continue to enter
into development joint ventures with hospitals and physicians.
  The
Company derives a majority of its revenues from two main sources: 1) from rents
received from tenants under existing leases in medical office buildings and
other healthcare related facilities, and 2) from revenue earned from
design-build construction contracts and development contracts.
  The
Company expects that rental revenue will remain stable due to multi-year,
non-cancellable leases with annual rental increases based on the Consumer Price
Index (“CPI”).  Generally, the Company’s property operating revenues
and expenses have remained consistent over time except for growth due to
property developments and property acquisitions.  The Company’s
property portfolio is stable with an average occupancy rate of 91.5% as of
December 31, 2009.  The Company’s property management team has a
proactive, customer-focused service approach that leads to faster response times
and greater resources to serve tenants.The Company’s management
believes a strong internal property management capability is a vital component
of the Company’s business, both for the properties the Company owns and for
those that the Company manages. Strong internal property management allows the
Company to control property operating costs, increase tenant satisfaction, and
reduce tenant turnover.
  The
Company has a national full-service planning, design and construction firm
specializing in healthcare facilities.  The Company, through a taxable
REIT subsidiary (“TRS”), provides fully integrated solutions to healthcare
facilities throughout the United States, including planning, architecture,
engineering, construction, materials management, manufacturing, capital and
development services.  The Company is a leading design-builder of
healthcare facilities with specialized expertise and concentration in high
growth healthcare market segments and facility types.  Founded in
1951, the Company and its predecessors have a 59 year track record of and
reputation for delivering healthcare facilities with appropriate design,
longevity, sustainability and excellent operational
efficiency.  Exclusively focused on the healthcare facilities market,
the Company maintains long-term “trusted advisor” status with physicians and
physician groups  nationwide.  The Company has successfully
cultivated a client mix that is diversified in both geography and market focus
and includes physician group practices and healthcare systems.  The
Company was ranked as the number one healthcare design-build firm for 2007 and
2008 by Modern Healthcare’s2008 and 2009 Construction and Design Surveys.
  Design-Build
and development revenues and financial results can be affected by the amount and
timing of capital spending by healthcare systems and providers, the demand for
design-build and development services in the healthcare facilities market, the
availability of construction level financing, and weather at the construction
sites.  Deterioration of market or economic conditions and volatility
in the financial market has and could continue to influence future revenues,
interest, and other costs.
  2
 As of
December 31, 2009, the Company’s portfolio consisted of 111 medical office
buildings and healthcare related facilities, serving 23 hospital systems in
12 states. The Company’s aggregate portfolio at December 31, 2009, was
comprised of 62 consolidated wholly-owned and joint venture properties, one
wholly-owned property held for sale and presented as discontinued operations,
three unconsolidated joint venture properties, and 45 managed medical office
buildings.  At December 31, 2009, approximately 78.7% of the net
rentable square feet of the Company’s wholly-owned properties were situated on
hospital campuses. As such, the Company believes that its assets occupy a
premier franchise location in relation to local hospitals, providing its
properties with a distinct competitive advantage over alternative medical office
space in an area. The Company believes that its property locations and
relationships with hospitals will allow the Company to capitalize on the
increasing healthcare trend of outpatient procedures.
  At
December 31, 2009, the Company’s aggregate portfolio contained
approximately 5.7 million net rentable square feet, consisting of approximately
3.4 million net rentable square feet from consolidated wholly-owned and
joint venture properties, 38,703 net rentable square feet from one wholly-owned
property reclassified as discontinued operations, approximately 0.2 million net
rentable square feet from unconsolidated joint venture properties, and
approximately 2.1 million net rentable square feet from properties owned by
third parties and managed by the Company.  As of December 31,
2009, the Company’s 62 in-service, consolidated wholly-owned and joint venture
properties were approximately 91.5% occupied, with a weighted average remaining
lease term of approximately 4.5 years.
 The
Company’s Management and Design-Build Construction Companies
 The
Company elected to be taxed as a REIT for U.S. federal income tax
purposes.  In order to qualify as a REIT, a specified percentage of
the Company’s gross income must be derived from real property sources, which
would generally exclude the Company’s income from providing architectural,
construction, development and management services to third
parties.  In order to avoid realizing such income in a manner that
would adversely affect the Company’s ability to qualify as a REIT, some services
are provided through the Company’s TRSs.  Cogdell Spencer TRS
Holdings, LLC and its subsidiaries (collectively “TRS Holdings”) have elected,
together with the Company, to be treated as TRSs.  TRS Holdings is
wholly-owned and controlled by the Operating Partnership.
 Management
  The
Company’s senior management team has an average of more than 22 years of
healthcare real estate experience and has been involved in the development,
redevelopment, engineering, design and construction, management, and acquisition
of a broad array of medical office buildings and healthcare
facilities.  The Company’s Chairman and founder, James W. Cogdell, has
been in the healthcare real estate business for more than 38 years, and
Frank C. Spencer, the Company’s Chief Executive Officer, President and a member
of its Board of Directors (the “Board of Directors”), has more than
14 years of experience in the industry.  Scott
Ransom, President, has more than 16 years of experience in the
industry.  Six members of the senior management team have entered into
employment agreements with the Company.  At December 31, 2009,
the Company’s senior management team owned approximately 7.3% of the units of
limited partnership interest in the Operating Partnership (“OP units”) and
Company common stock on a fully diluted basis.
  Business
and Growth Strategies
  The
Company’s primary business objective is to develop and maintain client
relationships in order to maximize total return to the Company’s stockholders
through growth in cash available for distribution and appreciation in the value
of the Company’s assets.
  3
 Operating
Strategy
  The
Company’s operating strategy consists of the following principal
elements:
  •
                  Strong Relationships with
      Physicians and Hospitals.
 Healthcare is fundamentally a local business.  The Company believes it
has developed a reputation based on trust and reliability among physicians and
hospitals and believes that these relationships position the Company to secure
new development projects and new property acquisition opportunities with both
new and existing parties.  Many of the Company’s healthcare system
clients have collaborated with the Company on multiple projects, including the
Company’s five largest healthcare system property management clients, with whom
the Company has an average relationship lasting more than 26
years.  The Company’s strategy is to continue to grow its portfolio by
leveraging these relationships and its integrated ownership and design-build
platform to selectively develop new medical office buildings and healthcare
related facilities in communities in need of additional facilities to support
the delivery of medical services.  The Company believes that
physicians particularly value renting space from a trusted and reliable property
owner that consistently delivers an office environment that meets their
specialized needs.
 •
                  Active Management of the
      Company’s Properties. The Company has developed a comprehensive approach to property and operational
management to maximize the operating performance of its medical office buildings
and healthcare related facilities, leading to high levels of tenant
satisfaction.  This fully-integrated property and operating management
allows the Company to provide high quality seamless services to its tenants on a
cost-effective basis.  The Company believes that its operating
efficiencies, which consistently exceed industry standards, will allow the
Company to control costs for its tenants.  The Company intends to
maximize the Company’s stockholders’ return on their investment and to achieve
long-term functionality and appreciation in its medical office buildings and
healthcare related facilities through continuing its practice of active
management of its properties.  The Company manages its properties with
a view toward creating an environment that supports successful medical
practices.  The properties are clean and kept in a condition that is
conducive to the delivery of top-quality medical care to
patients.  The Company understands that in order to maximize the value
of its investments, its tenants must prosper as well.  Therefore, the
Company is committed to maintaining its properties at the highest possible
level.
 •
                  Key
      On-Campus Locations.
 At December 31, 2009,
approximately 78.7% of the net rentable square feet of the Company’s
wholly-owned properties were situated on hospital campuses.  On-campus
properties provide the Company’s physician-lessees and their patients with a
convenient location so that they can move between medical offices and hospitals
with ease, which drives revenues for the Company’s
physician-lessees.  Many of these properties occupy a premier
franchise location in relation to the local hospital, providing the Company’s
properties with a distinct competitive advantage over alternative medical office
space in the area that are located farther away from the local
hospital.  The Company has found that the factors most important to
physician-lessees when choosing a medical office building or healthcare related
facility in which to locate their offices are convenience to a hospital campus,
clean and attractive common areas, state-of-the-art amenities and tenant
improvements tailored to each practice.
 •
                  Loyal and Diverse Tenant
      Base.
 The Company’s focus on maintaining the
Company’s physician-lessees’ loyalty is a key component of the Company’s
marketing and operating strategy.  A focus on physician-lessee loyalty
and the involvement of the physician-tenants and hospitals as investors in the
Company’s properties results in one of the more stable and diversified tenant
bases of any medical office company in the United States.  As of
December 31, 2009, the Company’s 62 in-service, consolidated wholly-owned
and joint venture properties had an average occupancy rate of approximately
91.5%.  The Company’s tenants are diversified by type of medical
practice, medical specialty and sub-specialty.  As of
December 31, 2009, no single tenant accounted for more than 7.5% of the
annualized rental revenue at the wholly-owned properties and no tenants were in
default.
  4
 •
                  Unique Focus.
 The Company focuses exclusively on the ownership, development, redevelopment,
acquisition, project delivery and management of medical office buildings
and healthcare related facilities in the United States of
America.  The focus on medical office buildings and healthcare related
facilities allows the Company to own, develop, redevelop, acquire and manage
medical office buildings and healthcare related facilities more effectively and
profitably than its competition.  Unlike many other public companies
that simply engage in sale/leaseback arrangements in the healthcare real estate
sector, the Company also operates its properties.  The Company
believes that this focus may position the Company to achieve additional cash
flow growth and appreciation in the value of its assets.
 
 Development and
Acquisition Strategy
 
 The Company’s development and acquisition strategy consists of the following
principal elements:
 •
                  Project
      delivery.
  The
Company’s project delivery teams focus on the development and design-build
components of the integrated business model specializing in healthcare real
estate.  The Company and its predecessor companies have completed a
variety of healthcare facility engagements including hospitals, medical
office buildings, ambulatory surgery centers, wellness centers and
multi-specialty clinics.  The Company provides fully integrated
healthcare real estate services from strategic planning and development to
architecture to construction.  The Company has built strong
relationships with leading non-profit and for-profit healthcare systems which
look to provide real estate solutions that will support the growth of medical
communities built around their hospitals and regional medical
centers.  The Company focuses exclusively on medical office buildings
and healthcare related facilities and believes that its experience and
understanding of real estate and healthcare gives it a competitive advantage
over less specialized developers.  Further, the Company’s specialized
regional focus provides extensive local industry knowledge and insight across
the United States of America.  The Company believes the network of
relationships that it has fostered in both the real estate and healthcare
industries that span over five decades provides access to a large volume of
potential development and acquisitions opportunities.
 
 •
                  Selective Development and
      Acquisitions.
 
 The Company intends to leverage its strong healthcare real estate track
record and extensive client network to continue to grow its portfolio of medical
office buildings and healthcare relates facilities by selectively acquiring
existing medical office buildings and by developing new projects in communities
in need of expanded facilities to support the delivery of medical
services.  While the Company intends to continue the evaluation of
acquisition opportunities primarily within its joint venture partnership with
Northwestern Mutual, the focus of capital deployment has shifted to development
and design-build project delivery.  As of December 31, 2009, the joint
venture partnership with Northwestern Mutual did not have any acquisitions under
contract.  For more information on the joint venture partnership with
Northwestern, see Management’s
Discussion and Analysis of Financial Conditions and Results of Operations -“Liquidity and Capital Resources.”
 •
                  Develop and Maintain Strategic
      Relationships.
 
 The Company intends to build upon its key strategic relationships with
physicians, hospitals, not-for-profit agencies and religious entities that
sponsor healthcare services to further enhance the Company’s franchise. The
Company expects to continue entering into joint ventures with individual
physicians, physician groups and hospitals. These joint ventures have been, and
the Company believes will continue to be, a source of development and
acquisition opportunities. Of the 53
healthcare properties the management team developed or acquired and currently
manages over the past 25 years, 29 of them represent repeat transactions
with an existing client institution.The Company anticipates that it will
also continue to offer potential physician-lessees the opportunity to invest in
the Company in order that they may continue to feel a strong sense of attachment
to the property in which they practice. The Company intends to continue to work
closely with its tenants in order to cultivate long-term working relationships
and to maximize new business opportunities.  The Company works closely
with its clients and carefully considers their objectives and needs when
evaluating an investment opportunity.  The Company believes that this
philosophy allows the Company to build long-term relationships and obtain
franchise locations otherwise unavailable to the Company’s competition.
  5
 •
                  Investment Criteria and
      Financing.
 
 The Company intends to expand in its existing markets and enter into markets
that research indicates will meet its investment strategy in the
future.  The Company generally will seek to select clients and assets
in locations that the Company believes will complement its existing
portfolio.  The Company may also selectively pursue portfolio
opportunities outside of its existing markets that will not only add incremental
value, but will also add diversification and economies of scale to the existing
portfolio.
  In
assessing a potential development or acquisition opportunity, the Company
focuses on the economics of the local medical community and the strength of
local hospitals.  This analysis focuses on trying to place the project
on a hospital campus or in a strategic growth corridor based on
demographics.
  Historically,
the Company has financed real property developments and acquisitions through
joint ventures in which the physicians who lease space at the properties, and in
some cases, local hospitals or regional medical centers, provided the equity
capital. The Company has continued this practice of entering into joint ventures
with individual physicians, physician groups and hospitals.
  The
Company has a $150 million secured revolving credit facility (the “Credit
Facility”).  As of December 31, 2009, the Company had cash and cash
equivalents of approximately $25.9 million and the Company’s Credit Facility had
approximately $61.7 of available borrowings, which the Company can use to
finance development and acquisition opportunities.  The Company plans
to finance future developments and acquisitions through a combination of cash,
borrowings under the Credit Facility, traditional secured mortgage financing,
and equity and debt offerings.
 
 Business
Segments
  The Company has two identified reportable segments: (1) Property Operations and
(2) Design-Build and Development.  The Company defines business
segments by their distinct customer base and service provided.  Each
segment operates under a separate management group and produces discrete
financial information, which is reviewed by the chief operating decision maker
to make resource allocation decisions and assess
performance.  Inter-segment sales and transfers are accounted for as
if the sales and transfers were made to third parties, which involves applying a
negotiated fee onto the costs of the services performed.  All
inter-company balances and transactions are eliminated during the consolidation
process.
 
 The Company’s management evaluates the operating performance of its operating
segments based on funds from operations (“FFO”) and funds from operations
modified (“FFOM”).  FFO, as defined by the National Association of
Real Estate Investment Trusts (“NAREIT”), represents net income (computed in
accordance with GAAP), excluding gains from sales of property, plus real estate
depreciation and amortization (excluding amortization of deferred financing
costs) and after adjustments for unconsolidated partnerships and joint ventures.
The Company adjusts the NAREIT definition to add back noncontrolling interests
in real estate partnerships before real estate related depreciation and
amortization. FFOM adds back to FFO non-cash amortization of non-real estate
related intangible assets associated with purchase accounting.  The
Company considers FFO and FFOM important supplemental measures of the Company’s
operational performance.  The Company believes FFO is frequently used
by securities analysts, investors and other interested parties in the evaluation
of REITs, many of which present FFO when reporting their results. The Company
believes that FFOM allows securities analysts, investors and other interested
parties to evaluate current period results to results prior to the MEA Holdings,
Inc. (“MEA”) transaction.  FFO and FFOM are intended to exclude GAAP
historical cost depreciation and amortization of real estate and related assets,
which assumes that the value of real estate assets diminishes ratably over time.
Historically, however, real estate values have risen or fallen with market
conditions. Because FFO and FFOM exclude depreciation and amortization unique to
real estate, gains and losses from property dispositions and extraordinary
items, they provide performance measures that, when compared year over year,
reflect the impact to operations from trends in occupancy rates, rental rates,
operating costs, development activities and interest costs, providing
perspective not immediately apparent from net income.  The Company’s
methodology may differ from the methodology for calculating FFO and FFOM
utilized by other equity REITs and, accordingly, may not be comparable to such
other REITs. Further, FFO and FFOM do not represent amounts available for
management’s discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and
uncertainties.
 
 Financial information concerning our business segments is presented in Note 6 to
the accompanying Notes to Consolidated Financials Statements.
  6
 Regulation
 
 The following discussion describes certain material U.S. federal healthcare
laws and regulations that may affect the Company’s operations and those of the
Company’s tenants.  However, the discussion does not address state
healthcare laws and regulations, except as otherwise indicated.  These
state laws and regulations, like the U.S. federal healthcare laws and
regulations, could affect the Company’s operations and those of the Company’s
tenants.
 The
regulatory environment remains stringent for healthcare
providers.  The Stark Law and fraud and abuse statutes that regulate
hospital and physician relationships continue to broaden the industry’s
awareness of the need for experienced real estate management.  Rrequirements for Medicare
coding, physician recruitment and referrals, outlier charges to commercial and
government payors, and corporate governance have created a difficult operating
environment for some hospitals.  Also, the HITECH Act, signed into law
on February 17, 2009, expanded the extensive requirements related to the privacy
and security of individually identifiable health information imposed by
regulations issued pursuant to the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) and contains enhanced enforcement provisions
related to those requirements.  In addition, the U.S. Congress is
currently debating and may enact comprehensive healthcare reform legislation
that may have significant impact on the delivery and reimbursement of healthcare
items and services.  The Company cannot predict the impact that the
proposed legislation, if enacted, may have on the Company’s
tenants.
  Generally,
healthcare real estate properties are subject to various laws, ordinances and
regulations. Changes in any of these laws or regulations, such as the
Comprehensive Environmental Response and Compensation Liability Act, increase
the potential liability for environmental conditions or circumstances existing
or created by tenants or others on the properties.  In addition, laws
affecting development, construction, operation, upkeep, safety and taxation
requirements may result in significant unanticipated expenditures, loss of
healthcare real estate property sites or other impairments to operations, which
would adversely affect the Company’s cash flows from operating
activities.
  As the
Company’s properties and entities are not healthcare providers, the healthcare
regulatory restrictions that apply to physician investment in healthcare
providers are not applicable to the ownership interests held by physicians in
the Company’s properties except as discussed below.  For example, the
Stark law, which, unless an exception applies, prohibits physicians from
referring patients to an entity if the physicians have a financial relationship
with or ownership interest in the entity and the entity provides designated
health services, does not apply to physician ownership in the Company’s entities
because these entities do not own or operate any healthcare providers, nor do
they provide any designated health services.  In addition, the Federal
Anti-Kickback Statute, which generally prohibits payment or solicitation of
remuneration in exchange for referrals for items and services covered by federal
health care programs to persons in a position to refer such business, also does
not apply to ownership in the existing properties as these entities do not
provide or bill for medical services of any kind.  Similar state laws
that prohibit physician self referrals or kickbacks also do not apply for the
same reasons.  Notwithstanding the foregoing, the Company cannot make
any assurances that regulatory authorities will agree with the Company’s
interpretation of these laws.
  7
 Although
the Company’s properties and entities are not healthcare providers, certain
federal healthcare regulatory restrictions could be implicated by ownership
interests held by physicians in the Company’s properties because the properties
and entities may have both physician and hospital owners and such hospitals and
physicians may have financial relationships apart from the Company’s properties
and entities which may create direct and indirect financial relationships
subject to these laws and regulations.  For example, under the Stark
law discussed above, an ownership in one of the Company’s entities may serve as
a link in a chain of financial relationships connecting a physician and a
hospital which must be analyzed for compliance with the requirements of the
Stark law.
  Under the
Americans with Disabilities Act of 1990, or the ADA, all places of public
accommodation are required to meet certain U.S. federal requirements
related to access and use by disabled persons.  A number of additional
U.S. federal, state and local laws also exist that may require
modifications to properties, or restrict certain further renovations thereof,
with respect to access thereto by disabled persons.  Noncompliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants and also could result in an order to correct any non-complying
feature and in substantial capital expenditures.  To the extent the
Company’s properties are not in compliance, the Company may incur additional
costs to comply with the ADA.
  Property
management activities are often subject to state real estate brokerage laws and
regulations as determined by the particular real estate commission for each
state.
  In
addition, state and local laws may regulate expansion, including the addition of
new beds or services or acquisition of medical equipment, and the construction
of healthcare related facilities, by requiring a certificate of need, which is
issued by the applicable state health planning agency only after that agency
makes a determination that a need exists in a particular area for a particular
service or facility, or other similar approval.
  New laws
and regulations, changes in existing laws and regulations or changes in the
interpretation of such laws or regulations could negatively affect the financial
condition of the Company’s lessees.  These changes, in some cases,
could apply retroactively.  The enactment, timing or effect of
legislative or regulatory changes cannot be predicted.  In addition,
certain of the Company’s medical office buildings and healthcare related
facilities and their lessees may require licenses or certificates of need to
operate.  Failure to obtain a license or certificate of need, or loss
of a required license would prevent a facility from operating in the manner
intended by the lessee.
 Environmental
Matters
 Pursuant
to U.S. federal, state and local environmental laws and regulations, a
current or previous owner or operator of real property may be required to
investigate, remove and/or remediate a release of hazardous substances or other
regulated materials at or emanating from such property.  Further,
under certain circumstances, such owners or operators of real property may be
held liable for property damage, personal injury and/or natural resource damage
resulting from or arising in connection with such releases.  Certain
of these laws have been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of
responsibility.  The failure to properly remediate the property may
also adversely affect the owner’s ability to lease, sell or rent the property or
to borrow funds using the property as collateral.
 In
connection with the ownership, operation and management of the Company’s current
or past properties and any properties that the Company may acquire and/or manage
in the future, the Company could be legally responsible for environmental
liabilities or costs relating to a release of hazardous substances or other
regulated materials at or emanating from such property.  In order to
assess the potential for such liability, the Company conducts an environmental
assessment of each property prior to acquisition and manages the Company’s
properties in accordance with environmental laws while the Company owns or
operates them.  All of the Company’s leases contain a comprehensive
environmental provision that requires tenants to conduct all activities in
compliance with environmental laws and to indemnify the owner for any harm
caused by the failure to do so.  In addition, the Company has engaged
qualified, reputable and adequately insured environmental consulting firms to
perform environmental site assessments of all of the Company’s properties and is
not aware of any environmental issues that are expected to have materially
impacted the operations of any property.
  8
 Insurance
 
 The Company believes that its properties are covered by adequate (as deemed
necessary or as required by the Company’s lenders) fire, flood, earthquake, wind
and property insurance, as well as commercial liability insurance, provided by
reputable companies and with commercially reasonable deductibles and
limits.  Furthermore, the Company believes that its businesses and
assets are likewise adequately insured against casualty loss and third party
liabilities.  The Company actively manages the insurance component of
the budget for each project.  The Company engages a risk management
consultant to assist with this process.  Most of the Company’s leases
provide that insurance premiums are considered part of the operating expenses of
the respective property, and the tenants are therefore responsible for any
increases in the Company’s premiums.
 The
Company’s business activities could expose it to potential liability under
various environmental laws and under workplace health and safety regulations.
The Company cannot predict the magnitude of such potential
liabilities.  The Company maintains a comprehensive general liability
policy with an umbrella policy that covers losses beyond the general liability
limits. The Company also maintains professional errors and omissions liability
and contractor's pollution liability insurance policies in amounts that the
Company believes is adequate coverage for its business.
  The
Company obtains insurance coverage through a broker that is experienced in the
professional liability field. The broker and the Company’s risk manager
regularly review the adequacy of the Company’s insurance coverage. Because there
are various exclusions and retentions under the policies, or an insurance
carrier may become insolvent, there can be no assurance that all potential
liabilities will be covered by the Company’s insurance policies or paid by the
Company’s carriers.
  The
Company evaluates the risk associated with claims. If there is a determination
that a loss is probable and reasonably estimable, an appropriate reserve is
established. A reserve is not established if the Company determines that a claim
has no merit or is not probable or reasonably estimable. Partially or completely
uninsured claims, if successful and of significant magnitude, could have a
material adverse effect on the Company’s business.
 Competition
 The
Company competes in developing and acquiring medical office buildings and
healthcare related facilities with financial institutions, institutional pension
funds, real estate developers, other REITs, other public and private real estate
companies and private real estate investors.
  Depending
on the characteristics of a specific market, the Company may also face
competition in leasing available medical office buildings and healthcare related
facilities to prospective tenants.  However, the Company believes that
it brings a depth of knowledge and experience in working with physicians,
hospitals, not-for-profit agencies and religious entities that sponsor
healthcare services that makes the Company an attractive real estate partner for
both development projects and acquisitions.
  The market for
design-build construction services is generally highly competitive and
fragmented. The Company’s competitors are numerous, consisting mainly of
small and regional private firms.  The Company believes that it is
well positioned to compete in its markets because of its healthcare industry
specialization, strong reputation, long-term client relationships, and
integrated delivery of services.
 Employees
 As of
December 31, 2009, the Company had 454 employees.  The Company’s
professional staff performs functions in property management, acquisitions, real
estate development, architecture, engineering, and construction management.
 Less than 5% of the Company’s employees are covered by collective
bargaining agreements, which are subject to amendment in November 2010, or by
specific labor agreements, which expire upon completion of the relevant
project.  There are no material disagreements with employees and the
Company considers the relationships with its employees to be
favorable.
 Equity Offering
  In June 2009, the Company issued 23.0 million shares of common stock, resulting
in net proceeds to the Company of $76.5 million.  The net proceeds
were used to fund the $50.0 million repayment under the Term Loan, to reduce
borrowings under the Credit Facility, and for working capital
purposes.
  Available
Information
  The
Company files its annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all amendments to those
reports with the Securities and Exchange Commission (the “SEC”).  You
may obtain copies of these documents by visiting the SEC’s Public Reference Room
at 100 F Street N.E., Washington, D.C. 20549, or by calling the SEC at
1-800-SEC-0330.  The SEC also maintains a Website (www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.  The
Company’s Website is www.cogdell.com.  Its reports on Forms 10-K,
10-Q and 8-K, and all amendments to those reports are posted on the Company’s
Website as soon as reasonably practicable after the reports and amendments are
electronically filed with or furnished to the SEC.  The contents of
the Company’s Website are not incorporated by reference herein.
  9
 Item 1A.  Risk Factors
 Risks
Related to the Company’s Properties and Operations
  The
Company’s real estate investments are concentrated in medical office buildings
and healthcare related facilities, making the Company more vulnerable
economically than if the Company’s investments were diversified.
 As a
REIT, the Company invests primarily in real estate. Within the real estate
industry, the Company selectively owns, develops, redevelops, acquires and
manages medical office buildings and healthcare related facilities. The Company
is subject to risks inherent in concentrating investments in real estate. The
risks resulting from a lack of diversification become even greater as a result
of the Company’s business strategy to invest primarily in medical office
buildings and healthcare related facilities. A downturn in the medical office
building industry or in the commercial real estate industry generally, could
significantly adversely affect the value of the Company’s properties. A downturn
in the healthcare industry could negatively affect the Company’s tenants’
ability to make rent payments to the Company, which may have a material adverse
effect on the Company’s business, financial condition and results of operations,
the Company’s ability to make distributions to the Company’s stockholders and
the trading price of the Company’s common stock. These adverse effects could be
more pronounced than if the Company held a diverse portfolio of investments
outside of real estate or outside of medical office buildings and healthcare
related properties.
 The
Company depends on significant tenants.
 As of
December 31, 2009, the Company’s five largest tenants represented
$17.3 million, or 22.2%, of the annualized rent generated by the Company’s
properties. The Company’s five largest tenants based on annualized rents are
Carolinas HealthCare System, Palmetto Health Alliance, Bon Secours St. Francis
Hospital, Lancaster General Hospital, and Exodus Medical Group, P.A. The
Company’s significant tenants, as well as other tenants, may experience a
downturn in their businesses, which may weaken their financial condition and
result in their failure to make timely rental payments or default under their
leases. In the event of any tenant default, the Company may experience delays in
enforcing the Company’s rights as landlord and may incur substantial costs in
protecting the Company’s investment.
 The
bankruptcy or insolvency of the Company’s tenants under the Company’s leases
could seriously harm the Company’s operating results and financial
condition.
 The
Company will receive a substantial amount of the Company’s income as rent
payments under leases of space in the Company’s properties. The Company has no
control over the success or failure of the Company’s tenants’ businesses and, at
any time, any of the Company’s tenants may experience a downturn in its business
that may weaken its financial condition. As a result, the Company’s tenants may
delay lease commencement or renewal, fail to make rent payments when due, or
declare bankruptcy. Any leasing delays, lessee failures to make rent payments
when due, or tenant bankruptcies could result in the termination of the tenant’s
lease and, particularly in the case of a large tenant, may have a material
adverse effect on the Company’s business, financial condition and results of
operations, the Company’s ability to make distributions to the Company’s
stockholders, and the trading price of the Company’s common stock.
 If tenants are unable to comply with the terms of the Company’s leases, the
Company may be forced to modify lease terms in ways that are unfavorable to the
Company. Alternatively, the failure of a tenant to perform under a lease or to
extend a lease upon expiration of its term could require the Company to declare
a default, repossess the property, find a suitable replacement tenant, operate
the property, or sell the property. There is no assurance that the Company will
be able to lease the property on substantially equivalent or better terms than
the prior lease, or at all.  The Company may not be able to find
another tenant, successfully reposition the property for other uses,
successfully operate the property, or sell the property on terms that are
favorable to the Company.
  If any
lease expires or is terminated, the Company will be responsible for all of the
operating expenses for that vacant space until it is re-let. If the Company
experiences high levels of vacant space, the Company’s operating expenses may
increase significantly. Any significant increase in the Company’s operating
costs may have a material adverse effect on the Company’s business, financial
condition and results of operations, the Company’s ability to make distributions
to the Company’s stockholders and the trading price of the Company’s common
stock.
  10
 Any
bankruptcy filings by or relating to one of the Company’s tenants could bar all
efforts by the Company to collect pre-bankruptcy debts from that lessee or seize
its property, unless the Company receives an order permitting the Company to do
so from the bankruptcy court, which the Company may be unable to obtain. A
tenant bankruptcy could also delay the Company’s efforts to collect past due
balances under the relevant leases and could ultimately preclude full collection
of these sums. If a tenant assumes the lease while in bankruptcy, all
pre-bankruptcy balances due under the lease must be paid to the Company in full.
However, if a tenant rejects the lease while in bankruptcy, the Company would
have only a general unsecured claim for pre-petition damages. Any unsecured
claim the Company holds may be paid only to the extent that funds are available
and only in the same percentage as is paid to all other holders of unsecured
claims. It is possible that the Company may recover substantially less than the
full value of any unsecured claims the Company holds, if any, which may have a
material adverse effect on the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders, and the trading price of the Company’s common stock.
Furthermore, dealing with a tenant bankruptcy or other default may divert
management’s attention and cause the Company to incur substantial legal and
other costs.
 The
severely weakened economy, and other events or circumstances beyond the control
of the Company, may adversely affect the Company’s industry, business, results
of operations, contractual commitments, and access to capital.
 Continued
concerns about the uncertainty over whether the U.S. economy will be adversely
affected by inflation, deflation or stagflation, and the systemic impact of
increased unemployment, volatile energy costs, geopolitical issues, the
availability and cost of credit, the U.S. mortgage market and a severely
distressed real estate market have contributed to increased market volatility
and weakened business and consumer confidence. This difficult operating
environment could adversely affect the Company's ability to generate revenues
and/or increase its costs, thereby reducing the Company's operating income and
earnings. It could also have an adverse impact on the ability of the Company's
tenants to maintain occupancy and rates in the Company's properties. These
economic conditions may have a material adverse effect on the Company's
business, financial condition and results of operations, the Company’s ability
to make distributions to the Company’s stockholders and the trading price of the
Company’s common stock.
 Adverse
economic or other conditions in the markets in which the Company does business
could negatively affect the Company’s occupancy levels and rental rates and
therefore the Company’s operating results.
 The
Company’s operating results are dependent upon its ability to maximize occupancy
levels and rental rates in the Company’s portfolio. Adverse economic or other
conditions in the markets in which the Company operates may lower the Company’s
occupancy levels and limit the Company’s ability to increase rents or require
the Company to offer rental discounts. The following factors are primary among
those which may adversely affect the operating performance of the Company’s
properties:
 ·
                    periods
      of economic slowdown or recession, rising interest rates or declining
      demand for medical office buildings and healthcare related facilities, or
      the public perception that any of these events may occur, could result in
      a general decline in rental rates or an increase in tenant
      defaults;
  ·
                    the
      national economic climate in which the Company operates, which may be
      adversely impacted by, among other factors, a reduction in the
      availability of debt or equity financing, industry slowdowns, relocation
      of businesses and changing
demographics;
  ·
                    local
      or regional real estate market conditions such as the oversupply of
      medical office buildings and healthcare related facilities or a reduction
      in demand for medical office buildings and healthcare related facilities
      in a particular area;
  ·
                    negative
      perceptions by prospective tenants of the safety, convenience and
      attractiveness of the Company’s properties and the neighborhoods in which
      they are located;
  ·
                    earthquakes
      and other natural disasters, terrorist acts, civil disturbances or acts of
      war which may result in uninsured or underinsured losses; and changes in
      the tax, real estate and zoning
laws.
  11
 The
failure of the Company’s properties to generate revenues sufficient to meet the
Company’s cash requirements, including operating and other expenses, debt
service and capital expenditures, may have a material adverse effect on the
Company’s business, financial condition and results of operations, the Company’s
ability to make distributions to the Company’s stockholders and the trading
price of the Company’s common stock.
 Current
levels of market volatility are unprecedented.
  The capital and credit markets have been experiencing volatility and disruption
for more a significant period of time.  In some cases, the markets
have produced downward pressure on stock prices and credit capacity for certain
issuers without regard to those issuers’ underlying financial and/or operating
strength.  If current levels of market disruption and volatility continue
or worsen, there can be no assurance that the Company will not experience an
adverse effect, which may be material, on the Company’s business, financial
condition, and results of operations.  Disruptions, uncertainty or
volatility in the capital markets may also limit the Company’s access to capital
from financial institutions on attractive terms, or at all, and its ability to
raise capital through the issuance of equity securities could be adversely
affected by causes beyond the control of the Company through ongoing
extraordinary disruptions in the global economy and financial systems or other
events.
  The
majority of the Company’s consolidated wholly-owned and joint venture properties
are located in Georgia, North Carolina, and South Carolina, and changes in these
markets may materially adversely affect the Company.
  The Company’s consolidated wholly-owned and joint venture properties located in
Georgia, North Carolina, and South Carolina, provide approximately 10.0%, 25.4%
and 26.1%, respectively, of the Company’s total annualized rent as of December
31, 2009. As a result of the geographic concentration of properties in these
markets, the Company is particularly exposed to downturns in these local
economies or other changes in local real estate market conditions. In the event
of negative economic changes in these markets, the Company’s business, financial
condition and results of operations, the Company’s ability to make distributions
to the Company’s stockholders and the trading price of the Company’s common
stock may be materially and adversely affected.
  The
Company’s investments in development and redevelopment projects may not yield
anticipated returns, which would harm the Company’s operating results and reduce
the amount of funds available for distributions.
 A key
component of the Company’s growth strategy is exploring new-asset development
and redevelopment opportunities. To the extent that the Company engages in these
development and redevelopment activities, they will be subject to the following
risks normally associated with these projects:
 ·
                    the
      Company may be unable to obtain financing for these projects on attractive
      terms or at all;
  ·
                    the
      Company may not complete development projects on schedule or within
      budgeted amounts;
  ·
                    the
      Company may encounter delays or refusals in obtaining all necessary
      zoning, land use, building, occupancy and other required governmental
      permits and authorizations;
  ·
                    occupancy
      rates and rents at newly developed or redeveloped properties may fluctuate
      depending on a number of factors, including market and economic
      conditions, and may result in the Company’s investment not being
      profitable; and start-up costs may be higher than
    anticipated.
 In
deciding whether to develop or redevelop a particular property, the Company
makes certain assumptions regarding the expected future performance of that
property. The Company may underestimate the costs necessary to bring the
property up to the standards established for its intended market position or the
Company may be unable to increase occupancy at a newly acquired property as
quickly as expected or at all. Any substantial unanticipated delays or expenses
could adversely affect the investment returns from these development or
redevelopment projects and have a material adverse effect on the Company’s
business, financial condition and results of operations, the Company’s ability
to make distributions to the Company’s stockholders and the trading price of the
Company’s common stock.
  12
 The
Company may in the future develop medical office buildings and healthcare
related facilities in geographic regions where the Company does not currently
have a significant presence and where the Company does not possess the same
level of familiarity, which could adversely affect the Company’s ability to
develop such properties successfully or at all or to achieve expected
performance.
  The
Company has relied, and in the future may rely, on the investments of the
Company’s joint venture partners for the funding of the Company’s development
and redevelopment projects. If the Company’s reputation in the healthcare real
estate industry changes or the number of investors considering the Company as an
attractive strategic partner is otherwise reduced, the Company’s ability to
develop or redevelop properties could be affected, which would limit the
Company’s growth.
  If the
Company’s investments in development and redevelopment projects do not yield
anticipated returns for any reason, including those set forth above, the
Company’s business, financial condition and results of operations, the Company’s
ability to make distributions to the Company’s stockholders and the trading
price of the Company’s common stock may be materially and adversely
affected.
 The
Company may not be successful in identifying and consummating suitable
acquisitions or investment opportunities, which may impede the Company’s growth
and negatively affect the Company’s results of operations.
  The Company’s ability to expand through acquisitions is a key component of its
long-term growth strategy and requires the Company to identify suitable
acquisition candidates or investment opportunities that meet its criteria and
are compatible with its growth strategy. The Company may not be successful in
identifying suitable properties or other assets that meet the Company’s
acquisition criteria or in consummating acquisitions or investments on
satisfactory terms or at all. Failure to identify or consummate acquisitions or
investment opportunities will slow the Company’s growth, which could in turn
adversely affect the Company’s stock price.
 The
Company’s ability to acquire properties on attractive terms and successfully
integrate and operate them may be constrained by the following significant
risks:
 ·
                    failure
      to finance an acquisition on attractive terms or at
  all;
  ·
                    competition
      from other real estate investors with significant capital, including other
      publicly-traded REITs and institutional investment
  funds;
  ·
                    competition
      from other potential acquirers may significantly increase the purchase
      price for an acquisition property, which could reduce the Company’s
      profitability;
  ·
                    unsatisfactory
      results of the Company’s due diligence investigations or failure to meet
      other customary closing conditions;
  ·
                    the
      Company may spend more than the time and amounts budgeted to make
      necessary improvements or renovations to acquired
      properties; and
  ·
                    the
      Company may acquire properties subject to liabilities and without any
      recourse, or with only limited recourse, with respect to unknown
      liabilities such as liabilities for clean-up of undisclosed environmental
      contamination, claims by persons in respect of events transpiring or
      conditions existing before the Company acquired the properties and claims
      for indemnification by general partners, directors, officers and others
      indemnified by the former owners of the
  properties.
 If any of
these risks are realized, the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common stock may
be materially and adversely affected.
 The
Company may not be able to obtain additional capital to further its business
objectives.
 The
Company’s ability to develop, redevelop or acquire properties depends upon its
ability to obtain capital.  The real estate industry is currently
experiencing a debt and equity capital market that is virtually frozen. 
This lack of capital is expected to cause a decrease in the level of new
investment activity by publicly traded real estate companies.  A prolonged
period in which the Company cannot effectively access the public equity or debt
markets may result in heavier reliance on alternative financing sources to
undertake new investments.  An inability to obtain equity or debt capital
on acceptable terms could delay or prevent the Company from acquiring, financing
and completing desirable investments, and which could otherwise adversely affect
the Company’s business.  Also, the issuance of additional shares of capital
stock or interests in subsidiaries to fund future operations could dilute the
ownership of the Company’s then-existing stockholders.  Even as liquidity
returns to the market, debt and equity capital may be more expensive than in
prior years.
  13
 If
the Company is unable to promptly re-let its properties, if the rates upon such
re-letting are significantly lower than expected or if the Company is required
to undertake significant capital expenditures to attract new tenants, then the
Company’s business and results of operations would be adversely
affected.
 Virtually
all of the Company’s leases are on a multiple year basis. As of December 31,
2009, leases representing 16.8% of the Company’s net rentable square feet will
expire in 2010, 8.9% in 2011 and 19.2% in 2012. These expirations would account
for 16.8%, 9.0% and 22.2% of the Company’s annualized rent, respectively.
Approximately 67.9% of the square feet of the Company’s properties and 59.7% of
the number of the Company’s properties are subject to certain restrictions.
These restrictions include limits on the Company’s ability to re-let these
properties to tenants not affiliated with the healthcare system that own the
underlying property, rights of first offer on sales of the property and limits
on the types of medical procedures that may be performed. In addition, lower
than expected rental rates upon re-letting could impede the Company’s growth.
The Company cannot assure you that it will be able to re-let space on terms that
are favorable to the Company or at all. Further, the Company may be required to
make significant capital expenditures to renovate or reconfigure space to
attract new tenants. If it is unable to promptly re-let its properties, if the
rates upon such re-letting are significantly lower than expected or if the
Company is required to undertake significant capital expenditures in connection
with re-letting units, the Company’s business, financial condition and results
of operations, the Company’s ability to make distributions to the Company’s
stockholders and the trading price of the Company’s common stock may be
materially and adversely affected.
 Certain
of the Company’s properties may not have efficient alternative
uses.
 Some of
the Company’s properties, such as the Company’s ambulatory surgery centers, are
specialized medical facilities. If the Company or the Company’s tenants
terminate the leases for these properties or the Company’s tenants lose their
regulatory authority to operate such properties, the Company may not be able to
locate suitable replacement tenants to lease the properties for their
specialized uses. Alternatively, the Company may be required to spend
substantial amounts to adapt the properties to other uses. Any loss of revenues
and/or additional capital expenditures occurring as a result may have a material
adverse effect on the Company’s business, financial condition and results of
operations, the Company’s ability to make distributions to the Company’s
stockholders and the trading price of the Company’s common stock.
 The
Company faces competition for the acquisition of medical office buildings and
healthcare related facilities, which may impede the Company’s ability to make
future acquisitions or may increase the cost of these acquisitions.
 The
Company competes with many other entities engaged in real estate investment
activities for acquisitions of medical office buildings and healthcare related
facilities, including national, regional and local operators, acquirers and
developers of healthcare real estate properties. The competition for healthcare
real estate properties may significantly increase the price the Company must pay
for medical office buildings and healthcare related facilities or other assets
the Company seeks to acquire and the Company’s competitors may succeed in
acquiring those properties or assets themselves. In addition, the Company’s
potential acquisition targets may find the Company’s competitors to be more
attractive because they may have greater resources, may be willing to pay more
for the properties or may have a more compatible operating philosophy. In
particular, larger healthcare REITs may enjoy significant competitive advantages
that result from, among other things, a lower cost of capital and enhanced
operating efficiencies. In addition, the number of entities and the amount of
funds competing for suitable investment properties may increase. This
competition will result in increased demand for these assets and therefore
increased prices paid for them. Because of an increased interest in
single-property acquisitions among tax-motivated individual purchasers, the
Company may pay higher prices if the Company purchases single properties in
comparison with portfolio acquisitions. If the Company pays higher prices for
medical office buildings and healthcare related facilities or other assets, the
Company’s business, financial condition and results of operations, the Company’s
ability to make distributions to the Company’s stockholders and the trading
price of the Company’s common stock may be materially and adversely
affected.
  14
 The
Company may not be successful in integrating and operating acquired
properties.
 The
Company expects to make future acquisitions of medical office buildings and
healthcare related facilities. If the Company acquires medical office buildings
and healthcare related facilities, the Company will be required to integrate
them into the Company’s existing portfolio. The acquired properties may turn out
to be less compatible with the Company’s growth strategy than originally
anticipated, may cause disruptions in the Company’s operations or may divert
management’s attention away from day-to-day operations, any or all of which may
have a material adverse effect on the Company’s business, financial condition
and results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
 The
Company’s medical office buildings and healthcare related facilities, their
associated hospitals and the Company’s tenants may be unable to compete
successfully.
 The
Company’s medical office buildings and healthcare related facilities, and their
associated hospitals often face competition from nearby hospitals and other
medical office buildings that provide comparable services. Some of those
competing facilities are owned by governmental agencies and supported by tax
revenues, and others are owned by nonprofit corporations and may be supported to
a large extent by endowments and charitable contributions. These types of
support are not available to the Company’s buildings.
  Similarly,
the Company’s tenants face competition from other medical practices in nearby
hospitals and other medical facilities. The Company’s tenants’ failure to
compete successfully with these other practices could adversely affect their
ability to make rental payments, which could adversely affect the Company’s
rental revenues. Further, from time to time and for reasons beyond the Company’s
control, referral sources, including physicians and managed care organizations,
may change their lists of hospitals or physicians to which they refer patients.
This could adversely affect the Company’s tenants’ ability to make rental
payments, which could adversely affect the Company’s rental
revenues.
  The
Company depends upon its tenants to operate their businesses in a manner which
generates revenue sufficient to allow them to meet their obligations to the
Company, including their obligation to pay rent.  Any reduction in
rental revenues resulting from the inability of the Company’s medical office
buildings and healthcare related facilities, their associated hospitals and the
Company’s tenants to compete successfully may have a material adverse effect on
the Company’s business, financial condition and results of operations, the
Company’s ability to make distributions to the Company’s stockholders and the
trading price of the Company’s common stock.
 The
Company may incur impairment charges on goodwill or other intangible
assets.
 Because
the Company has grown in part through acquisitions, goodwill and other acquired
intangible assets represent a significant portion of the Company’s
assets.  The Company performs an annual impairment review on its
goodwill and other intangible assets in the fourth quarter of every fiscal
year.  In addition, the Company performs an impairment review whenever
events or changes in circumstances indicate that the carrying value of goodwill
or other intangible assets may exceed the fair value of such
assets.  As a
result of a decline in our stock price, a decline in the cash flow multiples for
comparable public engineering and construction companies, and changes in the
cash flow projections for the Design-Build and Development business segment due
to a decline in backlog and delays and cancellations of client building
projects, we performed an interim impairment review of our goodwill related to
this business segment as of March 31, 2009. Based on this review, during the
first quarter of 2009, we recorded a pre-tax, non-cash impairment charge of
($120.9 million), resulting in an after-tax impairment charge of ($101.7
million). There is no assurance that continuing adverse economic conditions will
not result in additional future impairments of goodwill or other intangible
assets which could have a material adverse effect on our financial condition and
results of operations.
 15
 Uninsured
losses or losses in excess of the Company insurance coverage could adversely
affect the Company’s financial condition and the Company’s cash
flow.
 The
Company maintains comprehensive liability, fire, flood, earthquake, wind (as
deemed necessary or as required by the Company’s lenders), extended coverage and
rental loss insurance with respect to the Company’s properties with policy
specifications, limits and deductibles customarily carried for similar
properties. Certain types of losses, however, may be either uninsurable or not
economically insurable, such as losses due to earthquakes, riots, acts of war or
terrorism. Should an uninsured loss occur, the Company could lose both the
Company’s investment in and anticipated profits and cash flow from a property.
If any such loss is insured, the Company may be required to pay a significant
deductible on any claim for recovery of such a loss prior to the Company’s
insurer being obligated to reimburse the Company for the loss, or the amount of
the loss may exceed the Company’s coverage for the loss. In addition, future
lenders may require such insurance, and the Company’s failure to obtain such
insurance could constitute a default under loan agreements. As a result, the
Company’s business, financial condition and results of operations, the Company’s
ability to make distributions to the Company’s stockholders and the trading
price of the Company’s common stock may be materially and adversely
affected.
 Joint
investments could be adversely affected by the Company’s lack of sole
decision-making authority and reliance upon a co-venturer's financial
condition.
 
 The Company may co-invest with third parties through partnerships, joint
ventures, co-tenancies or other entities, acquiring non-controlling interests
in, or sharing responsibility for managing the affairs of, a property,
partnership, joint venture, co-tenancy or other entity.  Therefore,
the Company may not be in a position to exercise sole decision-making authority
regarding that property, partnership, joint venture or other
entity.  Investments in partnerships, joint ventures, or other
entities may involve risks not present were a third party not involved,
including the possibility that the Company’s partners, co-tenants or
co-venturers might become bankrupt or otherwise fail to fund their share of
required capital contributions.  Additionally, the Company’s partners
or co-venturers might at any time have economic or other business interests or
goals, which are inconsistent with the Company’s business interests or
goals.  These investments may also have the potential risk of impasses
on decisions such as a sale, because neither the Company nor the partner,
co-tenant or co-venturer would have full control over the partnership or joint
venture.  Consequently, actions by such partner, co-tenant or
co-venturer might result in subjecting properties owned by the partnership or
joint venture to additional risk.  In addition, the Company may in
specific circumstances be liable for the actions of third-party partners,
co-tenants or co-venturers.
 The
Company’s mortgage agreements and ground leases contain certain provisions that
may limit the Company’s ability to sell certain of the Company’s medical office
buildings and healthcare related facilities.
  ·
                    In
      order to assign or transfer the Company’s rights and obligations under
      certain of the Company’s mortgage agreements, the Company generally
      must:
  ·
                    obtain
      the consent of the lender;
  ·
                    pay
      a fee equal to a fixed percentage of the outstanding loan
      balance; and
  ·
                    pay
      any costs incurred by the lender in connection with any such assignment or
      transfer.
 In
addition, ground leases on certain of the Company’s properties contain
restrictions on transfer such as limiting the assignment or subleasing of the
facility only to practicing physicians or physicians in good standing with an
affiliated hospital. These provisions of the Company’s mortgage agreements and
ground leases may limit the Company’s ability to sell certain of the Company’s
medical office buildings and healthcare related facilities which, in turn, could
adversely impact the price realized from any such sale
 29
of the Company’s consolidated wholly-owned and joint venture properties are
subject to ground or air rights leases that expose the Company to the loss of
such properties upon breach or termination of the ground or air rights
leases
 The
Company has 29 consolidated wholly-owned and joint venture properties that
are subject to leasehold interests in the land or air underlying the buildings
and the Company may acquire additional buildings in the future that are subject
to similar ground or air leases. These 29 consolidated wholly-owned and joint
venture properties represent 52.9% of the Company’s total net rentable square
feet. As lessee under a ground lease, the Company is exposed to the possibility
of losing the property upon termination, or an earlier breach by the Company, of
the ground lease, which may have a material adverse effect on the Company’s
business, financial condition and results of operations, the Company’s ability
to make distributions to the Company’s stockholders and the trading price of the
Company’s common stock.
  16
 Environmental
compliance costs and liabilities associated with operating the Company’s
properties may affect the Company’s results of operations.
  Under
various U.S. federal, state and local laws, ordinances and regulations,
owners and operators of real estate may be liable for the costs of investigating
and remediating certain hazardous substances or other regulated materials on or
in such property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such substances or materials. The presence of such substances or materials, or
the failure to properly remediate such substances, may adversely affect the
owner’s or operator’s ability to lease, sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal or
treatment of hazardous substances or other regulated materials may be liable for
the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Certain environmental laws impose liability for release of
asbestos-containing materials into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
asbestos-containing materials.
  Certain
environmental laws also impose liability, without regard to knowledge or fault,
for removal or remediation of hazardous substances or other regulated materials
upon owners and operators of contaminated property even after they no longer own
or operate the property. Moreover, the past or present owner or operator from
which a release emanates could be liable for any personal injuries or property
damages that may result from such releases, as well as any damages to natural
resources that may arise from such releases.   Certain
environmental laws impose compliance obligations on owners and operators of real
property with respect to the management of hazardous materials and other
regulated substances. For example, environmental laws govern the management of
asbestos-containing materials and lead-based paint. Failure to comply with these
laws can result in penalties or other sanctions.
  No
assurances can be given that existing environmental studies with respect to any
of the Company’s properties reveal all environmental liabilities, that any prior
owner or operator of the Company’s properties did not create any material
environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any one or more of the
Company’s properties. There also exists the risk that material environmental
conditions, liabilities or compliance concerns may have arisen after the review
was completed or may arise in the future. Finally, future laws, ordinances or
regulations and future interpretations of existing laws, ordinances or
regulations may impose additional material environmental liability.
  The
realization of any or all of these risks may have a material adverse effect on
the Company’s business, financial condition and results of operations, the
Company’s ability to make distributions to the Company’s stockholders and the
trading price of the Company’s common stock.
  17
 Costs
associated with complying with the Americans with Disabilities Act of
1990 may result in unanticipated expenses.
 Under the
Americans with Disabilities Act of 1990, or the ADA, all places of public
accommodation are required to meet certain U.S. federal requirements
related to access and use by disabled persons. A number of additional
U.S. federal, state and local laws may also require modifications to the
Company’s properties, or restrict certain further renovations of the properties,
with respect to access thereto by disabled persons. Noncompliance with the ADA
could result in the imposition of fines or an award of damages to private
litigants and/or an order to correct any non-complying feature, which could
result in substantial capital expenditures. The Company has not conducted an
audit or investigation of all of the Company’s properties to determine the
Company’s compliance and the Company cannot predict the ultimate cost of
compliance with the ADA or other legislation. If one or more of the Company’s
properties is not in compliance with the ADA or other related legislation, then
the Company would be required to incur additional costs to bring the facility
into compliance. If the Company incurs substantial costs to comply with the ADA
or other related legislation, the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common stock may
be materially and adversely affected.
 Risks
Related to the Company's Design-Build and Development Segment
  Continuing
adverse economic conditions could cause the Company’s clients to delay, curtail
or cancel proposed or existing projects, which could result in a decrease in
demand for the Company’s services.
  The
demand for the Company’s services has been, and will likely continue to be,
cyclical in nature and vulnerable to general downturns in the U.S.
economy.  Adverse economic conditions may decrease the Company’s
customers’ willingness or ability to make capital expenditures or otherwise
reduce their spending to purchase the Company’s services, which could result in
reduced revenues or margins for the Company’s business.  Many of the
Company’s customers finance their projects through cash flow from operations,
the incurrence of debt or the issuance of equity.  Although the U.S.
economy has begun to show signs of recovery, there is still concern over the
threat of declines in the credit markets and a lack of availability of
credit.  Furthermore, the Company’s customers may be affected by
economic downturns that decrease the need for their services or the
profitability of their services, which could result in a decrease of their cash
flow from operations.  A reduction in the Company’s customers’ cash
flow from operations and the lack of availability of debt or equity financing
could cause the Company’s customers to delay, curtail or cancel proposed or
existing projects, which could result in a decrease in demand for the Company’s
services.
 The
Company’s results of operations depend upon the award of new design-build
contracts and the nature and timing of those awards.
 The
Company’s revenues are derived primarily from contracts awarded on a
project-by-project basis.  Generally, it is very difficult to predict
whether and when the Company will be awarded a new contract since many potential
contracts involve a lengthy and complex bidding and selection process that may
be affected by a number of factors, including changes in existing or assumed
market conditions, financing arrangements, governmental approvals and
environmental matters.  Because the Company’s revenues are derived
primarily from these contracts, its results of operations and cash flows can
fluctuate materially from period to period depending on the timing of contract
awards.
  In
addition, adverse economic conditions could alter the overall mix of services
that the Company’s customers seek to purchase, and increased competition during
a period of economic decline could result in the Company accepting contract
terms that are less favorable to the Company than it might otherwise be able to
negotiate.  Changes in the Company’s mix of services or a less
favorable contracting environment may cause the Company’s revenues and margins
to decline.
 If
the Company experiences delays and/or defaults in customer payments, the Company
could be unable to recover all expenditures.
 Because
of the nature of the Company’s design-build contracts, the Company may at times
commit its financial resources to projects prior to receiving payments from the
customer in amounts sufficient to cover expenditures on the projects as they are
incurred.  Delays in customer payments may require the Company to make
a working capital investment.  If a customer defaults in making
payments on a project in which the Company has devoted significant financial
resources, it could have a material adverse effect on the Company’s
business.  This risk can be exacerbated as a result of a downturn in
economic conditions, including recent developments in the economy and capital
markets.
  18
 The
Company may experience reduced profits or, in some cases, losses under its
guaranteed maximum price contracts if costs increase above its
estimates.
 Most of
the Company’s contracts are currently negotiated guaranteed maximum price or
fixed price contracts, giving the Company’s clients a clear understanding of the
project’s costs but also locking in the Company so that the Company bears a
significant portion or all of the risk for cost overruns. Under these guaranteed
maximum price or fixed price contracts, contract prices payable by customers are
established in part on cost and scheduling estimates which are based on a number
of assumptions, including assumptions about future economic conditions, prices
and availability of labor, equipment and materials, and other exigencies. If
these estimates prove inaccurate, or the Company encounters other unanticipated
difficulties with respect to projects under guaranteed maximum price or fixed
price contracts (such as errors, omissions or other deficiencies in the
components of projects designed by or on behalf of the Company, problems with
new technologies, difficulties in obtaining permits or approvals, adverse
weather, unknown or unforeseen conditions, labor actions or disputes, changes in
legal requirements, unanticipated decisions, interpretations or actions by
governmental authorities having jurisdiction over the Company’s projects, fire
or other casualties, terrorist or similar acts, unanticipated difficulty or
delay in obtaining materials or equipment, unanticipated increase in the cost of
materials or equipment, failures or defaults of suppliers or subcontractors to
perform, or other causes within or beyond the control of the Company which delay
the performance or completion of a project or increase the Company’s cost of
performing the services and work to complete the project), cost overruns may
occur, and the Company could experience reduced profits or, in some cases, a
loss for that project. The existence or impact of these and other items may not
be or become known until the end of a project.
 The
nature of the Company’s engineering, architecture, construction and other
businesses exposes it to potential liabilities and disputes which may reduce its
profits.
 The
Company engages in engineering, architecture, construction and other services
where design, construction or systems failures can result in substantial injury
or damage to customers and/or third parties. In addition, the nature of the
Company’s business results in customers, subcontractors, vendors, suppliers and
governmental authorities occasionally asserting claims against the Company for
damages or losses for which they believe the Company is liable, including
damages and/or losses (including consequential damages or losses) arising from
allegations of: (1) defective, nonconforming, legally noncompliant or
otherwise deficient design, materials, equipment or workmanship; (2) late
performance, completion or delivery of all or any portion of a project;
(3) bodily injury, sickness, disease or death; (4) injury to or
destruction of property; (5) failure to design or perform work in
accordance with applicable laws, statutes, ordinances, and regulations of any
governmental authority; (6) violations of the Federal “Occupational Safety
and Health Act”, or any other laws, ordinances, rules regulations or orders of
any Federal, State or local public authority having jurisdiction for the safety
of persons or property, including but not limited to any Fire Department and
Board of Health; (7) violations or infringements of any trademark,
copyright or patent, or any unfair competition, or infringement of any other
tangible or intangible personal or property rights; and (8) failure to pay
parties providing services, labor, materials, equipment, supplies and similar
items to projects.
  Many of
the Company’s contracts with customers do not limit the Company’s liability for
damages or losses. These claims often arise in the normal course of the
Company’s business, and may be asserted with respect to projects completed
and/or past occurrences. When it is determined that the Company has liability,
such liability may not be covered by insurance or, if covered, the dollar amount
of the liability may exceed the Company’s policy limits. Any liability not
covered by insurance, in excess of insurance limits or, if covered by insurance
but subject to a high deductible, could result in significant loss, which could
reduce profits and cash available for operations. Furthermore, claims asserting
liability for these and other matters, whether for projects previously completed
or projects to be completed in the future, may not be asserted or otherwise
become known until a later date. Performance problems and/or liability claims
for existing or future projects could adversely impact the Company’s reputation
within its industry and among its client base, making it more difficult to
obtain future projects.
 The
Company's Design-Build and Development segment's backlog of uncompleted projects
under contract is subject to unexpected adjustments and cancellations and thus,
may not accurately reflect future revenue and profits.
 Backlog
is our estimate of the revenues we expect to earn in future periods on our
contracts relating to the Design-Build and Development business
segment.  There is no assurance that backlog will actually be realized
as revenues or, if realized, will result in profits.  In accordance
with industry practice, substantially all of Erdman's contracts are subject to
cancellation, termination, or suspension at the discretion of the
client.  In addition, the contracts in our backlog are subject to
changes in the scope of services to be provided as well as adjustments to the
costs relating to the contracts.  Projects can remain in backlog for
extended periods of time because of the nature of the project and the timing of
the particular services required by the project.  Accordingly, actual
results may differ from the expectations and estimates we rely upon in
determining our backlog, which may negatively affect our cash flow
projections.
 19
 Environmental
compliance costs and liabilities associated with the Company’s business may
affect the Company’s results of operations .
 The
Company’s operations are subject to environmental laws and regulations,
including those concerning:
 ·
                    generation,
      storage, handling, treatment and disposal of hazardous material and
      wastes;
  ·
                    emissions
      into the air;
  ·
                    discharges
      into waterways; and
 ·
                    health
      and safety.
 The
Company’s projects often involve highly regulated materials, including hazardous
wastes. Environmental laws and regulations generally impose limitations and
standards for regulated materials and require the Company to obtain permits and
comply with various other requirements. The improper characterization, handling,
or disposal of regulated materials or any other failure by us to comply with
federal, state and local environmental laws and regulations or associated
environmental permits could subject the Company to the assessment of
administrative, civil and criminal penalties, the imposition of investigatory or
remedial obligations, or the issuance of injunctions that could restrict or
prevent the Company’s ability to operate its business and complete contracted
projects.
 In
addition, under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (“CERCLA”), and comparable state laws, the Company may be
required to investigate and remediate regulated materials. CERCLA and the
comparable state laws typically impose liability without regard to whether a
company knew of or caused the release, and liability for the entire cost of
clean-up can be imposed upon any responsible party.
 The
environmental, workplace, employment and health and safety laws and regulations,
among others, to which the Company is subject are complex, change frequently and
could become more stringent in the future. It is impossible to predict the
effect that any future changes to these laws and regulations could have on the
Company.  Any failure to comply with these laws and regulations could
materially adversely affect the Company’s business, financial condition and
results of operations.
 Risks
Related to the Healthcare Industry
 Pending
healthcare legislations and adverse trends in healthcare provider operations may
negatively affect the Company’s lease revenues and the Company’s ability to make
distributions to the Company’s stockholders.
 The
healthcare industry is currently experiencing:
 ·
                    changes
      in the demand for and methods of delivering healthcare
      services;
  ·
                    changes
      in third party reimbursement
policies;
  ·
                    substantial
      competition for patients among healthcare
  providers;
  ·
                    continued
      pressure by private and governmental payors to reduce payments to
      providers of services; and
  ·
                    increased
      scrutiny of billing, referral and other practices by U.S. federal and
      state authorities.
 The U.S.
Congress is currently debating and may enact comprehensive healthcare reform
legislation that may have significant impact on the delivery and reimbursement
of healthcare items and services.  See "Business - Regulation." 
These factors may adversely affect the economic performance of some or all of
the Company’s tenants and, in turn, the Company’s lease revenues, which may have
a material adverse effect on the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
  20
 Reductions
in reimbursement from third party payors, including Medicare and Medicaid, could
adversely affect the profitability of the Company’s tenants and hinder their
ability to make rent payments to the Company.
 Sources
of revenue for the Company’s tenants may include the U.S. federal Medicare
program, state Medicaid programs, private insurance carriers and health
maintenance organizations, among others. Healthcare providers continue to face
increased government and private payor pressure to control or reduce costs.
Additional cost reduction measures may be included in the healthcare reform
legislation being debated in the U.S. Congress.  Efforts by government
and private payors to reduce healthcare costs will likely continue, which may
result in reductions or slower growth in reimbursement for certain services
provided by some of the Company’s tenants. In addition, the failure of any of
the Company’s tenants to comply with various laws and regulations could
jeopardize their ability to continue participating in Medicare, Medicaid and
other government sponsored payment programs. A reduction in reimbursements to
the Company’s tenants from third party payors for any reason could adversely
affect the Company’s tenants’ ability to make rent payments to the Company,
which may have a material adverse effect on the Company’s business, financial
condition and results of operations, the Company’s ability to make distributions
to the Company’s stockholders and the trading price of the Company’s common
stock.
 The
healthcare industry is heavily regulated, and new laws or regulations, changes
to existing laws or regulations, loss of licensure or failure to obtain
licensure could result in the inability of the Company’s tenants to make rent
payments to the Company.
 The
healthcare industry is heavily regulated by U.S. federal, state and local
governmental bodies. The Company’s tenants generally will be subject to laws and
regulations covering, among other things, licensure, certification for
participation in government programs and relationships with physicians and other
referral sources, and the privacy and security of individually identifiable
health information.
 In
addition, state and local laws regulate expansion, including the addition of new
beds or services or acquisition of medical equipment, and the construction of
healthcare related facilities, by requiring a certificate of need, which is
issued by the applicable state health planning agency only after that agency
makes a determination that a need exists in a particular area for a particular
service or facility, or other similar approval. New laws and regulations,
changes in existing laws and regulations or changes in the interpretation of
such laws or regulations could negatively affect the financial condition of the
Company’s tenants. These changes, in some cases, could apply retroactively. The
enactment, timing or effect of legislative or regulatory changes cannot be
predicted. In addition, certain of the Company’s medical office buildings and
healthcare related facilities and their tenants may require licenses or
certificates of need to operate. Failure to obtain a license or certificate of
need, or loss of a required license would prevent a facility from operating in
the manner intended by the tenant.
  These
events could adversely affect the Company’s tenants’ ability to make rent
payments to the Company, which may have a material adverse effect on the
Company’s business, financial condition and results of operations, the Company’s
ability to make distributions to the Company’s stockholders and the trading
price of the Company’s common stock.
  Privacy
and security regulations issued pursuant to HIPAA extensively regulate the use
and disclosure of individually identifiable health information.  See
"Business - Regulation."  The HITECH Act, signed into law on February 17,
2009, broadened the scope of those requirements and contains enhanced
enforcement provisions, including: (i) increased civil monetary penalties; (ii)
allowing state attorneys general to bring civil actions for HIPAA violations;
and (iii) requiring the U.S. Department of Health and Human Services to conduct
audits of covered entities, such as healthcare providers, to determine their
compliance with HIPAA.  The cost of complying with these requirements
or the imposition of penalties for HIPAA violations could adversely affect the
ability of a tenant to make rent payments to the Company, which may have a
material adverse effect on the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and trading price of the Company’s common
stock.
 The
Company’s tenants are subject to the Stark Law and fraud and abuse laws, the
violation of which by a tenant may jeopardize the tenant’s ability to make rent
payments to the Company.
 There are
various federal and state laws prohibiting fraudulent and abusive business
practices by healthcare providers who participate in, receive payments from or
are in a position to make referrals in connection with government-sponsored
healthcare programs, including the Medicare and Medicaid programs. The Company’s
lease arrangements with certain tenants may also be subject to the Start Law and
fraud and abuse laws, to the extent these lease arrangements create indirect
financial relationships between the tenants and the Company that are subject to
these laws and regulations.
  21
 These
laws that may apply to tenants include:
 ·
                    the
      Federal Anti-Kickback Statute, which prohibits, among other things, the
      offer, payment, solicitation or receipt of any form of remuneration in
      return for, or to induce, the referral of Medicare and Medicaid
      patients;
 ·
                    the
      Stark Law, which, subject to specific exceptions, restricts physicians who
      have financial relationships with healthcare providers from making
      referrals for specifically designated health services for which payment
      may be made under Medicare or Medicaid programs to an entity with which
      the physician, or an immediate family member, has a financial
      relationship;
 ·
                    the
      False Claims Act, which prohibits any person from knowingly presenting
      false or fraudulent claims for payment to the federal government,
      including under the Medicare and Medicaid
    programs; and
  ·
                    the
      Civil Monetary Penalties Law, which authorizes the Department of Health
      and Human Services to impose monetary penalties for certain fraudulent
      acts.
 Each of
these laws includes criminal and/or civil penalties for violations that range
from punitive sanctions, damage assessments, penalties, imprisonment, denial of
Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid
programs. Additionally, certain laws, such as the False Claims Act, allow for
individuals to bring whistleblower actions on behalf of the government for
violations thereof. Imposition of any of these penalties upon one of the
Company’s tenants or associated hospitals could jeopardize that tenant’s ability
to operate or to make rent payments or affect the level of occupancy in the
Company’s medical office buildings or healthcare related facilities associated
with that hospital, which may have a material adverse effect on the Company’s
business, financial condition and results of operations, the Company’s ability
to make distributions to the Company’s stockholders and the trading price of the
Company’s common stock.
 Risks
Related to the Real Estate Industry
  Illiquidity
of real estate investments could significantly impede the Company’s ability to
respond to adverse changes in the performance of the Company’s
properties.
 Because
real estate investments are relatively illiquid, the Company’s ability to
promptly sell one or more properties in the Company’s portfolio in response to
changing economic, financial and investment conditions is limited. The real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply
and demand, that are beyond the Company’s control. The Company cannot predict
whether the Company will be able to sell any property for the price or on the
terms set by the Company or whether any price or other terms offered by a
prospective purchaser would be acceptable to the Company. The Company also
cannot predict the length of time needed to find a willing purchaser and to
close the sale of a property.
  The
Company may be required to expend funds to correct defects or to make
improvements before a property can be sold. The Company cannot assure you that
it will have funds available to correct those defects or to make those
improvements. In acquiring a property, the Company may agree to transfer
restrictions that materially restrict it from selling that property for a period
of time or impose other restrictions, such as a limitation on the amount of debt
that can be placed or repaid on that property. These transfer restrictions would
impede the Company’s ability to sell a property even if the Company deems it
necessary or appropriate. These facts and any others that would impede the
Company’s ability to respond to adverse changes in the performance of its
properties may have a material adverse effect on its business, financial
condition, results of operations, or ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
  22
 Any
investments in unimproved real property may take significantly longer to yield
income-producing returns, if at all, and may result in additional costs to the
Company to comply with re-zoning restrictions or environmental
regulations
 The
Company may invest in unimproved real property. Unimproved properties generally
take longer to yield income-producing returns based on the typical time required
for development. Any development of unimproved real property may also expose the
Company to the risks and uncertainties associated with re-zoning the land for a
higher use or development and environmental concerns of governmental entities
and/or community groups. Any unsuccessful investments or delays in realizing an
income-producing return or increased costs to develop unimproved real property
could restrict the Company’s ability to earn its targeted rate of return on an
investment or adversely affect the Company’s ability to pay operating expenses,
which may have a material adverse effect on the Company’s business, financial
condition and results of operations, the Company’s ability to make distributions
to the Company’s stockholders and the trading price of the Company’s common
stock.
 Risks
Related to Debt Financings
  Required
payments of principal and interest on borrowings may leave the Company with
insufficient cash to operate the Company’s properties or to pay the
distributions currently contemplated or necessary to qualify as a REIT and may
expose the Company to the risk of default under the Company’s debt
obligations.
 At
December 31, 2009, the Company has approximately $410.9 million of
outstanding indebtedness, $365.6 million of which is secured. Approximately
$25.3 million and $181.7 million of the Company’s outstanding
indebtedness will mature in 2010 and 2011, respectively. The Company expects to
incur additional debt in connection with future development and redevelopment
projects and acquisitions. The Company may borrow under its Credit Facility, or
borrow new funds to complete these projects and acquisitions. Additionally, the
Company does not anticipate that the Company’s internally generated cash flow
will be adequate to repay the Company’s existing indebtedness upon maturity and,
therefore, the Company expects to repay the Company’s indebtedness through
refinancings and future offerings of equity and/or debt.
  If the
Company is required to utilize the Company’s Credit Facility for purposes other
than development, redevelopment and acquisition activities, this will reduce the
amount available for development and redevelopment projects and acquisitions and
could slow the Company’s growth. Therefore, the Company’s level of debt and the
limitations imposed on the Company by the Company’s debt agreements could have
adverse consequences, including the following:
 ·
                    the
      Company’s cash flow may be insufficient to meet the Company’s required
      principal and interest payments;
  ·
                    the
      Company may be unable to borrow additional funds as needed or on favorable
      terms, including to make
acquisitions;
  ·
                    the
      Company may be unable to refinance the Company’s indebtedness at maturity
      or the refinancing terms may be less favorable than the terms of the
      Company’s original indebtedness;
  ·
                    because
      a portion of the Company’s debt bears interest at variable rates, an
      increase in interest rates could materially increase the Company’s
      interest expense;
  ·
                    the
      Company may be forced to dispose of one or more of the Company’s
      properties, possibly on disadvantageous
terms;
  ·
                    after
      debt service, the amount available for distributions to the Company’s
      stockholders is reduced;
  ·
                    the
      Company’s debt level could place the Company at a competitive disadvantage
      compared to the Company’s competitors with less
  debt;
  ·
                    the
      Company may experience increased vulnerability to economic and industry
      downturns, reducing the Company’s ability to respond to changing business
      and economic conditions;
  23
 ·
                    the
      Company may default on the Company’s obligations and the lenders or
      mortgagees may foreclose on the Company’s properties that secure their
      loans and receive an assignment of rents and
  leases;
  ·
                    the
      Company may violate financial covenants which would cause a default on the
      Company’s obligations;
  ·
                    the
      Company may inadvertently violate non-financial restrictive covenants in
      the Company’s loan documents, such as covenants that require the Company
      to maintain the existence of entities, maintain insurance policies and
      provide financial statements, which would entitle the lenders to
      accelerate the Company’s debt
  obligations; and
  ·
                    the
      Company may default under any one of the Company’s mortgage loans with
      cross-default or cross-collateralization provisions that could result in
      default on other indebtedness or result in the foreclosures of other
      properties.
 The
realization of any or all of these risks may have a material adverse effect on
the Company’s business, financial condition and results of operations, the
Company’s ability to make distributions to the Company’s stockholders and the
trading price of the Company’s common stock.
 As
a result of recent market events, including the contraction among and failure of
certain lenders, it may be more difficult for the Company to secure
financing.
 The
Company’s results of operations may be materially affected by conditions in the
financial markets and the economy generally.  Over the past several
years, concerns over inflation, energy costs, geopolitical issues, unemployment,
the availability and cost of credit, the mortgage market and a declining real
estate market have contributed to increased volatility and diminished
expectations for the economy and markets.
  Dramatic
declines in the housing market, with decreasing home prices and increasing
foreclosures and unemployment, have resulted in significant asset write-downs by
financial institutions, which have caused many financial institutions to seek
additional capital, to merge with other institutions and, in some cases, to
fail.  The Company relies on the availability of financing to execute
its business strategy.  Institutions from which the Company may seek
to obtain financing may have owned or financed residential mortgage loans, real
estate-related securities and real estate loans which have declined in value and
caused losses as a result of the recent downturn in the markets.  Many
lenders and institutional investors have reduced and, in some cases, ceased to
provide funding to borrowers, including other financial
institutions.  If these conditions persist, these institutions may
become insolvent.  As a result of recent market events, it may be more
difficult for the Company to secure financing as there are fewer institutional
lenders and those remaining lenders have tightened their lending
standards.
  As a
result of these events, it may be more difficult for the Company to obtain
financing on attractive terms, or at all, and the Company’s financial position
and results of operations could be adversely affected.
 
 The
Company’s ability to pay distributions is dependent on a number of factors and
is not assured, and the Company’s distributions to stockholders may decline at
any time.
  The
Company’s ability to make distributions depends upon a variety of factors,
including efficient management of the Company’s properties and the successful
implementation by the Company of a variety of the Company’s growth initiatives,
and may be adversely affected by the risks described elsewhere in this Annual
Report on Form 10-K. All distributions will be made at the discretion of
the Board of Directors and depend on the Company earnings, the Company’s
financial condition, the REIT distribution requirements and other factors that
the Board of Directors may consider from time to time. The Company cannot assure
you that the level of the Company’s distributions will increase over time or
that the Company will be able to maintain the Company’s future distributions at
levels that equal or exceed the Company’s historical distributions. The Company
may be required to fund future distributions either from borrowings under the
Company’s Credit Facility, with the proceeds from equity offerings, which could
be dilutive, or from property sales, which could be at a loss, or reduce such
distributions. A reduction in distributions to stockholders may negatively
impact the Company’s stock price.
  24
 The
Company’s organizational documents contain no limitations on the amount of debt
the Company may incur.
 The
Company’s organizational documents contain no limitations on the amount of
indebtedness that the Company or the Operating Partnership may incur. The
Company could alter the balance between the Company’s total outstanding
indebtedness and the value of the Company’s wholly-owned properties at any time.
If the Company becomes more highly leveraged, the resulting increase in debt
service could adversely affect the Company’s ability to make payments on the
Company’s outstanding indebtedness and to pay the Company’s anticipated
distributions and/or the distributions required to qualify as a REIT, and may
materially and adversely affect the Company’s business, financial condition,
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
 Increases
in interest rates may increase the Company’s interest expense and adversely
affect the Company’s cash flow and the Company’s ability to service the
Company’s indebtedness and make distributions to the Company’s
stockholders.
 As of
December 31, 2009, the Company has approximately $410.9 million of
outstanding indebtedness, of which approximately $70.0 million, or 17.1%, is
subject to variable interest rates (excluding debt subject to variable to fixed
interest rate swap agreements). This variable rate debt had a weighted average
interest rate of approximately 2.1% per year as of December 31, 2009. Increases
in interest rates on this variable rate debt would increase the Company’s
interest expense, which could adversely affect the Company’s cash flow and the
Company’s ability to pay distributions. For example, if market rates of interest
on this variable rate debt increased by 100 basis points, the increase in
interest expense would decrease future earnings and cash flows by approximately
$0.7 million annually.
 Failure
to hedge effectively against interest rate changes may adversely affect the
Company’s results of operations.
 In
certain cases, the Company may seek to manage the Company’s exposure to interest
rate volatility by using interest rate hedging arrangements. Hedging involves
risks, such as the risk that the counterparty may fail to honor its obligations
under an arrangement, that the arrangements may not be effective in reducing the
Company’s exposure to interest rate changes and that a court could rule that
such an agreement is not legally enforceable. In addition, the Company may be
limited in the type and amount of hedging transactions the Company may use in
the future by the Company’s need to satisfy the REIT income tests under the
Code. Failure to hedge effectively against interest rate changes may have a
material adverse effect on the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
 The
Company’s Credit Facility and Term Loan contains financial covenants that could
limit the Company’s operations and the Company’s ability to make distributions
to the Company’s stockholders.
 The
Company’s Credit Facility and Term Loan (defined in Note 9 to the accompanying
Consolidated Financial Statements) contains financial and operating covenants,
including tangible net worth requirements, fixed charge coverage and debt ratios
and other limitations on the Company’s ability to make distributions or other
payments to the Company’s stockholders (other than those required by the Code),
sell all or substantially all of the Company’s assets and engage in mergers,
consolidations and certain acquisitions.
 The
Credit Facility contains customary terms and conditions for credit facilities of
this type, including, but not limited to: (1) affirmative covenants
relating to the Company’s corporate structure and ownership, maintenance of
insurance, compliance with environmental laws and preparation of environmental
reports, maintenance of the Company’s REIT qualification and listing on the New
York Stock Exchange (the “NYSE”), (2) negative covenants relating to
restrictions on liens, indebtedness, certain investments (including loans and
certain advances), mergers and other fundamental changes, sales and other
dispositions of property or assets and transactions with
affiliates.   The Term Loan contains customary covenants
including, but not limited to, (1) affirmative covenants relating to the
Company’s corporate structure and ownership, maintenance of insurance,
compliance with environmental laws and preparation of environmental reports,
maintenance of the Company’s REIT qualification and listing on the New York
Stock Exchange, (2) negative covenants relating to restrictions on liens,
indebtedness, certain investments (including loans and certain advances),
mergers and other fundamental changes, sales and other dispositions of property
or assets and transactions with affiliates.  Both the Credit Facility
and the Term Loan have financial covenants to be met by the Company at all times
including a maximum total leverage ratio (70%), maximum real estate leverage
ratio (70%), minimum fixed charge coverage ratio (1.50 to 1.00), maximum total
debt to real estate value ratio (90%) and minimum consolidated tangible net
worth ($45 million plus 85% of the net proceeds of equity issuances issued
after the closing date).  In addition, there are financial covenants
relating only to Design-Build and Development, including a covenant relating to
maximum consolidated senior indebtedness to adjusted consolidated EBITDA (3.50
to 1.00).  As of December 31, 2009, consolidated senior indebtedness
to adjusted consolidated EBITDA was 2.37, and the Company may be required to
repay a portion of the principal balance if adjusted consolidated EBITDA is
insufficient to meet the ratio of maximum consolidated senior indebtedness to
adjusted consolidated EBITDA.
  25
 These
covenants may restrict the Company’s ability to engage in transactions that the
Company believes would otherwise be in the best interests of the Company’s
stockholders. Failure to comply with any of the covenants in the Company’s
Credit Facility or Term Loan could result in a default. This could cause one or
more of the Company’s lenders to accelerate the timing of payments and may have
a material adverse effect on the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
 If
lenders under the Company’s Credit Facility fail to meet their funding
commitments, the Company’s financial position would be negatively
impacted.
 Access to
external capital on favorable terms is critical to the Company’s success in
growing and maintaining its portfolio. If financial institutions within the
Company’s Credit Facility were unwilling or unable to meet their respective
funding commitments to the Company, any such failure would have a negative
impact on the Company’s operations, financial condition and ability to meet its
obligations, including the payment of dividends to stockholders.
 Risks
Related to the Company’s Organization and Structure
  The
Company’s business could be harmed if key personnel terminate their employment
with the Company.
 The
Company’s success depends, to a significant extent, on the continued services of
Mr. Cogdell, the Company’s Chairman, Mr. Spencer, the Company’s Chief
Executive Officer, President and a member of the Board of Directors, and the
other members of the Company’s senior management team. The Company’s senior
management team has an average of 24 years of experience in the healthcare
real estate industry. In addition, the Company’s ability to continue to acquire
and develop properties depends on the significant relationships the Company’s
senior management team has developed. There is no guarantee that any of them
will remain employed by the Company. The Company does not maintain key person
life insurance on any of the Company’s officers. The loss of services of one or
more members of the Company’s senior management team could harm the Company’s
business and the Company’s prospects.
 Tax
indemnification obligations could limit the Company’s operating flexibility by
limiting the Company’s ability to sell specified properties.
 In
connection with the formation transactions and certain other property
acquisitions, the Company entered into a tax protection agreement with the
former owners of each contributed medical office building or healthcare related
facility who received OP units.
  Pursuant
to these agreements, the Company will not sell, transfer or otherwise dispose of
any of the medical office buildings or healthcare related facilities (each a
“protected asset”) or any interest in a protected asset prior to the eighth
anniversary of the closing of the offering unless:
 
 1. a majority-in-interest of the former holders of interests in the
predecessor partnerships or contributing entities (or their successors, which
may include the Company to the extent any OP units have been redeemed or
exchanged) with respect to such protected asset consent to the sale, transfer of
other disposition; provided, however, with respect to three of the predecessor
entities, Cabarrus POB, LLC, Medical Investors I, LLC and Medical Investors III,
LLC, the required consent shall be a majority-in-interest of the beneficial
owners of interests in the predecessor entities other than Messrs. Cogdell and
Spencer and their affiliates; or
  26
 2. the
Operating Partnership delivers to each such holder of interests, a cash payment
intended to approximate the holder’s tax liability related to the recognition of
such holder’s built-in gain resulting from the sale of such protected
asset; or
 
 3. the
sale, transfer or other disposition would not result in the recognition of any
built-in gain by any such holder of interests.
  Protected
assets represent approximately 69.9% of the Company’s total net rentable square
feet. If the Company were to sell all of these protected assets and the Company
undertook such sale without obtaining the requisite consent of the contributing
holders, then the Company would be required to make material payments to these
holders. The prospect of making payments under the tax protection agreements
could impede the Company’s ability to respond to changing economic, financial
and investment conditions. For example, it may not be economical for the Company
to raise cash quickly through a sale of one or more of the Company’s protected
assets or dispose of a poorly performing protected asset until the expiration of
the eight-year protection period.
 Tax
indemnification obligations may require the Operating Partnership to maintain
certain debt levels.
 The
Company’s tax protection agreements also provide that during the period from the
closing of the initial public offering in 2005 through the twelfth anniversary
thereof, the Operating Partnership will offer each holder who continues to hold
at least 50% of the OP units received in respect of the consolidation
transaction the opportunity to: (1) guarantee debt or (2) enter into a
deficit restoration obligation. If the Company fails to offer such
opportunities, the Company will be required to deliver to each holder a cash
payment intended to approximate the holder’s tax liability resulting from the
Company’s failure to make such opportunities available to that holder. The
Company agreed to these provisions in order to assist such holders in deferring
the recognition of taxable gain as a result of and after the consolidation
transaction. These obligations may require the Company to maintain more or
different indebtedness than the Company would otherwise require for the
Company’s business.
 The
Company may pursue less vigorous enforcement of terms of contribution and other
agreements because of conflicts of interest with certain of the Company’s
officers.
 Mr. Cogdell,
the Company’s Chairman, Mr. Spencer, the Company’s Chief Executive Officer,
President and a member of the Board of Directors, Charles M. Handy, the
Company’s Chief Financial Officer, Senior Vice President and Secretary, and
other members of the Company’s management team, have direct or indirect
ownership interests in certain properties contributed to the Operating
Partnership in the Formation Transactions. The Company, under the agreements
relating to the contribution of such interests, is entitled to indemnification
and damages in the event of breaches of representations or warranties made by
the contributors. The Company may choose not to enforce, or to enforce less
vigorously, the Company’s rights under these agreements because of the Company’s
desire to maintain the Company’s ongoing relationships with the individual party
to these agreements.  In connection with the acquisition of MEA, the
Company entered into various agreements with MEA, including the merger
agreement, pursuant to which the Company is entitled to indemnification and
damages in the event of breaches of representations and warranties made by
MEA.  Because two members of the Company’s Board of Directors, Mr.
Lubar and Mr. Ransom, and certain other key employees and personnel were also
former owners, officers and directors of MEA, the Company may choose not to
enforce, or to enforce less vigorously, the Company’s rights under these
agreements.  In addition, the Company is party to employment
agreements with Messrs. Cogdell, Spencer, Handy and Ransom, which provide
for additional severance following termination of employment if the Company
elects to subject the executive officer to certain non-competition,
confidentiality and non-solicitation provisions. Although their employment
agreements require that they devote substantially all of their full business
time and attention to the Company, if the executive officer forgoes the
additional severance, he will not be subject to such non-competition provisions,
which would allow him to compete with the Company. None of these agreements were
negotiated on an arm’s-length basis.
  27
 Conflicts
of interest could arise as a result of the Company UPREIT
structure.
 Conflicts
of interest could arise in the future as a result of the relationships between
the Company and the Company’s affiliates, on the one hand, and the Operating
Partnership or any partner thereof, on the other. The Company’s directors and
officers have duties to the Company under applicable Maryland law in connection
with their management of the Company. At the same time, the Company, through the
Company’s wholly-owned subsidiary, has fiduciary duties, as a general partner,
to the Operating Partnership and to the limited partners under Delaware law in
connection with the management of the Operating Partnership. The Company’s
duties, through the Company’s wholly-owned subsidiary, as a general partner to
the Operating Partnership and its partners may come into conflict with the
duties of the Company’s directors and officers. The partnership agreement of the
Operating Partnership does not require the Company to resolve such conflicts in
favor of either the Company’s stockholders or the limited partners in the
Operating Partnership.
  Unless
otherwise provided for in the relevant partnership agreement, Delaware law
generally requires a general partner of a Delaware limited partnership to adhere
to fiduciary duty standards under which it owes its limited partners the highest
duties of good faith, fairness and loyalty and which generally prohibit such
general partner from taking any action or engaging in any transaction as to
which it has a conflict of interest.
  Additionally,
the partnership agreement expressly limits the Company’s liability by providing
that neither the Company, nor the Company’s wholly-owned Maryland business trust
subsidiary, as the general partner of the Operating Partnership, nor any of the
Company or its trustees, directors or officers, will be liable or accountable in
damages to the Operating Partnership, the limited partners or assignees for
errors in judgment, mistakes of fact or law or for any act or omission if the
general partner or such trustee, director or officer, acted in good faith. In
addition, the Operating Partnership is required to indemnify the Company, the
Company’s affiliates and each of the Company’s respective trustees, officers,
directors, employees and agents to the fullest extent permitted by applicable
law against any and all losses, claims, damages, liabilities (whether joint or
several), expenses (including, without limitation, attorneys’ fees and other
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of the
Operating Partnership, provided that the Operating Partnership will not
indemnify any such person for (1) willful misconduct or a knowing violation
of the law, (2) any transaction for which such person received an improper
personal benefit in violation or breach of any provision of the partnership
agreement, or (3) in the case of a criminal proceeding, the person had
reasonable cause to believe the act or omission was unlawful.
  The
provisions of Delaware law that allow the common law fiduciary duties of a
general partner to be modified by a partnership agreement have not been resolved
in a court of law, and the Company has not obtained an opinion of counsel
covering the provisions set forth in the partnership agreement that purport to
waive or restrict the Company’s fiduciary duties that would be in effect under
common law were it not for the partnership agreement.
  28
 Certain
provisions of the Company’s organizational documents, including the stock
ownership limit imposed by the Company’s charter, could prevent or delay a
change in control transaction.
 The
Company’s charter, subject to certain exceptions, authorizes the Company’s
directors to take such actions as are necessary and desirable to preserve the
Company’s qualification as a REIT and to limit any person to actual or
constructive ownership of 7.75% (by value or by number of shares, whichever is
more restrictive) of the Company’s outstanding common stock or 7.75% (by value
or by number of shares, whichever is more restrictive) of the Company’s
outstanding capital stock. The Board of Directors, in its sole discretion, may
exempt additional persons from the ownership limit. However, the Board of
Directors may not grant an exemption from the ownership limit to any proposed
transferee whose ownership could jeopardize the Company’s qualification as a
REIT. These restrictions on ownership will not apply if the Board of Directors
determines that it is no longer in the Company’s best interests to attempt to
qualify, or to continue to qualify, as a REIT. The ownership limit may delay or
impede a transaction or a change of control that might involve a premium price
for the Company’s common stock or otherwise be in the best interests of the
Company’s stockholders.
 Certain
provisions of Maryland law may limit the ability of a third party to acquire
control of the Company.
 Certain
provisions of the Maryland General Corporation Law, or the MGCL, may have the
effect of delaying, deferring or preventing a transaction or a change in control
of the Company that might involve a premium price for holders of the Company’s
common stock or otherwise be in their best interests, including:
 ·
                    “business
      combination” provisions that, subject to certain limitations, prohibit
      certain business combinations between the Company and an “interested
      stockholder” (defined generally as any person who beneficially owns 10% or
      more of the voting power of the Company’s shares or an affiliate thereof)
      for five years after the most recent date on which the stockholder becomes
      an interested stockholder, and thereafter impose special minimum price
      provisions and special stockholder voting requirements on these
      combinations; and
  ·
                    “control
      share” provisions that provide that “control shares” of the Company
      (defined as shares which, when aggregated with other shares controlled by
      the stockholder, entitle the stockholder to exercise one of three
      increasing ranges of voting power in electing directors) acquired in a
      “control share acquisition” (defined as the direct or indirect acquisition
      of ownership or control of “control shares”) have no voting rights except
      to the extent approved by the Company’s stockholders by the affirmative
      vote of at least two-thirds of all the votes entitled to be cast on the
      matter, excluding all interested
shares.
 These
provisions of the MGCL relating to business combinations do not apply, however,
to business combinations that are approved or exempted by a board of directors
prior to the time that the interested stockholder becomes an interested
stockholder. Pursuant to the statute, the Board of Directors has by resolution
exempted Mr. Cogdell, his affiliates and associates and all persons acting
in concert with the foregoing, and Mr. Spencer, his affiliates and
associates and all persons acting in concert with the foregoing, from these
provisions of the MGCL and, consequently, the five-year prohibition and the
supermajority vote requirements will not apply to business combinations between
the Company and these persons. As a result, these persons may be able to enter
into business combinations with the Company that may not be in the best
interests of the Company’s stockholders without compliance by the Company with
the supermajority vote requirements and the other provisions of the statute. In
addition, the Company’s by-laws contain a provision exempting from the
provisions of the MGCL relating to control share acquisitions any and all
acquisitions by any person of the Company’s common stock. There can be no
assurance that such provision will not be amended or eliminated at any time in
the future.
  Additionally,
Title 3, Subtitle 8 of the MGCL permits the Board of Directors, without
stockholder approval and regardless of what is currently provided in the
Company’s charter or bylaws, to take certain actions that may have the effect of
delaying, deferring or preventing a transaction or a change in control of the
Company that might involve a premium to the market price of the Company’s common
stock or otherwise be in the Company’s stockholders’ best
interests.
 The
Board of Directors has the power to cause the Company to issue additional shares
of the Company’s stock and the general partner has the power to issue additional
OP units without stockholder approval.
 The
Company’s charter authorizes the Board of Directors to cause the Company to
issue additional authorized but unissued shares of common stock, or preferred
stock and to amend the Company’s charter to increase the aggregate number of
authorized shares or the authorized number of shares of any class or series
without stockholder approval. The general partner will be given the authority to
issue additional OP units. In addition, the Board of Directors may classify or
reclassify any unissued shares of common stock or preferred stock and set the
preferences, rights and other terms of the classified or reclassified shares.
The Board of Directors could cause the Company to issue additional shares of the
Company’s common stock or establish a series of preferred stock that could have
the effect of delaying, deferring or preventing a change in control or other
transaction that might involve a premium price for the Company’s common stock or
otherwise be in the best interests of the Company’s stockholders.
 The
Company’s rights and the rights of the Company’s stockholders to take action to
recover money damages from the Company’s directors and officers are
limited.
 The
Company’s charter eliminates the Company’s directors’ and officers’ liability to
the Company and the Company’s stockholders for money damages, except for
liability resulting from actual receipt of an improper benefit in money,
property or services or active and deliberate dishonesty established by a final
judgment and which is material to the cause of action. The Company’s charter
authorizes the Company, and the Company’s bylaws require the Company, to
indemnify the Company’s directors and officers for liability resulting from
actions taken by them in those capacities to the maximum extent permitted by
Maryland law. In addition, the Company may be obligated to fund the defense
costs incurred by the Company’s directors and officers.
  29
 You
will have limited ability as a stockholder to prevent the Company from making
any changes to the Company policies that you believe could harm the Company’s
business, prospects, operating results or share price.
 The Board
of Directors will adopt policies with respect to certain activities, such as
investments, dispositions, financing, lending, the Company’s equity capital,
conflicts of interest and reporting. These policies may be amended or revised
from time to time at the discretion of the Board of Directors without a vote of
the Company’s stockholders. This means that the Company’s stockholders will have
limited control over changes in the Company’s policies. Such changes in the
Company’s policies intended to improve, expand or diversify the Company’s
business may not have the anticipated effects and consequently may have a
material adverse effect on the Company’s business, financial condition and
results of operations, the Company’s ability to make distributions to the
Company’s stockholders and the trading price of the Company’s common
stock.
 To
the extent the Company’s distributions represent a return of capital for tax
purposes you could recognize an increased capital gain upon a subsequent sale by
you of the Company’s common stock.
 Distributions
in excess of the Company’s current and accumulated earnings and profits and not
treated by the Company as a dividend will not be taxable to a
U.S. stockholder to the extent those distributions do not exceed the
stockholder’s adjusted tax basis in its common stock, but instead will
constitute a return of capital and will reduce the stockholder’s adjusted tax
basis in its common stock. If distributions result in a reduction of a
stockholder’s adjusted basis in such holder’s common stock, subsequent sales of
such holder’s common stock potentially will result in recognition of an
increased capital gain or reduced capital loss due to the reduction in such
adjusted basis.
 The
Company may choose to make distributions in its own stock, in which case you may
be required to pay income taxes in excess of the cash dividends you
receive.
 As a
REIT, the Company is required to distribute at least 90% of its taxable income
to its stockholders.  In order to satisfy this requirement, the
Company may distribute taxable dividends that are payable in cash and shares of
its common stock at the election of each stockholder.  Under IRS
Revenue Procedure 2010-12, up to 90% of any such taxable dividend with respect
to the taxable years 2010 and 2011 could be payable in the Company's
stock.  Taxable stockholders receiving such dividends will be required
to include the full amount of the dividend as ordinary income to the extent of
the Company's current or accumulated earnings and profits for U.S. federal
income tax purposes.  As a result, U.S. stockholders may be required
to pay income taxes with respect to such dividends in excess of the cash
dividends received.  Accordingly, U.S. stockholders receiving a
distribution of the Company's shares may be required to sell shares received in
such distribution or may be required to sell other stock or assets owned by
them, at a time that may be disadvantageous, in order to satisfy any tax imposed
on such distribution.  If a U.S. stockholder sells the stock that it
receives as a dividend in order to pay this tax, the sales proceeds may be less
than the amount included in income with respect to the dividend, depending on
the market price of the Company's stock at the time of the
sale.  Furthermore, with respect to certain non-U.S. stockholders, the
Company may be required to withhold U.S. tax with respect to such dividends,
including in respect of all or a portion of such dividend that is payable in
stock, by withholding or disposing of part of the shares in such distribution
and using the proceeds of such disposition to satisfy the withholding tax
imposed.  In addition, if a significant number of the Company's
stockholders determine to sell shares of the Company's common stock in order to
pay taxes owed on dividends, such sale may put downward pressure on the trading
price of the Company's common stock.
 Further,
while Revenue Procedure 2010-12 applies only to taxable dividends payable by the
Company in a combination of cash and stock with respect to the taxable years
2010 and 2011, it is unclear whether and to what extent the Company will be able
to pay taxable dividends in cash and stock in later years.  Moreover,
various tax aspects of such a taxable cash/stock dividend are uncertain and have
not yet been addressed by the IRS.  No assurance can be given that the
IRS will not impose additional requirements in the future with respect to
taxable cash/stock dividends, including on a retroactive basis, or assert that
the requirements for such taxable cash/stock dividends have not been
met.
  30
 Risks
Related to Qualification and Operation as a REIT
  The
Company’s failure to qualify or remain qualified as a REIT would have
significant adverse consequences to the Company and the value of the Company’s
common stock.
 The
Company intends to operate in a manner that will allow the Company to qualify as
a REIT for U.S. federal income tax purposes under the Code. The Company has
not requested and does not plan to request a ruling from the IRS that the
Company qualifies as a REIT, and the statements in the Company’s prospectus and
other filings are not binding on the IRS or any court. If the Company fails to
qualify or loses the Company’s qualification as a REIT, the Company will face
serious tax consequences that would substantially reduce the funds available for
distribution to the Company’s stockholders for each of the years involved
because:
 ·
                    the
      Company would not be allowed a deduction for distributions to stockholders
      in computing the Company’s taxable income and the Company would be subject
      to U.S. federal income tax at regular corporate
  rates;
  ·
                    the
      Company also could be subject to the U.S. federal alternative minimum
      tax and possibly increased state and local
  taxes; and
  ·
                    unless
      the Company is entitled to relief under applicable statutory provisions,
      the Company could not elect to be taxed as a REIT for four taxable years
      following a year during which the Company was
  disqualified.
 
 In addition, if the Company loses its qualification as a REIT, the Company will
not be required to make distributions to stockholders, and all distributions to
the Company’s stockholders will be subject to tax as regular corporate dividends
to the extent of the Company’s current and accumulated earnings and profits.
This means that the Company’s U.S. individual stockholders would be taxed
on the Company’s dividends at a maximum U.S. federal income tax rate of 15%
(through 2010), and the Company’s corporate stockholders generally would be
entitled to the dividends received deduction with respect to such dividends,
subject, in each case, to applicable limitations under the
Code.
 Qualification
as a REIT involves the application of highly technical and complex Code
provisions and regulations promulgated thereunder for which there are only
limited judicial and administrative interpretations. The complexity of these
provisions and of the applicable U.S. Treasury Department regulations, or
Treasury Regulations, that have been promulgated under the Code is greater in
the case of a REIT that, like the Company, holds its assets through a
partnership. The determination of various factual matters and circumstances not
entirely within the Company’s control may affect the Company’s ability to
qualify as a REIT. In order to qualify as a REIT, the Company must satisfy a
number of requirements, including requirements regarding the composition of the
Company’s assets and sources of the Company’s gross income. Also, the Company
must make distributions to stockholders aggregating annually at least 90% of the
Company’s net taxable income, excluding capital gains.
  As a
result of these factors, the Company’s loss of its qualification as a REIT also
could impair the Company’s ability to expand the Company’s business and raise
capital, and would adversely affect the value of the Company’s common
stock.
 To
maintain its REIT qualification, the Company may be forced to borrow funds
during unfavorable market conditions.
 To
qualify as a REIT, the Company generally must distribute to the Company’s
stockholders at least 90% of the Company’s net taxable income each year,
excluding net capital gains, and the Company will be subject to regular
corporate income taxes to the extent that the Company distributes less than 100%
of the Company’s net taxable income each year. In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which
distributions paid by the Company in any calendar year are less than the sum of
85% of the Company’s ordinary income, 95% of the Company’s capital gain net
income and 100% of the Company’s undistributed income from prior years. In order
to qualify as a REIT and avoid the payment of income and excise taxes, the
Company may need to borrow funds on a short-term basis, or possibly on a
long-term basis, to meet the REIT distribution requirements even if the then
prevailing market conditions are not favorable for these borrowings. These
borrowing needs could result from, among other things, a difference in timing
between the actual receipt of cash and inclusion of income for U.S. federal
income tax purposes, the effect of non-deductible capital expenditures, the
creation of reserves or required debt amortization payments.
  31
 Dividends
payable by REITs generally do not qualify for reduced tax rates.
 The
maximum tax rate for dividends payable by domestic corporations to individual
U.S. stockholders is 15% (through 2010). Dividends payable by REITs,
however, are generally not eligible for the reduced rates. The more favorable
rates applicable to regular corporate dividends could cause stockholders who are
individuals to perceive investments in REITs to be relatively less attractive
than investments in the stocks of non-REIT corporations that pay dividends,
which could adversely affect the value of the stock of REITs, including the
Company’s common stock.
  In
addition, the relative attractiveness of real estate in general may be adversely
affected by the favorable tax treatment given to corporate dividends, which
could negatively affect the value of the Company’s properties.
 Possible
legislative or other actions affecting REITs could adversely affect the Company
and the Company’s stockholders.
 The rules
dealing with U.S. federal income taxation are constantly under review by
persons involved in the legislative process and by the IRS and the
U.S. Treasury Department. Changes to tax laws (which changes may have
retroactive application) could adversely affect the Company or the Company’s
stockholders. The Company cannot predict whether, when, in what forms, or with
what effective dates, the tax laws applicable to the Company or the Company’s
stockholders will be changed.
 Complying
with REIT requirements may cause the Company to forego otherwise attractive
opportunities.
 To
qualify as a REIT for U.S. federal income tax purposes, the Company must
continually satisfy tests concerning, among other things, the sources of the
Company’s income, the nature and diversification of the Company’s assets, the
amounts the Company distributes to the Company’s stockholders and the ownership
of the Company’s stock. In order to meet these tests, the Company may be
required to forego attractive business or investment opportunities. Thus,
compliance with the REIT requirements may adversely affect the Company’s ability
to operate solely to maximize profits.
 
 The
Company will pay some taxes.
  Even if
the Company qualifies as a REIT for U.S. federal income tax purposes, the
Company will be required to pay some U.S. federal, state and local taxes on
the Company’s income and property. In addition, the Company’s TRSs are fully
taxable corporations that will be subject to taxes on their income and such TRSs
may be limited in their ability to deduct interest payments made to the Company
or the Operating Partnership. The Company also will be subject to a 100% penalty
tax on certain amounts if the economic arrangements among the Company’s tenants,
the Company’s TRSs and the Company are not comparable to similar arrangements
among unrelated parties or if the Company receives payments for inventory or
property held for sale to customers in the ordinary course of business. To the
extent that the Company or the Company’s TRSs are required to pay
U.S. federal, state or local taxes, the Company will have less cash
available for distribution to the Company’s stockholders.
 The
ability of the Board of Directors to revoke the Company REIT election without
stockholder approval may cause adverse consequences to the Company’s
stockholders.
 The Company’s
charter provides that the Board of Directors may revoke or otherwise terminate
the Company REIT election, without the approval of the Company’s stockholders,
if it determines that it is no longer in the Company’s best interests to
continue to qualify as a REIT. If the Company ceases to qualify as a REIT, the
Company would become subject to U.S. federal income tax on the Company’s
taxable income and the Company would no longer be required to distribute most of
the Company’s taxable income to the Company’s stockholders, which may have
adverse consequences on the total return to the Company’s
stockholders.
  32
 The
Company’s ability to invest in TRSs is limited by its qualification as a REIT,
and accordingly may limit its ability to grow the business of the Design-Build
and Development segment.
 In order
for the Company to qualify as a REIT, no more than 25% of the value of its
assets may consist of securities of one or more TRSs (20% for taxable years
ended on or before December 31, 2008).  The Company has jointly
elected with TRS Holdings and its subsidiaries to treat such entities as
TRSs.  Accordingly, the Company’s ability to grow and expand the
business of TRS Holdings and its subsidiaries, absent a corresponding increase
in the value of its real estate assets, will be limited by the Company’s need to
continue to meet the applicable TRS limitation which could adversely affect
returns to its stockholders.
 If
the aggregate value of the securities the Company owns in its TRSs were
determined to be in excess of 25% (20% with respect to our taxable years ended
on or before December 31, 2008) of the value of its total assets, the Company
could fail to qualify as a REIT or be subject to a penalty tax and forced to
dispose of TRS securities.
 For the Company to continue to qualify as a REIT, the aggregate value of all
securities that the Company holds in its TRSs may not exceed 25% (20% with
respect to its taxable years ended on or before December 31, 2008)  of
the value of its total assets.  The value of in the Company’s TRS's
securities and its real estate assets is based on determinations of fair market
value which are not subject to precise determination.  The Company
will not lose its qualification as a REIT if the Company were to fail the TRS
limitation at the end of a quarter because of a discrepancy between the value of
its TRSs and its other investments unless such discrepancy exists after the
acquisition of TRS securities and is wholly or partially the result of such
acquisition (including as a result of an increased investment in existing TRSs,
either directly, or by way of a limited partner of the operating partnership
exercising an exchange right, or the Company raising additional capital and
contributing such capital to its operating partnership).  If the
Company were to fail to satisfy the TRS limitation at the end of a particular
quarter and it was considered to have acquired TRS securities during such
quarter, it would fail to qualify as a REIT unless it cured such failure by
disposing of TRS securities or otherwise coming into compliance with the TRS
limitation within 30 days after the close of such quarter.  Based on
such rules and the Company’s determination of the fair market value of its
assets and the securities of its TRSs, the Company believes that the Company has
satisfied and will continue to satisfy the TRS
limitation.    Notwithstanding the foregoing, as the fair
market value of the Company’s TRS securities and real estate assets cannot be
determined with absolute certainty, and the Company does not control when a
limited partner of its operating partnership will exercise its redemption right,
no assurance can be given that the Internal Revenue Service (“IRS”) will not
successfully challenge the valuations of the Company’s assets or that the
Company has met and will continue to meet the TRS limitation.  In
addition, if the value of the Company’s real estate assets were to decrease, the
Company’s ability to own TRS securities or other assets not qualifying as real
estate assets will be limited and the Company could be forced to dispose of its
TRS securities or such other assets in order to comply with REIT
requirements.
 
 If
the Internal Revenue Service were to successfully challenge its valuation of
certain of its subsidiaries, the Company may fail to qualify as a
REIT.
 While the
Company believes the Company has properly valued the securities the Company
holds in its TRSs, there is no guarantee that the IRS would agree with such
valuation or that a court would not agree with such determination by the IRS. In
the event the Company has improperly valued the securities the Company holds in
its TRSs, the Company may fail to satisfy the 25% (20% with respect to its
taxable year ended on or before December 31, 2008 and prior taxable years) asset
test which may result in its failure to qualify as a REIT.
 Item 1B.Unresolved
      Staff Comments
 
 None.
 
 33
 Item 2.
                  Properties
  As of
December 31, 2009, the Company owned and/or managed 111 MOBs and healthcare
related facilities, 62 of which are consolidated wholly-owned and joint
ventures, three of which are jointly owned with unaffiliated third parties and
managed through a TRS, 45 of which are managed for third parties through a TRS
and one of which is wholly-owned and classified as discontinued operations and
is currently being marketed for sale.  MOBs typically contain suites
for physicians and physician practice groups and also may include facilities
that provide hospitals with ancillary and outpatient services, such as
ambulatory surgery centers, imaging and diagnostic centers (offering diagnostic
services not typically provided in physician offices or clinics), rehabilitation
centers, kidney dialysis centers and cancer treatment centers. The Company’s
portfolio of owned and managed properties contains an aggregate of approximately
5.7 million net rentable square feet of as of December 31,
2009.  As of December 31, 2009, the Company’s 62 in-service,
consolidated wholly-owned and joint venture properties were approximately 91.5%
occupied with a weighted average remaining lease term of approximately
4.5 years, accounting for 96.0%, 95.7%, and 94.7% of total rental revenue
and property management and other income for the years ended December 31,
2009, 2008, and 2007, respectively.
  At
December 31, 2009, 78.7% of the Company’s consolidated wholly-owned and
joint venture properties are located on hospital campuses, 10.7% are located
off-campus but in which a hospital is the sole or anchor tenant, and 10.6% are
off campus.
  At
December 31, 2009, no tenant occupied 10% or more of the net rentable square
feet at the Company’s properties.
  34
 The
following table contains additional information about the Company’s consolidated
wholly-owned and joint venture properties as of December 31,
2009:


Location
              
              Ownership
              
              
              Net
      Rentable Square Feet
              
              
              Occupancy
                Rate
              
              
              Annualized
                Rent
              
              
              Annualized
                Rent
      Per
                Leased
                Square
      FootCaliforniaVerdugo
      Hills Professional Bldg I
              Glendale
              
              
              100.0
              %
              
              
              63,887
              
              
              
              95.2
              %
              
              $
              1,952,001
              
              
              $
              32.09Verdugo
      Hills Professional Bldg II
              Glendale
              
              
              100.0
              %
              
              
              42,906
              
              
              
              99.5
              %
              
              
              1,421,506
              
              
              
              33.29106,793
              
              
              
              96.9
              %
              
              
              3,373,507
              
              
              
              32.59FloridaWoodlands
      Center for Specialized Medicine
              Pensacola
              
              
              40.0
              %
              
              
              75,985
              
              
              
              100.0
              %
              
              
              2,511,586
              
              
              
              33.05GeorgiaAugusta
      POB I
              Augusta
              
              
              100.0
              %
              
              
              99,494
              
              
              
              81.9
              %
              
              
              1,136,792
              
              
              
              13.95Augusta
      POB II
              Augusta
              
              
              100.0
              %
              
              
              125,634
              
              
              
              87.6
              %
              
              
              2,244,082
              
              
              
              20.38Augusta
      POB III
              Augusta
              
              
              100.0
              %
              
              
              47,034
              
              
              
              90.0
              %
              
              
              891,990
              
              
              
              21.08Augusta
      POB IV
              Augusta
              
              
              100.0
              %
              
              
              55,134
              
              
              
              82.5
              %
              
              
              897,199
              
              
              
              19.72Summit
      Professional Plaza I
              Brunswick
              
              
              100.0
              %
              
              
              33,039
              
              
              
              93.5
              %
              
              
              831,554
              
              
              
              26.92Summit
      Professional Plaza II
              Brunswick
              
              
              100.0
              %
              
              
              64,233
              
              
              
              96.7
              %
              
              
              1,774,742
              
              
              
              28.56424,568
              
              
              
              87.7
              %
              
              
              7,776,359
              
              
              
              20.88IndianaMethodist
      Professional Center I (1)
              Indianapolis
              
              
              100.0
              %
              
              
              150,243
              
              
              
              96.4
              %
              
              
              3,512,790
              
              
              
              24.25Methodist
      Professional Center II (sub-lease)
              Indianapolis
              
              
              100.0
              %
              
              
              24,080
              
              
              
              100.0
              %
              
              
              605,739
              
              
              
              25.16174,323
              
              
              
              96.9
              %
              
              
              4,118,529
              
              
              
              24.38KentuckyOLBH
      Same Day Surgery Center and MOB
              Ashland
              
              
              100.0
              %
              
              
              46,907
              
              
              
              95.9
              %
              
              
              1,156,321
              
              
              
              25.70OLBH
      Parking Garage
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              868,55446,907
              
              
              
              95.9
              %
              
              
              2,024,875
              
              
              
              25.70
              (2)LouisianaEast
      Jefferson MOB
              Metairie
              
              
              100.0
              %
              
              
              119,921
              
              
              
              100.0
              %
              
              
              2,564,795
              
              
              
              21.39East
      Jefferson Medical Plaza
              Metairie
              
              
              100.0
              %
              
              
              123,184
              
              
              
              100.0
              %
              
              
              2,760,449
              
              
              
              22.41East
      Jefferson MRI
              Metairie
              
              
              100.0
              %
              
              
              10,809
              
              
              
              100.0
              %
              
              
              968,693
              
              
              
              89.62253,914
              
              
              
              100.0
              %
              
              
              6,293,937
              
              
              
              24.79New
      YorkCentral
      NY Medical Center (3)
              Syracuse
              
              
              100.0
              %
              
              
              111,634
              
              
              
              96.7
              %
              
              
              3,003,222
              
              
              
              27.82North
      CarolinaAlamance
      Regional Mebane Outpatient Ctr
              Mebane
              
              
              35.1
              %
              
              
              68,206
              
              
              
              71.1
              %
              
              
              1,777,191
              
              
              
              36.67Barclay
      Downs
              Charlotte
              
              
              100.0
              %
              
              
              38,395
              
              
              
              100.0
              %
              
              
              868,845
              
              
              
              22.63Birkdale
      Bldgs C, D, E and Birkdale Wellness
              Huntersville
              
              
              100.0
              %
              
              
              64,669
              
              
              
              100.0
              %
              
              
              1,424,210
              
              
              
              22.02Birkdale
      II
              Huntersville
              
              
              100.0
              %
              
              
              8,269
              
              
              
              100.0
              %
              
              
              219,787
              
              
              
              26.58Copperfield
      Medical Mall
              Concord
              
              
              100.0
              %
              
              
              26,000
              
              
              
              100.0
              %
              
              
              619,286
              
              
              
              23.82East
      Rocky Mount Kidney Center
              Rocky
      Mount
              
              
              100.0
              %
              
              
              8,043
              
              
              
              100.0
              %
              
              
              158,849
              
              
              
              19.75English
      Road Medical Center(formerly
      known as Rocky Mount MOB)
              Rocky
      Mount
              
              
              34.5
              %
              
              
              35,393
              
              
              
              95.7
              %
              
              
              923,616
              
              
              
              27.28Gaston Professional & Ambulatory SurgeryCenters
              Gastonia
              
              
              100.0
              %
              
              
              114,956
              
              
              
              100.0
              %
              
              
              2,765,656
              
              
              
              24.06Gaston
      Parking
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              606,141Gateway
      Medical Office Building(formerly
      known as Copperfield MOB)
              Concord
              
              
              100.0
              %
              
              
              61,789
              
              
              
              87.9
              %
              
              
              1,302,208
              
              
              
              23.99Harrisburg
      Family Physicians
              Harrisburg
              
              
              100.0
              %
              
              
              8,202
              
              
              
              100.0
              %
              
              
              219,903
              
              
              
              26.81Harrisburg
      Medical Mall
              Harrisburg
              
              
              100.0
              %
              
              
              18,360
              
              
              
              100.0
              %
              
              
              495,465
              
              
              
              26.99Lincoln/Lakemont
      Family Practice
              Lincolnton
              
              
              100.0
              %
              
              
              16,500
              
              
              
              100.0
              %
              
              
              390,119
              
              
              
              23.64Mallard
      Crossing Medical Park
              Charlotte
              
              
              100.0
              %
              
              
              52,540
              
              
              
              62.9
              %
              
              
              843,352
              
              
              
              25.51Medical
      Arts Building(formerly
      known as Cabarrus POB)
              Concord
              
              
              100.0
              %
              
              
              84,972
              
              
              
              98.2
              %
              
              
              1,877,862
              
              
              
              22.51Midland
      Medical Park
              Midland
              
              
              100.0
              %
              
              
              14,610
              
              
              
              100.0
              %
              
              
              437,341
              
              
              
              29.93Mulberry
      Medical Park
              Lenoir
              
              
              100.0
              %
              
              
              24,992
              
              
              
              87.0
              %
              
              
              459,177
              
              
              
              21.11Northcross
      Family Physicians
              Charlotte
              
              
              100.0
              %
              
              
              8,018
              
              
              
              100.0
              %
              
              
              229,898
              
              
              
              28.67Randolph
      Medical Park
              Charlotte
              
              
              100.0
              %
              
              
              84,131
              
              
              
              71.8
              %
              
              
              1,317,286
              
              
              
              21.80Rocky
      Mount Kidney Center
              Rocky
      Mount
              
              
              100.0
              %
              
              
              10,105
              
              
              
              100.0
              %
              
              
              199,574
              
              
              
              19.75
  35


North
      Carolina (continued)Rocky
      Mount Medical Park
            Rocky
      Mount
            
            
            100.0
            %
            
            
            96,993
            
            
            
            100.0
            %
            
            
            2,036,941
            
            
            
            21.00Rowan
      Outpatient Surgery Center
            Salisbury
            
            
            100.0
            %
            
            
            19,464
            
            
            
            100.0
            %
            
            
            435,162
            
            
            
            22.36Weddington
      Internal & Pediatric Medicine
            Concord
            
            
            100.0
            %
            
            
            7,750
            
            
            
            100.0
            %
            
            
            199,904
            
            
            
            25.79872,357
            
            
            
            91.2
            %
            
            
            19,807,773
            
            
            
            24.14
            (2)PennsylvaniaLancaster
      Rehabilitation Hospital
            Lancaster
            
            
            100.0
            %
            
            
            52,878
            
            
            
            100.0
            %
            
            
            1,258,155
            
            
            
            23.79Lancaster
      ASC MOB
            Lancaster
            
            
            80.9
            %
            
            
            64,214
            
            
            
            100.0
            %
            
            
            1,984,201
            
            
            
            30.90117,092
            
            
            
            100.0
            %
            
            
            3,242,356
            
            
            
            27.69South
      Carolina200
      Andrews
            Greenville
            
            
            100.0
            %
            
            
            25,902
            
            
            
            100.0
            %
            
            
            621,138
            
            
            
            23.98Beaufort
      Medical Plaza
            Beaufort
            
            
            100.0
            %
            
            
            59,340
            
            
            
            100.0
            %
            
            
            1,288,908
            
            
            
            21.72Carolina
      Forest Medical Plaza
            Myrtle
      Beach
            
            
            100.0
            %
            
            
            38,902
            
            
            
            43.5
            %
            
            
            525,068
            
            
            
            31.05Mary
      Black Westside Medical Office Bldg
            Spartanburg
            
            
            100.0
            %
            
            
            37,455
            
            
            
            100.0
            %
            
            
            817,044
            
            
            
            21.81Medical
      Arts Center of Orangeburg
            Orangeburg
            
            
            100.0
            %
            
            
            49,324
            
            
            
            80.4
            %
            
            
            776,318
            
            
            
            19.58One
      Medical Park
            Columbia
            
            
            100.0
            %
            
            
            69,840
            
            
            
            80.8
            %
            
            
            1,369,857
            
            
            
            24.27Palmetto
      Health Parkridge
            Columbia
            
            
            100.0
            %
            
            
            89,451
            
            
            
            94.6
            %
            
            
            2,054,587
            
            
            
            24.28Providence
      MOB I
            Columbia
            
            
            100.0
            %
            
            
            48,500
            
            
            
            87.2
            %
            
            
            928,504
            
            
            
            21.95Providence
      MOB II
            Columbia
            
            
            100.0
            %
            
            
            23,280
            
            
            
            100.0
            %
            
            
            481,609
            
            
            
            20.69Providence
      MOB III
            Columbia
            
            
            100.0
            %
            
            
            54,417
            
            
            
            55.5
            %
            
            
            650,109
            
            
            
            21.54River
      Hills Medical Plaza
            Little
      River
            
            
            100.0
            %
            
            
            27,566
            
            
            
            79.5
            %
            
            
            701,030
            
            
            
            31.99Roper
      Medical Office Building
            Charleston
            
            
            100.0
            %
            
            
            122,785
            
            
            
            99.3
            %
            
            
            2,547,834
            
            
            
            20.91Roper Mt. Pleasant Medical Office (LongPoint)
      (formerly known as Mt. Pleasant MOB)
            Mt.
      Pleasant
            
            
            100.0
            %
            
            
            38,735
            
            
            
            77.4
            %
            
            
            787,813
            
            
            
            26.29St.
      Francis CMOB
            Greenville
            
            
            100.0
            %
            
            
            45,140
            
            
            
            100.0
            %
            
            
            1,185,828
            
            
            
            26.27St.
      Francis Medical Plaza (Charleston)(formerly
      known as West Medical I)
            Charleston
            
            
            100.0
            %
            
            
            28,734
            
            
            
            100.0
            %
            
            
            819,105
            
            
            
            28.51St.
      Francis Medical Plaza (Greenville)
            Greenville
            
            
            100.0
            %
            
            
            62,724
            
            
            
            50.7
            %
            
            
            634,553
            
            
            
            19.96St.
      Francis Professional Medical Center
            Greenville
            
            
            100.0
            %
            
            
            49,767
            
            
            
            100.0
            %
            
            
            1,111,631
            
            
            
            22.34St.
      Francis Women's
            Greenville
            
            
            100.0
            %
            
            
            57,590
            
            
            
            76.5
            %
            
            
            937,594
            
            
            
            21.29Three
      Medical Park
            Columbia
            
            
            100.0
            %
            
            
            88,755
            
            
            
            100.0
            %
            
            
            2,147,321
            
            
            
            24.191,018,207
            
            
            
            86.2
            %
            
            
            20,385,851
            
            
            
            23.22TennesseeHealth
      Park Medical Office Building
            Chattanooga
            
            
            100.0
            %
            
            
            52,151
            
            
            
            100.0
            %
            
            
            1,975,483
            
            
            
            37.88Peerless
      Crossing Medical Center
            Cleveland
            
            
            100.0
            %
            
            
            40,506
            
            
            
            100.0
            %
            
            
            1,231,652
            
            
            
            30.4192,657
            
            
            
            100.0
            %
            
            
            3,207,135
            
            
            
            34.61VirginiaMRMC MOB I (formerly known as    HanoverMOB I)
            Mechanicsville
            
            
            100.0
            %
            
            
            56,610
            
            
            
            100.0
            %
            
            
            1,602,012
            
            
            
            28.30St.
      Mary's MOB North  (Floors 6 & 7)
            Richmond
            
            
            100.0
            %
            
            
            30,617
            
            
            
            90.1
            %
            
            
            700,573
            
            
            
            25.4087,227
            
            
            
            96.5
            %
            
            
            2,302,585
            
            
            
            27.35Total
            
            
            
            
            
            
            
            3,381,664
            
            
            
            91.5
            %
            
            $
            78,047,715
            
            
            $
            24.74Discontinued
      Operations - South CarolinaHarbison Medical Office Building(formerly
      known as Baptist Northwest)
            Columbia
            
            
            100.0
            %
            
            
            38,703
            
            
            
            41.3
            %
            
            $
            354,267
            
            
            $
            22.15__________________


(1)
      Parking revenue from an adjacent parking deck is approximately $0.1
      million per month, or $1.1 million annualized.(2)
      Excludes annualized rent of adjacent parking decks to OLBH Same Day
      Surgery Center and MOB  (formally known as Franciscan
      Development Company, LLC)and
      Gaston Professional Center from calculation.(3)
      Parking revenue from an adjacent parking deck is approximately $0.1
      million per month, or $1.2 million annualized.





36


Future lease expirations by tenants by year under non-cancelable operating
leases as of December 31, 2009, were as follows (dollars in thousands, except
per leased square foot amounts):


Number
      of
              Leases
      Expiring
            
            
            Net
      Rentable Square Feet
            
            
            Percentage
      of Net Rentable Square Feet
            
            
            Annualized
              Rent
            
            
            Percentage
      of Property Annualized Rent
            
            
            Annualized
      Rent Per Leased Square FootAvailable
            
            
            -
            
            
            
            286,416
            
            
            
            8.5
            %
            
            $
            -
            
            
            
            -
            
            
            $
            -2010
            
            
            161
            
            
            
            568,817
            
            
            
            16.8
            %
            
            
            13,128,995
            
            
            
            16.8
            %
            
            
            23.082011
            
            
            89
            
            
            
            301,526
            
            
            
            8.9
            %
            
            
            7,040,600
            
            
            
            9.0
            %
            
            
            23.352012
            
            
            142
            
            
            
            649,241
            
            
            
            19.2
            %
            
            
            17,317,928
            
            
            
            22.2
            %
            
            
            24.402013
            
            
            72
            
            
            
            328,127
            
            
            
            9.7
            %
            
            
            7,226,147
            
            
            
            9.3
            %
            
            
            22.022014
            
            
            75
            
            
            
            350,153
            
            
            
            10.4
            %
            
            
            8,598,482
            
            
            
            11.0
            %
            
            
            24.562015
            
            
            31
            
            
            
            111,968
            
            
            
            3.3
            %
            
            
            2,825,886
            
            
            
            3.6
            %
            
            
            25.242016
            
            
            19
            
            
            
            82,073
            
            
            
            2.4
            %
            
            
            1,740,583
            
            
            
            2.2
            %
            
            
            21.212017
            
            
            33
            
            
            
            218,887
            
            
            
            6.5
            %
            
            
            6,170,823
            
            
            
            7.9
            %
            
            
            28.192018
            
            
            16
            
            
            
            90,383
            
            
            
            2.7
            %
            
            
            2,368,234
            
            
            
            3.0
            %
            
            
            26.202019
            
            
            7
            
            
            
            53,032
            
            
            
            1.6
            %
            
            
            1,231,529
            
            
            
            1.6
            %
            
            
            23.22Thereafter
            
            
            18
            
            
            
            341,041
            
            
            
            10.1
            %
            
            
            10,398,508
            
            
            
            13.3
            %
            
            
            30.49Total
            
            
            663
            
            
            
            3,381,664
            
            
            
            100.0
            %
            
            $
            78,047,715
            
            
            
            100.0
            %
            
            $
            24.74
            (1)__________________


(1)
      Excludes annualized rent of adjacent parking decks to OLBH Same Day
      Surgery Center and MOB  and Gaston Professional Center from
      calculation.Excludes
      discontinued operations consisting of seven leases expiring between
      December 31, 2009 and December 31, 2013 with annualized
    renttotaling
      approximately $0.4 million.





Joint
Venture Properties




As of
December 31, 2009, the Company has an investment in an unconsolidated real
estate partnership that owns three buildings. The following table provides
additional information about the Company’s unconsolidated joint venture
properties as of December 31, 2009 (dollars in thousands, except per leased
square foot amounts):


AnnualizedNet
            
            
            
            
            
            
            Rent
      PerRentable
            
            
            
            
            
            
            LeasedYear
            
            Square
            
            Occupancy
            Annualized
            
            
            Square
            
            Ownership
            
            Debt
            
            
            AssociatedProperty
            City,
      State
            Built
            
            Feet
            
            Rate
            Rent
            
            
            Foot
            
            Percentage
            
            Balance
            
            
            Healthcare
      SystemMcLeod
      Medical Park East (1)
            Florence,
      SC
            1993
            
            
            127,458
            
            
            99.2
            %
            $
            2,231
            
            
            $
            17.64
            
            
            1.1
            %
            
            $
            (1
            )
            
            McLeod
      Regional Medical CenterMcLeod
      Medical Park South(1)
            Florence,
      SC
            1982
            
            
            33,756
            
            
            100.0
            
            
            571
            
            
            
            16.92
            
            
            1.1
            
            
            
            (1
            )
            
            McLeod
      Regional Medical CenterMcLeod
      Medical Park West (1)
            Florence,
      SC
            1986
            
            
            52,574
            
            
            79.7
            
            
            615
            
            
            
            14.67
            
            
            1.1
            
            
            
            (1
            )
            
            McLeod
      Regional Medical CenterTotal
            
            
            
            
            213,788
            
            
            
            
            $
            3,417
            
            
            
            
            
            
            
            
            
            $
            12,185
            (2)


(1)Amounts
      are for the entity, not just the Company’s interest in the real estate
      joint venture.(2)Total
      debt of $12.2 million is secured by all three properties
      listed.


The
Company has a 2.0% ownership in Shannon Health/MOB Limited Partnership
No. 1 and a 2.0% ownership in BSB Health/MOB Limited Partnership
No. 2. These ownership interests were assumed as part of the Consera
acquisition (See Note 5 to the accompanying Notes to Consolidated Financial
Statements). The partnership agreements and tenant leases of the limited
partners are designed to give preferential treatment to the limited partners as
to the operating cash flows from the partnerships. The Company, as the general
partner, does not generally participate in the operating cash flows from these
entities other than to receive property management fees. The limited partners
can remove the Company as the property manager and as the general partner. Due
to the structures of the partnership agreements and tenant lease agreements, the
Company reports the properties owned by these two joint ventures as fee managed
properties owned by third parties.


Item 3.Legal
      Proceedings




The
Company is, from time to time, involved in routine litigation arising out of the
ordinary course of business or which is expected to be covered by insurance and
which is not expected to harm the Company’s business, financial condition or
results of operations. The Company is not, however, involved in any material
litigation nor, to its knowledge, is any material litigation pending or
threatened against the Company.




37


Item 4.
            Removed
      and Reversed


PART II




Item 5.
            Market for
      Registrant’s Common Equity and Related Stockholder Matters and Issuer
      Purchases of Equity
Securities




Market
Information


The
Company’s common stock trades on the NYSE under the symbol “CSA.” The following
table sets forth, for the period indicated, the high and low sales price for the
Company’s common stock as reported by the NYSE and the per share dividends
declared:


DividendsPeriod
            
            High
            
            
            Low
            
            
            Declared2008First
      Quarter
            
            $
            17.18
            
            
            $
            14.66
            
            
            $
            0.35Second
      Quarter
            
            $
            18.89
            
            
            $
            15.36
            
            
            $
            0.35Third
      Quarter
            
            $
            19.93
            
            
            $
            16.04
            
            
            $
            0.35Fourth
      Quarter
            
            $
            16.17
            
            
            $
            6.91
            
            
            $
            0.2252009First
      Quarter
            
            $
            10.00
            
            
            $
            4.50
            
            
            $
            0.225Second
      Quarter
            
            $
            6.40
            
            
            $
            3.65
            
            
            $
            0.10Third
      Quarter
            
            $
            5.25
            
            
            $
            3.87
            
            
            $
            0.10Fourth
      Quarter
            
            $
            5.82
            
            
            $
            4.53
            
            
            $
            0.10


On March
8, 2010, the closing price of the Company’s common stock as reported by the NYSE
was $6.93. At March 8, 2010, the Company had 130 holders of record of its
common stock.
  Holders
of shares of common stock are entitled to receive distributions when and if
declared by the Board of Directors out of any assets legally available for that
purpose. As a REIT, the Company is required to distribute at least 90% of its
“REIT taxable income” (computed without regard to the dividends paid deduction
or net capital gains) to shareholders annually in order to maintain the
Company’s REIT qualification for U.S. federal income tax purposes. The Company’s
Credit Facility includes limitations on the Company’s ability to make
distributions to its stockholders, subject to complying with the Company’s REIT
requirements.
  During
2009, the Company paid two quarterly dividends of $0.225 per share during the
first and second quarters of 2009 and two quarterly dividends of $0.10 per share
for the third and fourth quarters of 2009, totaling $0.65 per share for
2009.  The Company funded the dividend payments for 2009 through a
combination of funds from operations and borrowings under the Credit
Facility.  The Company uses borrowings available under the Credit
Facility to fund dividend payments when the timing of the Company’s cash flows
from operations is insufficient to meet the dividend payments.  The
dividend payments of $0.65 per share paid in 2009 are classified for income tax
purposes as 61.5% taxable ordinary dividend and 38.5% return of
capital.
  The
Company has reserved 1,000,000 shares of common stock for issuance under
its 2005 long-term incentive plan of which 175,103 remained available for
issuance as of December 31, 2009.
  As of
December 31, 2009, there were 50,508,798 OP units outstanding, of
which 42,728,592, or 84.6%, were owned by the Company and 7,780,206, or 15.4%,
were owned by other partners (including certain directors and senior
management).
  38


Stockholder Return
Performance


Prior to
October 27, 2005, the Company was not publicly traded and there was no
public market for the Company’s securities. The following graph compares the
cumulative total return on the Company’s common stock with that of the Standard
and Poor’s 500 Stock Index (“S&P 500 Index”) and the National Association of
Real Estate Investment Trusts Equity Index (“NAREIT Equity Index”) from
October 27, 2005 (the date that the Company’s common stock began to trade
publicly) through December 31, 2009. The stock price performance graph
assumes that an investor invested $100 in each of the Company and the indices,
and the reinvestment of any dividends. The comparisons in the graph are provided
in accordance with the SEC disclosure requirements and are not intended to
forecast or be indicative of the future performance of the Company’s shares of
common stock.
 
 Period
      EndingIndex
                10/27/05
                12/31/05
                12/31/06
                12/31/07
                12/31/08
                12/31/09Cogdell
      Spencer Inc.
                100.00
                100.79
                137.24
                109.70
                68.45
                47.22NAREIT
      Equity
                100.00
                103.57
                139.39
                117.94
                73.44
                94.00S&P
      500
                100.00
                106.30
                123.09
                129.86
                81.81
                103.46
  Except to
the extent that we specifically incorporate this information by reference, the
foregoing Stockholder Return Performance information shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Annual Report on Form 10-K into any filing under (the Securities Act),
or under the Securities Exchange Act of 1934, as amended. This information shall
not otherwise be deemed filed under such acts.
 Unregistered
Sales of Equity Securities and Use of Proceeds
 On
October 20, 2009, the final escrow release related to the Company's aquisition
of MEA in 2008 (the "MEA transaction") occurred and in connection therewith, the
Operating Partnership issued an aggregate of 331,812 of OP units, having an
aggregate value of $1.6 million based on the Company's closing stock price
of $4.74 at the time of issuance, to the MEA sellers. These OP units were issued
in exchange for ownership interests in MEA as part of a private placement
transaction under Section 4(2) of the Securities Act and the rules and
regulations promulgated thereunder. These OP units are redeemable for the cash
equivalent thereof at a time one year after the date of issuance, or, at the
option of the Company, exchangeable into shares of common stock in the Company
on a one-for-one basis. No underwriters were used in connection with this
issuance of these OP units.
 Issuer
Purchases of Equity Securities
 The
Company did not repurchase shares of common stock during the quarter ended
December 31, 2009.
  39
 Equity
Compensation Plan Information
 Plan
      Category
                    
                    (a)
                      Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants,
      and Rights
                    
                    
                    (b)
                      Weighted
      Average Exercise Price of Outstanding Options, Warrants, and
      Rights
                    
                    
                    (c)
                      Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (Excluding Securities Reflected in Columns
      (a)Equity
      compensation plans approved by security holders
                    
                    
                    N/A
                    (1)
                    
                    
                    N/A
                    
                    
                    
                    175,103Equity
      compensation plans not approved by security holders
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    N/A
                    (1)
                    
                    
                    N/A
                    
                    
                    
                    175,103


Item 6.
            Selected
      Financial Data





The
following table sets forth selected consolidated financial and operating data on
an historical basis for the Company.  The following table should be
read in conjunction with the Financial Statements and notes thereto included in
Item 8, “Financial Statements and Supplementary Data” and Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in this Annual Report on Form 10-K.
  Company
                  
                  
                  PredecessorFor
      the year ended
                  
                  
                  For
      the year ended
                  
                  
                  For
      the year ended
                  
                  
                  For
      the year ended
                  
                  
                  November
      1, 2005-
                  
                  
                  January
      1, 2005-December
      31, 2009
                  
                  
                  December
      31, 2008
                  
                  
                  December
      31, 2007
                  
                  
                  December
      31, 2006
                  
                  
                  December
      31, 2005
                  
                  
                  October
      31, 2005(In
      thousand, except per share amounts)Statements
      of Operations Data:Rental
      revenue
                  
                  $
                  79,486
                  
                  
                  $
                  77,421
                  
                  
                  $
                  62,611
                  
                  
                  $
                  52,007
                  
                  
                  $
                  6,890
                  
                  
                  $
                  35,794Design-Build
      contract revenue and other sales
                  
                  
                  143,416
                  
                  
                  
                  253,596
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      revenues
                  
                  
                  229,601
                  
                  
                  
                  335,362
                  
                  
                  
                  66,403
                  
                  
                  
                  54,217
                  
                  
                  
                  7,205
                  
                  
                  
                  37,809Property
      operating and management expenses
                  
                  
                  31,810
                  
                  
                  
                  31,065
                  
                  
                  
                  25,405
                  
                  
                  
                  19,572
                  
                  
                  
                  2,542
                  
                  
                  
                  13,058Costs
      related to design-build contract revenue and other sales
                  
                  
                  113,961
                  
                  
                  
                  214,019
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Selling,
      general, and administrative expenses
                  
                  
                  32,285
                  
                  
                  
                  30,215
                  
                  
                  
                  7,365
                  
                  
                  
                  6,261
                  
                  
                  
                  7,791
                  
                  
                  
                  5,129Income
      (loss) from continuing operations before otherincome
      (expense), and income tax benefit (expense)
                  
                  
                  (103,877
                  )
                  
                  
                  15,184
                  
                  
                  
                  6,021
                  
                  
                  
                  (1,359
                  )
                  
                  
                  (7,166
                  )
                  
                  
                  11,178Interest
      expense
                  
                  
                  (21,711
                  )
                  
                  
                  (25,017
                  )
                  
                  
                  (15,818
                  )
                  
                  
                  (14,046
                  )
                  
                  
                  (1,475
                  )
                  
                  
                  (8,222
                  )Net
      loss from continuing operations
                  
                  
                  (100,435
                  )
                  
                  
                  (7,645
                  )
                  
                  
                  (8,821
                  )
                  
                  
                  (13,808
                  )
                  
                  
                  (8,618
                  )
                  
                  
                  3,824Net
      loss
                  
                  
                  (101,962
                  )
                  
                  
                  (7,857
                  )
                  
                  
                  (8,994
                  )
                  
                  
                  (14,034
                  )
                  
                  
                  (8,655
                  )
                  
                  
                  3,824Net
      loss attributable to Cogdell Spencer Inc.
                  
                  
                  (69,728
                  )
                  
                  
                  (5,773
                  )
                  
                  
                  (6,341
                  )
                  
                  
                  (9,097
                  )
                  
                  
                  (5,600
                  )
                  
                  
                  -Per
      Share - basic and diluted:Declared
      dividend
                  
                  $
                  0.525
                  
                  
                  $
                  1.275
                  
                  
                  $
                  1.40
                  
                  
                  $
                  1.40
                  
                  
                  $
                  0.23Loss
      from continuing operations attributable to Cogdell Spencer
      Inc.
                  
                  $
                  (2.11
                  )
                  
                  $
                  (0.36
                  )
                  
                  $
                  (0.56
                  )
                  
                  $
                  (1.16
                  )
                  
                  $
                  (0.70
                  )Loss
      from discontinued operations attributable to Cogdell Spencer
      Inc.
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  -Net
      loss per share attributable to Cogdell Spencer Inc.
                  
                  $
                  (2.14
                  )
                  
                  $
                  (0.37
                  )
                  
                  $
                  (0.57
                  )
                  
                  $
                  (1.17
                  )
                  
                  $
                  (0.70
                  )Weighted
      average shares - basic and diluted
                  
                  
                  32,655
                  
                  
                  
                  15,770
                  
                  
                  
                  11,056
                  
                  
                  
                  7,975
                  
                  
                  
                  7,972Weighted
      average shares and OP units - basic and diluted
                  
                  
                  40,616
                  
                  
                  
                  24,098
                  
                  
                  
                  15,637
                  
                  
                  
                  12,612
                  
                  
                  
                  1,225Selected
      Balance Sheet Data (as of the end of the period):Assets:Real
      estate properties, net
                  
                  $
                  511,215
                  
                  
                  $
                  474,260
                  
                  
                  $
                  451,284
                  
                  
                  $
                  348,301
                  
                  
                  $
                  255,213Other
      assets, net
                  
                  
                  241,448
                  
                  
                  
                  425,830
                  
                  
                  
                  54,953
                  
                  
                  
                  44,757
                  
                  
                  
                  53,269Total
      assets
                  
                  $
                  752,663
                  
                  
                  $
                  900,090
                  
                  
                  $
                  506,237
                  
                  
                  $
                  393,058
                  
                  
                  $
                  308,482Liabilities
      and equity:Mortgages,
      credit facility, and term debt
                  
                  $
                  410,892
                  
                  
                  $
                  462,948
                  
                  
                  $
                  314,314
                  
                  
                  $
                  259,545
                  
                  
                  $
                  153,806Other
      liabilities, net
                  
                  
                  93,991
                  
                  
                  
                  154,148
                  
                  
                  
                  29,667
                  
                  
                  
                  19,837
                  
                  
                  
                  14,190Equity
                  
                  
                  247,780
                  
                  
                  
                  282,994
                  
                  
                  
                  162,256
                  
                  
                  
                  113,676
                  
                  
                  
                  140,486Total
      liabilities and equity
                  
                  $
                  752,663
                  
                  
                  $
                  900,090
                  
                  
                  $
                  506,237
                  
                  
                  $
                  393,058
                  
                  
                  $
                  308,482Cash
      Flow Data:Net
      cash provided by operating activities
                  
                  $
                  45,443
                  
                  
                  $
                  24,740
                  
                  
                  $
                  23,796
                  
                  
                  $
                  15,900
                  
                  
                  $
                  1,635
                  
                  
                  $
                  10,321Net
      cash used in investing activities
                  
                  $
                  (54,213
                  )
                  
                  $
                  (194,277
                  )
                  
                  $
                  (117,298
                  )
                  
                  $
                  (103,587
                  )
                  
                  $
                  (27,462
                  )
                  
                  $
                  (5,939
                  )Net
      cash provided by financing activities
                  
                  $
                  16
                  
                  
                  $
                  200,650
                  
                  
                  $
                  96,055
                  
                  
                  $
                  78,932
                  
                  
                  $
                  35,398
                  
                  
                  $
                  (5,839
                  )Other
      Data:Funds
      from operations (1)
                  
                  $
                  (73,897
                  )
                  
                  $
                  21,380
                  
                  
                  $
                  18,259
                  
                  
                  $
                  15,036
                  
                  
                  $
                  4,518
                  
                  
                  $
                  12,303Funds
      from operations modified (1)
                  
                  $
                  (71,132
                  )
                  
                  $
                  29,363
                  
                  
                  $
                  18,362
                  
                  
                  $
                  15,089
                  
                  
                  $
                  4,518
                  
                  
                  $
                  12,303FFOM,
      net of non-recurring items
                  
                  $
                  31,229
                  
                  
                  $
                  30,675
                  
                  
                  $
                  18,362
                  
                  
                  $
                  15,089
                  
                  
                  $
                  4,518
                  
                  
                  $
                  12,303
 
 40
 FFO is a
supplemental non-GAAP financial measure used by the real estate industry to
measure the operating performance of real estate companies.  FFOM adds
back to traditionally defined FFO non-cash amortization of non-real estate
related intangible assets associated with purchase accounting.  The
Company presents FFO and FFOM because it considers them important supplemental
measures of operational performance.  The Company believes FFO is
frequently used by securities analysts, investors and other interested parties
in the evaluation of REITs, many of which present FFO when reporting their
results.  The Company believes that FFOM allows securities analysts,
investors and other interested parties to evaluate current period results to
results prior to the MEA transaction.  FFO and FFOM are intended
to exclude GAAP historical cost depreciation and amortization of real estate and
related assets, which assumes that the value of real estate assets diminishes
ratably over time.  Historically, however, real estate values have
risen or fallen with market conditions.  Because FFO and FFOM excludes
depreciation and amortization unique to real estate, gains and losses from
property dispositions and extraordinary items, they provide performance measures
that, when compared year over year, reflect the impact to operations from trends
in occupancy rates, rental rates, operating costs, development activities and
interest costs, providing a perspective not immediately apparent from net
income.  The Company computes FFO in accordance with standards
established by the Board of Governors of NAREIT in its March 1995 White Paper
(as amended in November 1999 and April 2002), which may differ from the
methodology for calculating FFO and FFOM utilized by other equity REITs and,
accordingly, may not be comparable to such other REITs.  The Company
adjusts the NAREIT definition to add back noncontrolling interests in
consolidated real estate partnerships before real estate related depreciation
and amortization.  Further, FFO and FFOM do not represent amounts
available for management’s discretionary use because of needed capital
replacement or expansion, debt service obligations, or other commitments and
uncertainties.  FFO and FFOM should not be considered as an
alternative to net income (loss) (computed in accordance with GAAP) as an
indicator of the Company’s performance, nor are they indicative of funds
available to fund its cash needs, including its ability to pay dividends or make
distributions.
 The following table presents the reconciliation of FFO and FFOM to net income
(loss), which is the most directly comparable GAAP measure to FFO and FFOM (in
thousands):
  Company
                
                
                PredecessorFor
      the year ended
                
                
                For
      the year ended
                
                
                For
      the year ended
                
                
                For
      the year ended
                
                
                November
      1, 2005-
                
                
                January
      1, 2005-December
      31, 2009
                
                
                December
      31, 2008
                
                
                December
      31, 2007
                
                
                December
      31, 2006
                
                
                December
      31, 2005
                
                
                October
      31, 2005Funds
      from operations:Net
      income (loss)
                
                $
                (101,962
                )
                
                $
                (7,857
                )
                
                $
                (8,994
                )
                
                $
                (14,034
                )
                
                $
                (8,655
                )
                
                $
                3,824Real
      estate related depreciation and amortization (1)
                
                
                29,114
                
                
                
                30,583
                
                
                
                27,453
                
                
                
                30,188
                
                
                
                4,137
                
                
                
                8,479Noncontrolling
      interests in real estate partnerships,
                  before
      real estate related depreciation and
                  amortization
                
                
                (1,049
                )
                
                
                (1,346
                )
                
                
                (200
                )
                
                
                (199
                )
                
                
                -
                
                
                
                -Gain
      on sale of real estate properties
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (919
                )
                
                
                -
                
                
                
                -Funds
      from operations
                
                
                (73,897
                )
                
                
                21,380
                
                
                
                18,259
                
                
                
                15,036
                
                
                
                (4,518
                )
                
                
                12,303Amortization
      of intangibles related to purchaseaccounting,
      net of income tax benefit
                
                
                2,765
                
                
                
                7,983
                
                
                
                103
                
                
                
                53
                
                
                
                -
                
                
                
                -Funds
      from operations modified
                
                $
                (71,132
                )
                
                $
                29,363
                
                
                $
                18,362
                
                
                $
                15,089
                
                
                $
                (4,518
                )
                
                $
                12,303Non-recurring
      events:Gain
      on settlement from MEA Holdings, Inc. transaction
                
                $
                (4,905
                )
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Impairment
      of real estate property held for sale
                
                
                1,359
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Strategic
      planning professional fees
                
                
                2,641
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Intangible
      asset impairment charges, net of tax benefit
                
                
                101,746
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Debt
      extinguishment and interest rate derivative expense, net of tax
      benefit
                
                
                1,520
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Restructuring
      and severance charges, net of tax benefit
                
                
                -
                
                
                
                1,312
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Impact
      of non-recurring events
                
                $
                102,361
                
                
                $
                1,312
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -FFOM,
      excluding non-recurring events
                
                $
                31,229
                
                
                $
                30,675
                
                
                $
                18,362
                
                
                $
                15,089
                
                
                $
                (4,518
                )
                
                $
                12,303


(1)
            Real
      estate depreciation and amortization consists of depreciation and
      amortization from wholly-owned real estate properties and the Company’s
      share of real estate depreciation and amortization from consolidated and
      unconsolidated real estate
partnerships.


41


Item 7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations


The
following discussion should be read in conjunction with the Cogdell Spencer Inc.
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Annual Report on Form 10-K.  The Company makes statements in this
section that are forward-looking statements within the meaning of the federal
securities laws.  For a complete discussion of forward-looking
statements, see the section in this Annual Report on Form 10-K entitled
“Statements Regarding Forward-Looking Information.”  Certain risk
factors may cause actual results, performance or achievements to differ
materially from those expressed or implied by the following
discussion.  For a discussion of such risk factors, see the section in
this Annual Report on Form 10-K entitled “Risk Factors.”




Overview


The
Company is a fully-integrated, self-administered, and self-managed REIT that
invests in specialty office buildings for the medical profession, including
medical offices and ambulatory surgery and diagnostic centers.  The
Company focuses on the ownership, strategic planning, delivery (design/build),
acquisition and management of strategically located medical office buildings and
other healthcare related facilities in the United States of
America.  The Company has been built around understanding and
addressing the specialized real estate needs of the healthcare industry,
provides services from strategic planning to long-term property ownership and
management.  Integrated delivery service offerings include strategic
planning, design, construction, development and project management services for
properties owned by the Company and for third parties.


The
Company is building a national portfolio of healthcare properties primarily
located on hospital campuses.  Since the Company’s initial public
offering in 2005, the Company has grown through acquisitions and facility
development to encompass a national footprint, including seven regional offices
located throughout the United States (Atlanta, Charlotte, Dallas, Denver,
Madison, Seattle, and Washington, D.C.) and 28 property management
offices.  Client relationships and advance planning services give the
Company the ability to be included in the initial project discussions that can
lead to ownership and investment in healthcare properties.


The
Company derives a majority of its revenues from two main sources: 1) from rents
received from tenants under existing leases in medical office buildings and
other healthcare related facilities, and 2) from revenue earned from
design-build construction contracts and development contracts.  To a
lesser degree, the Company has revenues from consulting and property management
agreements.
  The
Company expects that rental revenue will remain stable due to multi-year,
non-cancellable leases with annual rental increases based on the Consumer Price
Index (“CPI”).  The Company has been able to maintain a high occupancy
rate, 91.5% as of December 31, 2009, for its in-service, consolidated
wholly-owned and joint venture properties, due to its focus on customer
relationships.  During 2009, the Company was able to renew 85% of
lease expirations.  Generally, the Company’s property operating
revenues and expenses have remained consistent over time except for growth due
to property developments and property and business acquisitions.
 The
demand for the Company’s design-build and development services has been, and
will likely continue to be, cyclical in nature.  Financial results can
be affected by the amount and timing of capital spending by healthcare systems
and providers, the demand for design-build and development’s services in the
healthcare facilities market, the availability of construction level financing,
and weather at the construction sites.  In periods of adverse economic
conditions, the Company’s design-build and development customers may be
unwilling or unable to make capital expenditures and they may be unable to
obtain debt or equity financings for projects.  As a result, customers
may defer projects to a later date, which could reduce the Company’s
revenues.  Due to the adverse economic environment and the volatility
in the credit markets experienced in 2008 and 2009, the Company’s Design-Build
and Development segment experienced delays in client project starts and
cancellations.
 
 During 2009, the Company signed two design-build contracts totaling $88.8
million related to a project in Janesville, Wisconsin.  These
contracts will generate design-build revenue from 2009 through 2011.
  42


The
Company reviews the value of goodwill and intangible assets on an annual basis
and when circumstances indicate a potential impairment may exist.  An
interim review of the Design-Build and Development segment’s intangible assets
was performed on March 31, 2009, due to a decline in the Company’s stock price,
a decline in the cash flow multiples for comparable public engineering and
construction companies, and changes in the cash flow projections for the
Design-Build and Development segment resulting from a decline in backlog and
delays and cancellations of client building projects.  The Company has
determined an interim review has not been necessary since the previous
impairment review performed at March 31, 2009.


As a
result of the March 31, 2009 review, the Company recorded, during the three
months ended March 31, 2009, a pre-tax, non-cash impairment charge of ($120.9
million) and the Company recognized a non-cash income tax benefit of $19.2
million, resulting in an after-tax impairment charge of ($101.7
million).  The Company’s goodwill, amortizing and non-amortizing
intangible assets, and deferred tax liabilities associated with the Design-Build
and Development segment have been reduced from the December 31, 2008 carrying
amounts as a result of the impairment charge.  There were no
subsequent interim reviews and there was no impairment charge recorded as part
of the annual review as of December 31, 2009 (see Note 8 to the
accompanying Notes to Consolidated Financial Statements included in this Annual
Report on Form 10-K).  Deterioration of market or economic conditions
and volatility in the financial market has and could continue to influence
future revenues, interest, and other costs, and could result in future
impairment of goodwill or other intangible assets.
  In June
2009, the Company issued 23.0 million shares of common stock in a public
offering, resulting in net proceeds to the Company of $76.5
million.  The net proceeds were used to fund a $50.0 million repayment
under the Term Loan, to reduce borrowings under the Credit Facility, and for
working capital purposes.
  As of
December 31, 2009, the Company owned and/or managed 111 medical office
buildings and healthcare related facilities, totaling 5.7 million net rentable
square feet and serving 23 hospital systems in 12 states.  The
Company’s portfolio consists of:


·
              62
      properties, comprised of 3.4 million net rentable square feet, each of
      which the Company wholly-owns or is a consolidated real estate
      partnership;
  ·
              Three
      properties, comprised of 0.2 million net rentable square feet, in which
      the Company owns a noncontrolling
interest;
  ·
              45
      properties, comprised of 2.1 million net rentable square feet, that the
      Company manages for third parties;
and
  ·
              One
      property, comprised of 38,700 net rentable square feet, of which the
      Company wholly-owns, is actively being marketed for sale as of December
      31, 2009, and is presented as discontinued operations in this Annual
      Report on Form 10-K.


As of
December 31, 2009, of the Company’s wholly-owned properties, 78% were located on
hospital campuses and an additional 11% were located off-campus, but were
hospital anchored.  The Company believes that its on-campus and
hospital anchored assets occupy a premier franchise location in relation to
local hospitals, providing the Company’s properties with a distinct competitive
advantage over alternative medical office space in an area.  As of
December 31, 2009, the Company’s 62 in-service, consolidated wholly-owned and
joint venture properties were approximately 91.5% occupied, with a weighted
average remaining lease term of approximately 4.5 years.  One
wholly-owned property was classified as held for sale in December 2009 and
presented as discontinued operations for the periods presented in the
accompanying consolidated financial statements and notes included in this Annual
Report on Form 10-K.


The
Company completed the first fully integrated project with the completion of The
Woodlands Center for Specialized Medicine during the fourth quarter of
2009.  The Company provided development, design/build (architectural,
engineering and construction), and property management services for the medical
office building and outpatient treatment center.  The Company owns 40%
of the real estate partnership that owns the property and the real estate
partnership is a consolidated partnership.


The
Company’s capital projects team also completed Alamance Regional Mebane
Outpatient Center in 2008 and completed itscancer center expansion in the third
quarter of 2009.  The Company has begun construction on four other
on-balance sheet investment projects with a total estimated investment of
approximately $55.4 million and holds a pipeline of planning and delivery
projects throughout the country.
  43


Critical
Accounting Estimates


The
Company’s discussion and analysis of financial condition and results of
operations are based upon the Company’s consolidated financial statements, which
have been prepared on the accrual basis of accounting in conformity with
GAAP.  All significant intercompany balances and transactions have
been eliminated in consolidation.




The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses in the reporting period.  The Company’s actual
results may differ from these estimates.  Management has provided a
summary of the Company’s significant accounting policies in Note 2 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.  Critical accounting policies are those judged to
involve accounting estimates or assumptions that may be material due to the
levels of subjectivity and judgment necessary to account for uncertain matters
or susceptibility of such matters to change. Other companies in similar
businesses may utilize different estimation policies and methodologies, which
may impact the comparability of the Company’s results of operations and
financial condition to those companies.




Acquisition
of Real Estate





The price that the Company pays to acquire a property is impacted by many
factors, including the condition of the buildings and improvements, the
occupancy of the building, the existence of above and below market tenant
leases, the creditworthiness of the tenants, favorable or unfavorable financing,
above or below market ground leases and numerous other
factors.  Accordingly, the Company is required to make subjective
assessments to allocate the purchase price paid to acquire investments in real
estate among the assets acquired and liabilities assumed based on the Company’s
estimate of the fair values of such assets and liabilities.  This
includes determining the value of the buildings and improvements, land, any
ground leases, tenant improvements, in-place tenant leases, tenant
relationships, the value (or negative value) of above (or below) market leases
and any debt assumed from the seller or loans made by the seller to the
Company.  Each of these estimates requires significant judgment and
some of the estimates involve complex calculations.  The Company’s
calculation methodology is summarized in Note 2 to the accompanying consolidated
financial statements included in this Annual Report on
Form 10-K.  These allocation assessments have a direct impact on
the Company’s results of operations because if the Company were to allocate more
value to land there would be no depreciation with respect to such amount or if
the Company were to allocate more value to the buildings as opposed to
allocating to the value of tenant leases, this amount would be recognized as an
expense over a much longer period of time, since the amounts allocated to
buildings are depreciated over the estimated lives of the buildings whereas
amounts allocated to tenant leases are amortized over the terms of the
leases.  Additionally, the amortization of value (or negative value)
assigned to above (or below) market rate leases is recorded as an adjustment to
rental revenue as compared to amortization of the value of in-place leases and
tenant relationships, which is included in depreciation and amortization in the
Company’s consolidated and combined statements of operations.





There were no acquisitions of real estate in 2009.




Acquisition
of Business





The price that the Company pays to acquire a business is impacted by many
factors, including projected future cash flows, customer lists, contracts and
proposals, trade names and trademarks, condition of property, plant, and
equipment, and numerous other factors.  Accordingly, the Company is
required to make subjective assessments to allocate the purchase price paid to
acquire investments in business among the assets acquired and liabilities
assumed based on the Company’s estimate of the fair values of such assets and
liabilities.  This includes determining the value of contacts, proposals,
customer lists, workforce, trade names and trademarks, receivables, accruals and
reserves, and property, plant, and equipment.  Each of these estimates
requires significant judgment and some of the estimates involve complex
calculations.  The Company’s calculation methodology is summarized in Note
2 to the accompanying consolidated financial statements included in this Annual
Report on Form 10-K.  These allocation assessments have a direct
impact on the Company’s results of operations because if the Company were to
allocate more value to goodwill or a non-amortizing intangible asset there would
be no amortization with respect to such amount or if the Company were to
allocate more value to a longer-lived asset as opposed to allocating to
shorter-lived asset, this amount would be recognized as an expense over a longer
period of time.





There were no acquisitions of businesses in 2009.




44


Useful
Lives of Assets





The Company is required to make subjective assessments as to the useful lives of
the Company’s properties and intangible assets for purposes of determining the
amount of depreciation and amortization to record on an annual basis with
respect to the Company’s assets.  These assessments have a direct
impact on the Company’s net income (loss) because if the Company were to shorten
the expected useful lives, then the Company would depreciate or amortize such
assets over fewer years, resulting in more depreciation or amortization expense
on an annual basis.




Asset
Impairment Valuation





The Company reviews the carrying value of its properties, investments in real
estate partnerships, and amortizing intangible assets annually and when
circumstances, such as adverse market conditions, indicate that a potential
impairment may exist.  The Company bases its review on an estimate of
the future cash flows (excluding interest charges) expected to result from the
real estate or business investment’s use and eventual disposition. The Company
considers factors such as future operating income, trends and prospects, as well
as the effects of leasing demand, competition and other factors.  If
the Company’s evaluation indicates that it may be unable to recover the carrying
value of an investment, an impairment loss is recorded to the extent that the
carrying value exceeds the estimated fair value of the asset.  These
losses have a direct impact on the Company’s net income (loss) because recording
an impairment loss results in an immediate negative adjustment to operating
results.  The evaluation of anticipated cash flows is highly
subjective and is based in part on assumptions regarding future sales, backlog,
occupancy, rental rates and capital requirements that could differ materially
from actual results in future periods.  Because cash flows on
properties considered to be long-lived assets to be held and used are considered
on an undiscounted basis to determine whether an asset has been impaired, the
Company’s strategy of holding properties over the long-term directly decreases
the likelihood of recording an impairment loss for properties.  If the
Company’s strategy changes or market conditions otherwise dictate an earlier
sale date, an impairment loss may be recognized and such loss could be
material.  If the Company determines that impairment has occurred, the
affected assets must be reduced to their fair value.  The Company
estimates the fair value of rental properties utilizing a discounted cash flow
analysis that includes projections of future revenues, expenses and capital
improvement costs, similar to the income approach that is commonly utilized by
appraisers.





The Company reviews the value of goodwill using an income approach and market
approach on an annual basis and when circumstances indicate a potential
impairment may exist.  The Company’s methodology to review goodwill
impairment, which includes a significant amount of judgment and estimates,
provides a reasonable basis to determine whether impairment has
occurred.  However, many of the factors employed in determining
whether or not goodwill is impaired are outside of the Company’s control and it
is likely that assumptions and estimates will change in future
periods.  These changes can result in future impairments which could
be material.





The goodwill impairment review involves a two-step process.  The first
step is a comparison of the reporting unit’s fair value to its carrying
value.  Fair value is estimated by utilizing two approaches, an income
approach and a market approach.  The income approach uses the
reporting unit’s projected operating results and discounted cash flows using a
weighted-average cost of capital that reflects current market
conditions.  The cash flow projections use estimates of economic and
market information over the projection period, including growth rates in
revenues and costs and estimates of future expected changes in operating margins
and cash expenditures.  Other significant estimates and assumptions
include terminal value growth rates, future estimates of capital expenditures,
and changes in future working capital requirements.  The market
approach estimates fair value by applying cash flow multiples to the reporting
unit's operating performance.  The multiples are derived from
comparable publicly traded companies with similar operating and profitability
characteristics.  Additionally, the Company reconciles the total of
the estimated fair values of all its reporting units to its market
capitalization to determine if the sum of the individual fair values is
reasonable compared to the external market indicators.




45


If the
carrying value of the reporting unit is higher than its fair value, then an
indication of impairment may exist and a second step must be performed to
measure the amount of impairment.  The amount of impairment is
determined by comparing the implied fair value of the reporting unit’s goodwill
to the carrying value of the goodwill calculated in the same manner as if the
reporting unit was being acquired in a business combination.  If the
implied fair value of goodwill is less than the recorded goodwill, then an
impairment charge for the difference would be recorded.  For
non-amortizing intangible assets, the Company estimates fair value by applying
an estimated market royalty rate to projected revenues and discounted using a
weighted-average cost of capital that reflects current market
conditions.


If market
and economic conditions deteriorate and cause (1) declines in the Company’s
stock price, (2) increases the estimated weighted-average cost of capital, (3)
changes in cash flow multiples or projections, or (4) changes in other inputs to
goodwill assessment estimates, then a goodwill impairment review may be required
prior to the Company’s next annual test.  It is reasonably possible
that changes in the numerous variables associated with the judgments,
assumptions, and estimates could cause the goodwill or non-amortizing intangible
assets to become impaired.  If goodwill or non-amortizing intangible
assets are impaired, the Company would be required to record a non-cash charge
that could have a material adverse affect on its consolidated financial
statements.


Revenue
Recognition


Rental
income related to non-cancelable operating leases is recognized using the
straight line method over the terms of the tenant leases.  Deferred
rents included in the Company’s consolidated balance sheets represent the
aggregate excess of rental revenue recognized on a straight line basis over the
rental revenue that would be recognized under the cash flow received, based on
the terms of the leases.  The Company’s leases generally contain
provisions under which the tenants reimburse the Company for all property
operating expenses and real estate taxes incurred by the
Company.  Such reimbursements are recognized in the period that the
expenses are incurred.  Lease termination fees are recognized when the
related leases are canceled and the Company has no continuing obligation to
provide services to such former tenants.  The Company recognizes
amortization of the value of acquired above or below market tenant leases as a
reduction of rental income in the case of above market leases or an increase to
rental revenue in the case of below market leases.




For
design-build contracts, the Company recognizes revenue under the percentage of
completion method.  Due to the volume, varying complexity, and other
factors related to the Company’s design-build contracts, the estimates required
to determine percentage of completion are complex and use subjective
judgments.  Changes in labor costs and material inputs can have a
significant impact on the percentage of completion calculations.  The
Company has a long history of developing reasonable and dependable estimates
related to design-build contracts with clear requirements and rights of the
parties to the contracts.  As long-term design-build projects extend
over one or more years, revisions in cost and estimate earnings during the
course of the work are reflected in the accounting period in which the facts
which require the revision become known.  At the time a loss on a
design-build project becomes known, the entire amount of the estimated ultimate
loss is recognized in the consolidated financial statements.


The
Company receives fees for property management and development and consulting
services from time to time from third parties which are reflected as fee
revenue.  Management fees are generally based on a percentage of
revenues for the month as defined in the related property management
agreements.  Revenue from development and consulting agreements is
recognized as earned per the agreements.  Due to the amount of control
retained by the Company, most joint venture developments will be consolidated;
therefore, those development fees will be eliminated in
consolidation.


Other
income shown in the statement of operations generally includes interest income,
primarily from the amortization of unearned income on a sales-type capital lease
recognized in accordance with GAAP, and other income incidental to the Company’s
operations and is recognized when earned.
 
 The Company must make subjective estimates as to when the Company’s revenue is
earned and the collectibility of the Company’s accounts receivable related to
design-build contracts and other sales, deferred rent, expense reimbursements,
lease termination fees and other income.  The Company specifically
analyzes accounts receivable and historical bad debts, tenant and customer
concentrations, tenant and customer creditworthiness, and current economic
trends when evaluating the adequacy of the allowance for bad
debts.  These estimates have a direct impact on the Company’s net
income because a higher bad debt allowance would result in lower net income, and
recognizing rental revenue as earned in one period versus another would result
in higher or lower net income for a particular period.




46


REIT
Qualification Requirements


The
Company is subject to a number of operational and organizational requirements to
qualify and then maintain qualification as a REIT.  If the Company
does not qualify as a REIT, its income would become subject to
U.S. federal, state and local income taxes at regular corporate rates that
would be substantial and the Company cannot re-elect to qualify as a REIT for
four taxable years following the year it failed to quality as a
REIT.  The resulting adverse effects on the Company’s results of
operations, liquidity and amounts distributable to stockholders would be
material.


Changes
in Financial Condition
 
 In June 2009, the Company issued 23.0 million shares of common stock in a public
offering at a price of $3.50 per share resulting in net proceeds to the Company
of approximately $76.5 million. The net proceeds were used to fund a $50.0
million repayment under the Term Loan, to reduce borrowings under the Company’s
Credit Facility, and for working capital purposes.  For more
information on the Credit Facility and the Term Loan, see Management’s
Discussion and Analysis of Financial Condition and Results of Operations -“Liquidity and Capital Resources.”
  Assets
decreased to $752.7 million from $900.1 million for the years ended December 31,
2009 and 2008, respectively, due to an after-tax, goodwill and intangible assets
impairment charge of ($101.7 million).  See Note 8 within these
consolidated financial statements.


Results
of Operations




The
Company’s income (loss) from operations is generated primarily from operations
of its properties and design-build services and to a lesser degree from
consulting and property management agreements.  The changes in
operating results from period to period reflect changes in existing property
performance, changes in the number of properties due to development,
acquisition, or disposition of properties, and the operating results of the
Design-Build and Development segment.  For the year ended December 31,
2009, a significant proportion of the Company’s loss from operations is due to
the ($101.7 million), net of tax, non-cash impairment charge discussed
previously in the “Overview” section.





The Company acquired MEA, known then as Marshall Erdman & Associates, in
March 2008 and results for the year ended December 31, 2008, reflect ten months
of operating activity related to the subsidiary, reflecting operations from the
acquisition date to December 31, 2008.  For the year ended December
31, 2009, there are twelve months of operating activity related to the
subsidiary.




Business
Segments




The
Company has two identified reportable segments: (1) Property Operations and (2)
Design-Build and Development.  The Company defines business segments
by their distinct customer base and service provided.  While the
Company operates as a single entity, it produces discrete financial information
for each segment, which is reviewed by the chief operating decision maker to
make resource allocation decisions and assess performance.  Property
Operations includes real estate investment and rental activities as well as
properly management for third parties.  Design-Build and Development
includes design-build construction activities as well as development and
consulting activities. For additional information, see Note 6 to the
accompanying Notes to Consolidated Financial Statements.




Property
Summary


The
following is an activity summary of the Company’s property portfolio (excluding
unconsolidated real estate partnerships) for the years ended December 31,
2009 and 2008:
 For
      the Year Ended
                
                For
      the Year EndedDecember
      31, 2009
                
                December
      31, 2008Properties
      at January 1
                
                62
                
                59Acquisitions
                
                -
                
                2Developments
                
                1
                
                1Discontinued
      operations held for sale
                
                (1)
                
                -Properties
      at December 31
                
                62
                
                62
 
 The above table includes East Jefferson MRI, which is accounted for as a
sales-type capital lease.
 47
 A property is considered “in-service” upon the earlier of (1) lease-up and
substantial completion of tenant improvements, or (2) one year after
cessation of major construction.  For portfolio and operational data,
a single in-service date is used.  For GAAP reporting, a property is
placed into service in stages as construction is completed and the property and
tenant space is available for its intended use.  The Company had zero
properties in lease-up at December 31, 2009.
 Year
ended December 31, 2009 compared to year ended December 31,
2008
 Funds
from Operations Modified (“FFOM”)
 For the
year ended December 31, 2009, FFOM, excluding non-recurring events, increased
$0.5 million, or 1.8%, compared to the same period in the prior
year.  Property Operations’ FFOM, excluding non-recurring events and
intersegment eliminations, increased slightly from 2008 to
2009.  However, Design-Build and Development FFOM, excluding
non-recurring events and intersegment eliminations and net of taxes, decreased
significantly from 2008 to 2009.  The decrease in Design-Build and
Development FFOM was offset by a decrease in interest
expense.   The following is a summary of FFOM for the years ended
December 31, 2009 and 2008 (in thousands):
 For
      the Year EndedDecember
      31, 2009
                
                
                December
      31, 2008FFOM
      attributable to:Property
      operations
                
                $
                49,370
                
                
                $
                49,212Design-Build
      and development
                
                
                (101,623
                )
                
                
                19,925Intersegment
      eliminations
                
                
                (7,751
                )
                
                
                (627
                )Unallocated
      and other
                
                
                (11,128
                )
                
                
                (39,147
                )FFOM
                
                
                (71,132
                )
                
                
                29,363Non-recurring
      events:Gain
      on settlement from MEA Holdings, Inc. transaction
                
                
                (4,905
                )
                
                
                -Impairment
      of real estate property held for sale
                
                
                1,359
                
                
                
                -Strategic
      planning professional fees
                
                
                2,641
                
                
                
                -Goodwill
      and intangible asset impairment charges, net of tax
benefit
                
                
                101,746
                
                
                
                -Debt
      extinguishment and interest rate derivative expense, net of tax
      benefit
                
                
                1,520
                
                
                
                -Restructuring
      and severance charges, net of tax benefit
                
                
                -
                
                
                
                1,312FFOM,
      excluding non-recurring events
                
                $
                31,229
                
                
                $
                30,675
  See Note
6 to the accompanying Notes to Consolidated Financial Statements for business
segment information and management’s use of FFO and FFOM to evaluate operating
performance.  The following table presents the reconciliation of FFO
and FFOM to net income (loss), which is the most directly comparable GAAP
measure to FFO and FFOM, for the years ended December 31, 2009 and 2008 (in
thousands):
  For
      the Year EndedDecember
      31, 2009
                  
                  
                  December
      31, 2008Net
      income (loss)
                  
                  $
                  (101,962
                  )
                  
                  $
                  (7,857
                  )Add:Real
      estate related depreciation and amortization:Wholly-owned
      and consolidated properties, including amounts in discontinued
      operations
                  
                  
                  29,102
                  
                  
                  
                  30,570Unconsolidated
      real estate partnerships
                  
                  
                  12
                  
                  
                  
                  13Less:Noncontrolling
      interests in real estate partnerships, before real estate related
      depreciation and amortization
                  
                  
                  (1,049
                  )
                  
                  
                  (1,346
                  )FFO
                  
                  
                  (73,897
                  )
                  
                  
                  21,380Amortization
      of intangibles related to purchase accounting, net of income tax
      benefit
                  
                  
                  2,765
                  
                  
                  
                  7,983FFOM
                  
                  $
                  (71,132
                  )
                  
                  $
                  29,363
 48
 FFOM
attributable to Property Operations, net of intersegment
eliminations
 The following is a summary of FFOM attributable to property operations, net of
intersegment eliminations, for the year ended December 31, 2009 and 2008 (in
thousands):
  For
      the Year EndedDecember
      31, 2009
                  
                  
                  December
      31, 2008Rental
      revenue, net of intersegment elimination of $92 in 2009 and $43 in
      2008
                  
                  $
                  79,486
                  
                  
                  $
                  77,421Property
      management and other fee revenue
                  
                  
                  3,336
                  
                  
                  
                  3,460Property
      operating and management expenses
                  
                  
                  (31,810
                  )
                  
                  
                  (31,065
                  )Other
      income (expense)
                  
                  
                  541
                  
                  
                  
                  597Earnings
      from unconsolidated real estate partnerships,
                    before
      real estate related depreciation and amortization
                  
                  
                  27
                  
                  
                  
                  35Noncontrolling
      interests in real estate partnerships, before
                    real
      estate related depreciation and amortization
                  
                  
                  (1,049
                  )
                  
                  
                  (1,346
                  )Discontinued
      operations and impairement of real estate,
                    before
      real estate related depreciation and amortization
                  
                  
                  (1,253
                  )
                  
                  
                  67FFOM,
      net of intersegment eliminations
                  
                  $
                  49,278
                  
                  
                  $
                  49,169
  See Note
6 to the accompanying Notes to Consolidated Financial Statements for a
reconciliation of above segment FFOM to net income (loss).
 For the
year ended December 31, 2009, FFOM, net of intersegment eliminations,
attributable to property operations increased $0.1 million, or 0.2%, compared to
the same period in the prior year.  The increase in rental revenue and
property operating and management expenses is primarily due to the addition of
the Alamance Regional Mebane Outpatient Center property, which began operations
in June 2008.  Rental revenue also increased due to rental rates
associated with CPI increases and reimbursable expenses.  These
increases were offset by a decrease in occupancy from 2008 to
2009.  The decrease in discontinued operations and impairment of real
estate property, before real estate related depreciation and amortization, is
due to the Company recording a non-cash impairment charge of $1.4 million in
order to reduce the carrying value of the Harbison Medical Officer Building
(formerly known as Baptist Northwest) real estate property to its estimated net
sale proceeds.
 FFOM
attributable to Design-Build and Development, net of intersegment
eliminations
 The
Design-Build and Development segment includes MEA, which the Company acquired in
March 2008, and results for the years ended December 31, 2009 and 2008, reflect
twelve and ten months, respectively, of operating activity related to the
subsidiary, reflecting operations from the acquisition date to December 31,
2008.  The following is a summary of FFOM attributable to Design-Build
and Development, net of intersegment eliminations, for the years ended December
31, 2009 and 2008 (in thousands):
 For
      the Year EndedDecember
      31, 2009
                      
                      
                      December
      31, 2008Design-Build
      contract revenue and other sales, net of intersegment
      eliminationsof
      $32,708 in 2009 and $4,536 in 2008
                      
                      $
                      143,416
                      
                      
                      $
                      253,596Development
      management and other income, net of intersegment
    eliminationsof
      $3,387 in 2009 and $803 in 2008
                      
                      
                      3,363
                      
                      
                      
                      885Design-Build
      contract and development management expenses, net of
      intersegmenteliminations
      of $28,344 in 2009 and $4,712 in 2008
                      
                      
                      (113,961
                      )
                      
                      
                      (214,019
                      )Selling,
      general, and administrative expenses
                      
                      
                      (20,541
                      )
                      
                      
                      (20,184
                      )Other
      income (expense)
                      
                      
                      48
                      
                      
                      
                      149Depreciation
      and amortization
                      
                      
                      (779
                      )
                      
                      
                      (1,129
                      )FFOM,
      excluding impairment charge, net of intersegment
    eliminations
                      
                      
                      11,546
                      
                      
                      
                      19,298Impairment
      charge
                      
                      
                      (120,920
                      )
                      
                      
                      -FFOM,
      net of intersegment eliminations
                      
                      $
                      (109,374
                      )
                      
                      $
                      19,298
 See Note
6 to the accompanying Notes to Consolidated Financial Statements for a
reconciliation of above segment FFOM to net income (loss).
  For the
year ended December 31, 2009, FFOM, excluding impairment charge, attributable to
Design-Build and Development, net of intersegment eliminations, decreased $7.8
million, or 40.2%, compared to the same period in the prior
year.  Further, there were twelve months of activity in 2009 compared
to ten months of activity in 2008 due to the acquisition of MEA in March
2008.  Comparing full year 2009 FFOM to full year 2008 FFOM, there was
a larger decrease in FFOM due to a decrease in the volume of project
activity.
  49
 Revenues
(design-build contract revenue and other sales plus development management and
other income) decreased $107.7 million, or 42.3%, from 2008 to
2009.  This decrease is due to a lower volume of activity as the
number of active revenue generating design-build construction projects has
decreased from 23 at December 31, 2008 to 18 at December 31,
2009.  The decreased activity is due to the current economic
environment, the volatility in the credit markets, and general uncertainty
regarding government health care reform bills, which have resulted in clients
delaying project starts and client project cancellations.
  However,
gross margin percentage (revenues, as defined above, less design-build contract
and development management expenses and as a percent of revenues) increased from
15.9% in 2008 to 22.4% in 2009, or an increase of 40.9%.  This
increase is primarily due to cost controls implemented by the Company and
favorable pricing in the sub-contracting market leading to lower overall
costs.
 Development
management and other income increased $2.5 million, or 280.0%, from 2008 to
2009.  The increase is due to three active third party development
engagements during 2009 compared to two engagements in 2008.  One of
the development engagements, which accounted for $2.0 million of the increase,
relates to the St. Luke’s Riverside engagement in Bethlehem,
Pennsylvania.  This was a three building engagement project, of which
the Company was to wholly-own or partially-own one of the three
buildings.  Due to changes in the scope, size, and timing of the
project, the Company no longer intends to invest in the building under the
original terms.  In accordance with the development agreement, the
hospital system client paid for all reimbursable projects costs and for
development services performed by the Company.
  Selling,
general, and administrative expenses attributable to the Design-Build and
Development segment increased $0.4 million, or 1.8%, from 2008 to
2009.  The increase is primarily due to a $2.6 million increase in the
allowance for doubtful accounts, of which $2.2 million related to one
customer.  The increase is also due to two additional months of costs
in 2009 as compared to 2008 because the MEA acquisition occurred in March
2008.  These increases were offset by fewer employees in 2009 as
compared to 2008 due to reductions in force that occurred in December 2008 and
May 2009, a $1.5 million expense in 2008 resulting from restructuring and
severance charges, and a reduction of incentive compensation in 2009 due to the
decreased profitability related to the business segment.
 Selling,
general, and administrative
 For the
year ended December 31, 2009, selling, general, and administrative expenses
increased $2.1 million, or 6.9%, as compared to the same period in the prior
year.  Excluding the increase attributable to the Design-Build and
Development segment, which is discussed above, selling, general and
administrative increased $1.7 million due to several factors including
non-recurring costs for consultants, accountants, attorneys, and other service
providers associated with the Company’s exploration of a range of strategic
alternatives as well as increased costs associated with a branding marketing
campaign.  These costs were offset by a reduction of incentive
compensation due to decreased profitability.
 Depreciation
and amortization
 For the
year ended December 31, 2009,depreciation and
amortization expenses decreased $10.4 million, or 23.1%, as compared to the same
period in the prior year.  The decrease is primarily due to a decrease
in intangible amortization due to lower carrying values due to the impairment
recorded in the first quarter of 2009, as discussed below.  The
decrease was also due to a decrease in the amortization of acquired in place
lease intangible assets associated with properties acquired in 2005 as they have
become fully amortized, offset by two additional months of expense in 2009 as
compared to 2008 because the MEA acquisition occurred in March
2008.
 Impairment
charge
 The
Company reviews the value of goodwill and intangible assets on an annual basis
and when circumstances indicate a potential impairment may exist.  An
interim review of the Design-Build and Development’s intangible assets was
performed as of March 31, 2009, due to a decline in the Company’s stock price, a
decline in the cash flow multiples for comparable public engineering and
construction companies, and changes in the cash flow projections for the
Design-Build and Development business segment resulting from a decline in
backlog and delays and cancellations of client building projects.
  50
 As a
result of the March 31, 2009 review, the Company recorded a pre-tax, non-cash
impairment charge of ($120.9 million) and the Company recognized a non-cash
income tax benefit of $19.2 million, resulting in an after-tax impairment charge
of ($101.7 million).  The Company’s goodwill, amortizing and
non-amortizing intangible assets, and deferred tax liabilities associated with
the Design-Build and Development segment have been reduced from the December 31,
2008 carrying amounts as a result of the impairment charge.  There
were no subsequent interim reviews and there was no impairment charge recorded
as part of the annual review as of December 31, 2009.
 There was
no such charge in the same period in the prior year.
 Gain
on settlement from MEA transaction
 During
the year ended December 31, 2009, the final escrow release related to the MEA
transaction occurred.  Pursuant to an agreement between the Company
and the MEA Seller Representatives, $5.0 million of the escrow was paid to the
Company in consideration of full and final settlement of certain claims made by
the Company in connection with the MEA transaction.  The Company
recorded other income of $4.9 million related to this settlement.  The
Company also received cash of $2.9 million and OP units valued at $2.0 million
were not issued.
  There was
no such income in the same period in the prior year.
 Interest
expense
 For the
year ended December 31, 2009, interest expense decreased $3.3 million, or 13.2%,
as compared to the same period in the prior year.  The decrease was
due to a decrease in variable interest rates and lower debt balances as the
Company used a majority of the proceeds from its June 2009 and September 2008
equity offerings to repay debt offset by two additional months of interest
expense in 2009 compared to 2008 relating to the Term Debt.
 Income
tax benefit
 For the
year ended December 31, 2009, income tax benefit increased $20.9 million as
compared to the same period in the prior year.  The increase was
primarily due to the non-cash income tax benefit associated with the intangible
asset impairment charge recorded during the first quarter of
2009.  The increase is also due to lower income for the Design-Build
and Development segment, which resulted in a greater income tax benefit in 2009
compared to 2008.
 Impairment
of real estate property
 For the
year ended December 31, 2009, the Company reclassified the wholly-owned property
Harbison Medical Office Building (formerly known as Baptist Northwest) as held
for sale discontinued operations.  Related to this property, the
Company recorded a non-cash impairment charge of ($1.4 million) in order to
reduce the carrying value of the real estate property to its estimated net sale
proceeds.
  There was
no such impairment charge in the same period in the prior year.
 Net
loss attributable to the noncontrolling interest in Operating
Partnership
 For the
year ended December 31, 2009, net loss attributable to the noncontrolling
interest in Operating Partnership increased $29.5 million, or 967.0%, as
compared to the same period in the prior year.  The increase was
primarily due to the increase in net loss, which primarily increased due to the
impairment charge offset by a smaller noncontrolling ownership percentage due to
the common stock equity raise in June 2009.
 Cash
Flows
 Cash provided by operating activities increased $20.7 million for the year ended
December 31, 2009, as compared to the same period in the prior year, and is
summarized below for the years ended December 31, 2009 and 2008 (in
thousands):
  For
      the Year EndedDecember
      31, 2009
                  
                  
                  December
      31, 2008Net
      income (loss) plus non-cash adjustments
                  
                  $
                  37,599
                  
                  
                  $
                  32,972Changes
      in operating assets and liabilities
                  
                  
                  7,844
                  
                  
                  
                  (8,232
                  )Net
      cash provided by operating activities
                  
                  $
                  45,443
                  
                  
                  $
                  24,740
 51
 The net
loss plus non-cash adjustments increased $4.6 million, or 14.0%, for the year
ended December 31, 2009, as compared to the same period in the prior
year.  The increase is primarily due to the $2.9 million of cash
received due to the gain on settlement from the MEA transaction and a $2.6
million increase in the Company’s provision for bad debts.  The
changes in operating assets and liabilities increased $16.1 million for the year
ended December 31, 2009, as compared to the same period in the prior
year.  The increase is primarily due to 1) a decrease in Design-Build
and Development accounts receivable, which increases cash provided by operations
and 2) decreased incentive compensation accrued liabilities, which increases
cash provided by operations, offset by 1) a decrease in Design-Build and
Development billings in excess of costs and estimated earnings on uncompleted
contracts, which decreases cash provided by operations and 2) severance costs
paid in the first quarter of 2009 compared to no such payments in 2008, which
decreases cash provided by operations.
 Cash used in investing activities decreased $140.1 million, or 72.1%, for the
year ended December 31, 2009, as compared to the same period in the prior
year.  The decrease is primarily due to the cash paid for the MEA
transaction in 2008.  The increase in purchases of corporate property,
plant, and equipment is primarily due the construction of a steel fabrication
facility for the Design-Build and Development segment.  The Company is
currently leasing a facility on a month-to-month basis.  Investment in
real estate properties consisted of the following for the year ended December
31, 2009 and 2008 (in thousands):
  For
      the Year EndedDecember
      31, 2009
                  
                  
                  December
      31, 2008Development,
      redevelopment, and acquisitions
                  
                  $
                  (49,007
                  )
                  
                  $
                  (39,163
                  )Second
      generation tenant improvements
                  
                  
                  (3,932
                  )
                  
                  
                  (3,722
                  )Recurring
      property capital expenditures
                  
                  
                  (1,633
                  )
                  
                  
                  (2,630
                  )Investment
      in real estate properties
                  
                  $
                  (54,572
                  )
                  
                  $
                  (45,515
                  )
  Cash
provided by financing activities decreased $200.6 million, or 100.0%, for the
year ended December 31, 2009, as compared to same period in the prior
year.  The decrease is primarily due to fewer debt and equity proceeds
received in 2009 compared to 2008.
 Year
ended December 31, 2008 compared to year ended December 31,
2007
 FFOM
 For the
year ended December 31, 2008, FFOM, excluding the non-recurring event, increased
$12.3 million, or 67.1%, compared to the same period in the prior
year.  The increase in FFOM was due to: (1) an increase in FFOM for
the Design-Build and Development segment, of which the majority of the segment’s
increase was due to the inclusion of ten months of design-build operating
activity for the year ended December 31, 2008, due to the acquisition of MEA;
and (2) an increase in FFOM from property acquisitions and completed
developments.  These increases in FFOM were offset by an increase in
interest expense due to increased outstanding debt balances, an increase in
income tax expense primarily related to Design-Build and Development FFOM, a
$0.9 million noncontrolling interest charge, an increase in corporate general
and administrative expenses primarily due to increased incentive compensation
expense, severance expense, and professional fees, and an increase in non-real
estate related depreciation related to corporate property, plant, and
equipment.  The $0.9 million  noncontrolling interest charge is
due to a consolidated real estate partnership’s negative partner’s equity that
resulted primarily from a debt refinance proceeds cash distribution to the 65.5%
owner, and subsequent cash distributions to the 65.5% owner.  In
accordance with GAAP effective in 2008, the consolidating partner is required to
record a charge to noncontrolling interest for distributions and GAAP net losses
when the partnership’s partners’ equity is negative.
  52
 The following is a summary of FFOM for the years ended December 31, 2008 and
2007 (in thousands):
  For
      the Year EndedDecember
      31, 2008
                  
                  
                  December
      31, 2007FFOM
      attributable to:Property
      operations
                  
                  $
                  49,212
                  
                  
                  $
                  41,262Design-Build
      and development
                  
                  
                  19,925
                  
                  
                  
                  (283
                  )Intersegment
      eliminations
                  
                  
                  (627
                  )
                  
                  
                  -Unallocated
      and other
                  
                  
                  (39,147
                  )
                  
                  
                  (22,617
                  )FFOM
                  
                  
                  29,363
                  
                  
                  
                  18,362Non-recurring
      event:Restructuring
      and severance charges, net of tax benefit
                  
                  
                  1,312
                  
                  
                  
                  -FFOM,
      excluding non-recurring event
                  
                  $
                  30,675
                  
                  
                  $
                  18,362
  See Note
6 to the accompanying Notes to Consolidated Financial Statements for business
segment information and management’s use of FFO and FFOM to evaluate operating
performance.  The following table presents the reconciliation of FFO
and FFOM to net income (loss), which is the most directly comparable GAAP
measure to FFO and FFOM, for the years ended December 31, 2008 and 2007 (in
thousands):
  For
      the Year EndedDecember
      31, 2008
                  
                  
                  December
      31, 2007Net
      income (loss)
                  
                  $
                  (7,857
                  )
                  
                  $
                  (8,994
                  )Add:Real
      estate related depreciation and amortization:Wholly-owned
      and consolidated properties, including amounts in discontinued
      operations
                  
                  
                  30,570
                  
                  
                  
                  27,428Unconsolidated
      real estate partnerships
                  
                  
                  13
                  
                  
                  
                  25Less:Noncontrolling
      interests in real estate partnerships, before real estate related
      depreciation and amortization
                  
                  
                  (1,346
                  )
                  
                  
                  (200
                  )FFO
                  
                  
                  21,380
                  
                  
                  
                  18,259Amortization
      of intangibles related to purchase accounting, net of income tax
      benefit
                  
                  
                  7,983
                  
                  
                  
                  103FFOM
                  
                  $
                  29,363
                  
                  
                  $
                  18,362
  FFOM
attributable to Property Operations
 The
following is a summary of FFOM attributable to property operations, net of
intersegment eliminations, for the year ended December 31, 2008 and 2007 (in
thousands):
 For
      the Year EndedDecember
      31, 2008
                  
                  
                  December
      31, 2007Rental
      revenue, net of intersegment eliminations of $43 in 2008 and $0 in
      2007
                  
                  $
                  77,421
                  
                  
                  $
                  62,611Property
      management and other fee revenue
                  
                  
                  3,460
                  
                  
                  
                  3,502Property
      operating and management expenses
                  
                  
                  (31,065
                  )
                  
                  
                  (25,405
                  )Other
      income (expense)
                  
                  
                  597
                  
                  
                  
                  592Earnings
      from unconsolidated real estate partnerships,
                    before
      real estate related depreciation and amortization
                  
                  
                  35
                  
                  
                  
                  43Noncontrolling
      interests in real estate partnerships, before
                    real
      estate related depreciation and amortization
                  
                  
                  (1,346
                  )
                  
                  
                  (200
                  )Discontinued
      operations of real estate property
                  
                  
                  67
                  
                  
                  
                  119FFOM,
      net of intersegment eliminations
                  
                  $
                  49,169
                  
                  
                  $
                  41,262
  See Note
6 to the accompanying Notes to Consolidated Financial Statements for a
reconciliation of above segment FFOM to net income (loss).
 For the
year ended December 31, 2008, FFOM attributable to property operations increased
$7.9 million, or 19.3%, compared to the same period in the prior
year.  The increase in rental revenue and property operating and
management expenses is primarily due to real estate property acquisitions and
completed developments as well as increased rental revenue due to rental rates
associated with CPI increases and reimbursable expenses; these amounts are
offset by a small reduction in occupancy.  The small reduction in
occupancy caused same-property revenue to increase at a smaller percentage rate
than same-property operating and management expense due to increases in
reimbursable expenses such as property taxes, insurance, and
utilities.
  53
 FFOM
attributable to Design-Build and Development, net of intersegment
eliminations
 The Design-Build and Development segment includes MEA, which the Company
acquired in March 2008, and results for the years ended December 31, 2008 and
2007, reflect ten and zero months, respectively, of operating activity related
to the subsidiary, reflecting operations from the acquisition date to December
31, 2008.  The 2007 activity relates to the development activities
performed by the Company prior to the merger with MEA.  The following
is a summary of FFOM attributable to Design-Build and Development, net of
intersegment eliminations, for the years ended December 31, 2008 and 2007 (in
thousands):
  For
      the Year EndedDecember
      31, 2008
                  
                  
                  December
      31, 2007Design-Build
      contract revenue and other sales, net of intersegment
      eliminationsof
      $4,536 in 2008 and $0 in 2007
                  
                  $
                  253,596
                  
                  
                  $
                  -Development
      management and other income, net of intersegment
    eliminationsof
      $803 in 2008 and $0 in 2007
                  
                  
                  885
                  
                  
                  
                  290Design-Build
      contract and development management expenses, net of
      intersegmentof
      $4,712 in 2008 and $0 in 2007
                  
                  
                  (214,019
                  )
                  
                  
                  -Selling,
      general, and administrative expenses
                  
                  
                  (20,184
                  )
                  
                  
                  (804
                  )Other
      income (expense)
                  
                  
                  149
                  
                  
                  
                  231Depreciation
      and amortization
                  
                  
                  (1,129
                  )
                  
                  
                  -FFOM,
      net of intersegment eliminations
                  
                  $
                  19,298
                  
                  
                  $
                  (283
                  )
  Selling,
general, and administrative
 For the
year ended December 31, 2008, selling, general, and administrative expenses
increased $22.9 million, or 310.3%, as compared to the same period in the prior
year.  Excluding the increase attributable to the Design-Build and
Development segment, which is discussed above, selling, general and
administrative increased $3.5 million due to increased accrued incentive
compensation, severance compensation, and legal and consulting professional
fees.
 Depreciation
and amortization
 For the
year ended December 31, 2008,depreciation and
amortization expenses increased $17.3 million, or 62.5%, as compared to the same
period in the prior year.  The increase is primarily due to assets
related to the acquisition of MEA and real estate property acquisitions and
completed developments.
 Interest
expense
 For the
year ended December 31, 2008, interest expense increased $9.2 million, or 58.2%,
as compared to the same period in the prior year.  The increase was
due to an increase in outstanding debt balances, primarily the addition of the
Term Debt.
 Income
tax benefit (expense)
 For the
year ended December 31, 2008, income tax benefit increased $1.4 million as
compared to the same period in the prior year.  The benefit is
primarily a result of the deferred tax benefit exceeding current income tax
expense.  The deferred tax benefit is primarily related to the
amortization of intangible assets.  The income tax expense in 2007 was
due to taxable net income computed in accordance with GAAP for Cogdell Spencer
Advisors, LLC, a TRS, which was a result of development fees, a non-recurring
brokerage commission, and property management activities.
 Cash
Flows
 Cash
provided by operating activities increased $1.0 million for the year ended
December 31, 2008, as compared to the same period in the prior year, and is
summarized below for the years ended December 31, 2008 and 2007 (in
thousands):
  For
      the Year EndedDecember
      31, 2008
                  
                  
                  December
      31, 2007Net
      income (loss) plus non-cash adjustments
                  
                  $
                  32,972
                  
                  
                  $
                  18,017Changes
      in operating assets and liabilities
                  
                  
                  (8,232
                  )
                  
                  
                  5,752Net
      cash provided by operating activities
                  
                  $
                  24,740
                  
                  
                  $
                  23,769
 54
 The net
loss plus non-cash adjustments increased $15.0 million, or 83.0%, for the year
ended December 31, 2008, as compared to the same period in the prior
year.  The increase is primarily due the inclusion of operations
relating to the acquisition of MEA.  The changes in operating assets
and liabilities decreased $14.0 million for the year ended December 31, 2008, as
compared to the same period in the prior year.  The decrease is
primarily due to changes in operating assets and liabilities was a result of: 1)
$9.6 million paid to Erdman personnel in March 2008 for fiscal year 2007 annual
bonuses, profit sharing, and 401(k) employer matching, 2) $20.1 million decrease
in billings in excess of costs and estimated earnings on uncompleted contracts;
offset by a $6.4 million decrease in retainage receivables and $9.3 million in
cash provided due to various changes in operating assets, accrued expenses,
accrued incentive compensation, and prepaid rent accounts.  The
Company accrued the $9.6 million for the Erdman fiscal year 2007 performance
bonus payments as part of the Erdman purchase price allocation and the amount
was included in the Erdman merger working capital calculation.
 Cash used in investing activities increased $77.0 million, or 65.6%, for the
year ended December 31, 2008, as compared to the same period in the prior
year.  The increase is primarily due to the acquisition of
MEA.  Investment in real estate properties consisted of the following
for the year ended December 31, 2008 and 2008 (in thousands):
  For
      the Year EndedDecember
      31, 2008
                  
                  
                  December
      31, 2007Development,
      redevelopment, and acquisitions
                  
                  $
                  (39,163
                  )
                  
                  $
                  (105,985
                  )Second
      generation tenant improvements
                  
                  
                  (3,722
                  )
                  
                  
                  (4,158
                  )Recurring
      property capital expenditures
                  
                  
                  (2,630
                  )
                  
                  
                  (2,212
                  )Investment
      in real estate properties
                  
                  $
                  (45,515
                  )
                  
                  $
                  (112,355
                  )
 
 Cash
provided by financing activities increased $104.6 million, or 108.9%, for the
year ended December 31, 2008, as compared to same period in the prior
year.  The increase is primarily due to the issuance of common stock,
proceeds from the Term Loan, and borrowing under the Credit Facility to fund the
MEA transaction and property acquisitions.
 Construction
in Progress
 Construction
in progress at December 31, 2009, consisted of the following (dollars in
thousands):
 Property
                      Location
                      
                      Estimated
      Completion Date
                      
                      
                      Net
      Rentable Square Feet (unaudited)
                      
                      
                      Investment
                        to
      Date
                      
                      
                      Estimated
      Total InvestmentMedical
      Center Physicians Tower
                      Jackson,
      TN
                      
                      
                      1Q
      2010
                      
                      
                      
                      107,000
                      
                      
                      $
                      19,280
                      
                      
                      $
                      21,100HealthPartners
      Medical Office Building
                      St.
      Cloud, MN
                      
                      
                      2Q
      2010
                      
                      
                      
                      60,000
                      
                      
                      
                      11,126
                      
                      
                      
                      18,300Lancaster
      Rehabilitation Hospital
                      Lancaster,
      PA
                      
                      
                      2Q
      2010
                      
                      
                      
                      4,600
                      
                      
                      
                      414
                      
                      
                      
                      2,100University
      Physicians MOB & Outpatient Clinic
                      Brandon,
      MS
                      
                      
                      2Q
      2010
                      
                      
                      
                      50,600
                      
                      
                      
                      10,070
                      
                      
                      
                      13,900Land
      and pre-construction developments
                      
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      2,448
                      
                      
                      
                      -222,200
                      
                      
                      $
                      43,338
                      
                      
                      $
                      55,400
  As of
December 31, 2008, the Company had construction in progress related to the St.
Luke’s Riverside engagement in Bethlehem, Pennsylvania.  This was a
three building engagement project, of which the Company was to wholly-own or
partially-own one of the three buildings.  During 2009, due to changes
in the scope, size, and timing of the project, the Company no longer intends to
invest in the building under the original terms.  In accordance with
the development agreement, the hospital system client paid for all reimbursable
projects costs and for development services performed by the
Company.
  Liquidity
and Capital Resources
  At
December 31, 2009, the Company had approximately $25.9 million
available in cash and cash equivalents.  The Company is required to
distribute at least 90% of the Company’s net taxable income, excluding net
capital gains, to the Company’s stockholders on an annual basis due to
qualification requirements as a REIT.  Therefore, as a general matter,
it is unlikely that the Company will have any substantial cash balances that
could be used to meet the Company’s liquidity needs.  Instead, these
needs must be met from cash generated from operations and external sources of
capital.
  55
 The
Company has a $150.0 million secured revolving credit facility with a syndicate
of financial institutions (including Bank of America, N.A., KeyBank National
Association, Branch Banking and Trust Company, Wachovia Bank, National
Association, M&I Marshall and Ilsley Bank, and Citicorp North America, Inc.)
(collectively, the “Lenders”).  The Credit Facility is available to
fund working capital and for other general corporate purposes; to finance
acquisition and development activity; and to refinance existing and future
indebtedness.  The Credit Facility permits the Company to borrow up to
$150.0 million of revolving loans, with sub-limits of $25.0 million for
swingline loans and $25.0 million for letters of credit.  For
additional information, see Note 9 tothe accompanying Notes to Consolidated
Financial Statements.
  The
Credit Facility also allows for up to $100.0 million of increased availability
(to a total aggregate available amount of $250.0 million), at the Company’s
option but, subject to each Lender’s option to increase its
commitment.  The interest rate on loans under the Credit Facility
equals, at the Company’s election, either (1) LIBOR (0.23% as of December 31,
2009) plus a margin of between 95 to 140 basis points based on the Company’s
total leverage ratio (1.15% as of December 31, 2009) or (2) the higher of the
federal funds rate plus 50 basis points or Bank of America, N.A.’s prime rate
(3.25% as of December 31, 2009).
  The
Credit Facility contains customary terms and conditions for credit facilities of
this type, including, but not limited to: (1) affirmative covenants relating to
the Company’s corporate structure and ownership, maintenance of insurance,
compliance with environmental laws and preparation of environmental reports,
maintenance of the Company’s REIT qualification and listing on the NYSE, (2)
negative covenants relating to restrictions on liens, indebtedness, certain
investments (including loans and certain advances), mergers and other
fundamental changes, sales and other dispositions of property or assets and
transactions with affiliates, and (3) financial covenants to be met by the
Company at all times, including a maximum total leverage ratio (70%), maximum
real estate leverage ratio (70%), minimum fixed charge coverage ratio (1.50 to
1.00), maximum total debt to real estate value ratio (90%) and minimum
consolidated tangible net worth ($45 million plus 85% of the net proceeds of
equity issuances issued after the closing date).
 As of
December 31, 2009, there was $61.7 million available under the Credit Facility.
There was $80.0 million outstanding at December 31, 2009 and $8.3 million of
availability was restricted related to outstanding letters of
credit.
  The Credit Facility has the following financial covenants as of December 31,
2009 (dollars in thousands):
  Financial
      Covenant
                    
                    As
      of and for the
                      Year
      Ended December 31, 2009Maximum
      total leverage ratio (0.70 to 1.00)
                    
                    0.49
      to 1.00Maximum
      real estate leverage ratio (0.70 to 1.00)
                    
                    0.55
      to 1.00Minimum
      fixed charge coverage ratio (1.50 to 1.00)
                    
                    2.17
      to 1.00Minimum
      consolidated tangible net worth ($141,983)
                    
                    $   200,905Maximum
      total debt to real estate value ratio (0.90 to 1.00)
                    
                    0.62
      to 1.00
  The
Company has $50.0 million outstanding under a $50.0 million Term
Loan.  The Term Loan was initially $100.0 million and the Company
repaid $50.0 million in June 2009.  The Term Loan is secured by the
stock and certain accounts receivable at the Design-Build and Development
segment and is guaranteed by the Company.
  The
current economic environment and the volatility in the credit markets have
affected and, most likely, will continue to affect the Company’s results of
operations and financial position and in particular, the results of operations
and financial position of the Design-Build and Development
segment.  During the year ended 2009, the Company experienced delays
in client project starts and some contract cancellations.  Due to the
uncertainty of Design-Build and Development segment’s future operating results,
the Company and the Term Loan lenders amended the Term Loan in June
2009.  The amendment, among other things, amended certain financial
covenants relating to the Design-Build and Development segment, as well as
certain other provisions of the Term Loan, including (1) the elimination of the
minimum adjusted consolidated EBITDA covenant (previously $22.5 million), (2) a
modification of the maximum adjusted consolidated senior indebtedness to
adjusted consolidated EBITDA covenant to 3.50 to 1.00 through March 2011, with a
one-time ability to exceed 3.50 to 1.00 but not greater than 3.75 to 1.00, and
3.00 to 1.00 from April 2011 to final maturity (previously 4.25 to 1.00 as of
March 31, 2009, decreasing to 3.75 to 1.00 as of July 1, 2009), (3) an increase
in the interest rate from LIBOR plus 3.50% to LIBOR plus 4.50%, and (4) payment
of a market based modification fee.  The amendment was subject to the
repayment of $50.0 million of the outstanding balance under the Term Loan by the
Borrower (which amount was repaid on June 3, 2009) and certain other customary
terms and conditions.
  56
 The Term
Loan, as amended, also has the following financial covenants relating only to
the Design-Build and Development business segment as of December 31,
2009:
  Financial
      Covenant
                    
                    As
      of and for Year Ended December 31, 2009Minimum
      adjusted consolidated EBITDAto
      consolidated fixed charges (2.00 to 1.00)
                    
                    3.69
      to 1.00Maximum
      consolidated senior indebtedness toadjusted
      consolidated EBITDA (3.50 to 1.00,with
      a one-time ability to exceed 3.50 to 1.00,but
      not greater than 3.75 to 1.00)
                    
                    2.37
      to 1.00Maximum
      consolidated indebtedness to adjustedconsolidated
      EBITDA (5.50 to 1.00)
                    
                    2.37
      to 1.00
  The Term
Loan also contains customary covenants similar to the Credit Facility and
financial covenants to be met by the Company at all times under the guaranty,
including a maximum total leverage ratio (70%), maximum real estate leverage
ratio (70%), minimum fixed charge coverage ratio (1.50 to 1.00), maximum total
debt to real estate value ratio (90%) and minimum consolidated tangible net
worth ($45 million plus 85% of the net proceeds of equity issuances), as well as
being cross defaulted to the Company’s Credit Facility.
  If the
Company were in default under the Credit Facility or the Term Loan, then the
Lenders can declare the Company in default under the other agreement as
well.  As of December 31, 2009, the Company believes that it is in
compliance with all of its debt covenants under the Credit Facility and the Term
Loan.
  The
Credit Facility and Term Loan mature in March 2011.  Both have
one-time, one year conditional extension options at the Company’s
election.  As of December 31, 2009, the Company expects to exercise
the extension option for both the Credit Facility and the Term
Loan.
 During
2008, the Company formed a joint venture with Northwestern
Mutual.  The joint venture, Cogdell Spencer Medical Partners LLC, may
acquire up to approximately $350.0 million of medical office buildings and other
healthcare facilities nationwide, predominantly associated with not-for-profit
healthcare systems and large physician-owned clinics.  Through
December 31, 2010, the joint venture will be the Company’s exclusive vehicle for
cash acquisitions.  When the joint venture closes on a specific
acquisition, the Company will contribute 20% of the equity capital to fund the
acquisition.  The Company expects the joint venture will obtain
mortgage financing on market terms for its acquisitions, which mortgage
financing may come from the joint venture partner.  As of December 31,
2009, the joint venture did not have any acquisitions under
contract.
 Short-Term
Liquidity Needs
 The
Company believes that it will have sufficient capital resources as a result of
operations and the borrowings in place to fund ongoing operations and
distributions required to maintain REIT compliance.  The Company
currently anticipates 2010 cash flow from operations, before changes in
operating assets and liabilities, to approximate the sum of 2010 cash outflows
for dividends to shareholders and distributions to OP Unitholders and capital
expenditures and tenant improvement expenditures for properties owned as of
December 31, 2009.  Subject to IRS guidelines, the Company is
permitted to pay a portion of its dividends in the form of common stock in lieu
of cash.  The Company anticipates using its cash and cash equivalents
and Credit Facility availability for changes in operating assets and
liabilities, principal maturities, and the Company’s equity funding portion for
new developments and acquisitions.  For 2010, the Company has one
redevelopment project planned with an expected investment of approximately $4.0
million.
  57
 As of
December 31, 2009, the Company had approximately $25.3 million of principal and
maturity payments due in 2010 related to mortgage note payables.  The
$25.3 million is comprised of $4.4 million for principal amortization and $20.9
million for maturities.  Of the $20.9 million in maturing mortgage
notes payable, $7.7 million relates to wholly-owned properties and $13.7 million
relates to Alamance Regional Medical Outpatient Center, which is a consolidated
real partnership in which the Company owns 35.5%.
  The
Company believes it will be able to refinance the $7.7 million 2010 balloon
maturities related to the wholly-owned properties as a result of the current
loan to value ratios at the individual properties and preliminary discussions
with lenders.  The Company believes that it will be able to refinance
some, but not all, of the $13.7 million 2010 balloon maturity related to
Alamance Regional Medical Outpatient Center.  The partners in this
real estate partnership, in which the Company owns 35%, may need to contribute
equity to the partnership in order to reduce the debt balance.
  Should
the Company be unable to refinance the 2010 balloon maturities, the Company has
$87.6 million combined cash and cash equivalents and Credit Facility
availability as of December 31, 2009, which exceeds the 2010 principal and
maturity payments due in 2010.
  As of
December 31, 2009, the Company has no outstanding equity commitments to joint
ventures formed prior to December 31, 2009.  The Cogdell Spencer
Medical Partners LLC acquisition joint venture with Northwestern Mutual has no
properties under contract to acquire as of December 31, 2009, thus the Company
has no equity commitment to the joint venture as of December 31,
2009.
  On
December 17, 2009, the Company declared a dividend to common stockholders
of record and the Operating Partnership declared a distribution to holders of OP
units of record, in each case as of December 31, 2009, totaling
$5.1 million, or $0.10 per share or OP unit, covering the period from
October 1, 2009 through December 31, 2009.  The dividend and
distribution were paid on January 21, 2010.  The dividend and
distribution were equivalent to an annual rate of $0.40 per share and OP
unit.
 Long-Term
Liquidity Needs
 The
Company’s principal long-term liquidity needs consist primarily of new property
development, property acquisitions, and principal payments under various
mortgages and other credit facilities and non-recurring capital
expenditures.  The Company does not expect that its net cash provided
by operations will be sufficient to meet all of these long-term liquidity
needs.  Instead, the Company expects to finance new property
developments through modest cash equity capital contributed by the Company
together with construction loan proceeds, as well as through cash equity
investments by its tenants or third parties.  The Company intends to
have construction financing agreements in place before construction begins on
development projects.  The Company expects to fund property
acquisitions through a combination of borrowings under its Credit Facility and
traditional secured mortgage financing.  In addition, the Company may
use OP units issued by the Operating Partnership to acquire properties from
existing owners seeking a tax deferred transaction.
 Although
capital markets continued to remain restricted during 2009 and will likely
remain restricted in 2010, the Company continues to expect to meet long-term
liquidity requirements through net cash provided by operations and through
additional equity and debt financings, including loans from banks, institutional
investors or other lenders, bridge loans, letters of credit, and other lending
arrangements, most of which will be secured by mortgages. Notwithstanding
the Company’s expectations discussed above, financial markets continue to
experience unusual volatility and uncertainty.  Financial systems
throughout the world have become illiquid with banks no longer willing to lend
substantial amounts to other banks and borrowers.  Consequently, there
is greater uncertainty regarding the Company’s ability to access the credit
market in order to attract financing or capital on reasonable terms or on any
terms.  The Company may also issue unsecured debt in the
future.  However, with the current deteriorating general economic
conditions and the current volatility of the debt and equity markets, there can
be no assurance as to the Company’s ability to raise new debt or
equity.  The Company does not, in general, expect to meet its
long-term liquidity needs through dispositions of its properties. In the event
that the Company were to sell any of its properties in the future, depending on
which property were to be sold, the Company may need to structure the sale or
disposition as a tax deferred transaction which would require the reinvestment
of the proceeds from such transaction in another property or, however, the
proceeds that would be available to the Company from such sales may be reduced
by amounts that the Company may owe under the tax protection agreements entered
into in connection with the Company’s formation transactions and certain
property acquisitions.  In addition, the Company’s ability to sell
certain of its assets could be adversely affected by the general illiquidity of
real estate assets and certain additional factors particular to the Company’s
portfolio such as the specialized nature of its target property type, property
use restrictions and the need to obtain consents or waivers of rights of first
refusal or rights of first offers from ground lessors in the case of sales of
its properties that are subject to ground leases.
  58
 The
Company intends to repay indebtedness incurred under its Credit Facility from
time to time, for acquisitions or otherwise, out of cash flow from operations
and from the proceeds, to the extent possible and desirable, of additional debt
or equity issuances. In the future, the Company may seek to increase the amount
of the Credit Facility, negotiate additional credit facilities or issue
corporate debt instruments.  However, with the current volatility in
the debt markets, there can be no assurance as to the Company’s ability to raise
new debt.  Any indebtedness incurred or issued by the Company may be
secured or unsecured, short-, medium- or long-term, fixed or variable interest
rate and may be subject to other terms and conditions the Company deems
acceptable. The Company intends to refinance at maturity the mortgage notes
payable that have balloon payments at maturity.
  Contractual
Obligations
  The
following table summarizes the Company’s contractual obligations as of
December 31, 2009, including the maturities and scheduled principal
repayments and the commitments due in connection with the Company’s ground
leases and operating leases for the periods indicated (in
thousands):
  2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    2013
                    
                    
                    2014
                    
                    
                    Thereafter
                    
                    
                    TotalObligation:Long-term
      debt principal
                      payments
      and maturities (1)
                    
                    $
                    25,301
                    
                    
                    $
                    181,661
                    
                    
                    $
                    25,151
                    
                    
                    $
                    15,992
                    
                    
                    $
                    54,231
                    
                    
                    $
                    108,467
                    
                    
                    $
                    410,803Standby
      letters of credit (2)
                    
                    
                    8,257
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    8,257Interest
      payments (3)
                    
                    
                    16,106
                    
                    
                    
                    12,396
                    
                    
                    
                    10,152
                    
                    
                    
                    9,120
                    
                    
                    
                    7,527
                    
                    
                    
                    16,068
                    
                    
                    
                    71,369Purchase
      commitments (4)
                    
                    
                    3,742
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    3,742Ground
      and air rights  leases (5)
                    
                    
                    801
                    
                    
                    
                    801
                    
                    
                    
                    439
                    
                    
                    
                    407
                    
                    
                    
                    407
                    
                    
                    
                    11,424
                    
                    
                    
                    14,279Operating
      leases (6)
                    
                    
                    5,083
                    
                    
                    
                    4,405
                    
                    
                    
                    3,975
                    
                    
                    
                    3,197
                    
                    
                    
                    3,247
                    
                    
                    
                    23,621
                    
                    
                    
                    43,528Total
                    
                    $
                    59,290
                    
                    
                    $
                    199,263
                    
                    
                    $
                    39,717
                    
                    
                    $
                    28,716
                    
                    
                    $
                    65,412
                    
                    
                    $
                    159,580
                    
                    
                    $
                    551,978
  (1)
      Includes notes payable under the Company's Credit Facility(2)
      As collateral for performance, the Company is contingently liable under
      standby letters of credit, which also reduces the availability under
      theCredit
      Facility(3)
      Assumes one-month LIBOR of 0.23% and Prime Rate of 3.25% which were the
      rates as of December 31, 2009 and includes fixed rateinterest
      swap agreements.(4)
      These purchase commitments are related to the Company's development
      projects that are currently under construction.(5)
      Substantially all of the ground and air rights leases effectively limit
      our control over various aspects of the operation of the
      applicableproperty,
      restrict our ability to transfer the property and allow the lessor the
      right of first refusal to purchase the building and
      improvements.  Allof
      the ground leases provide for the property to revert to the lessor for no
      consideration upon the expiration or earlier termination of the
      groundor
      air rights lease.(6)
      Payments under operating lease agreements relate to various of our
      properties' equipment and office space leases.  The future
      minimum leasecommitments
      under these leases are as indicated.(7)
      Excludes scheduled maturities related to the mortgage note payable
      included in discontinued operations The mortgage note payable
      requiresmonthly
      principal and interest payments of approximately $20,000 until February
      2011, at which time a balloon payment of approximately$2.1
      million is due.
  For
additional information, see Note 11 to the accompanying Notes to
Consolidated Financial Statements.
  Off-Balance
Sheet Arrangements
  The
Company may guarantee debt in connection with certain of its development
activities, including joint ventures, from time to time.  As of
December 31, 2009, the Company did not have any such guarantees or other
off-balance sheet arrangements outstanding.
  59
 Real
Estate Taxes
  The
Company’s leases generally require the tenants to be responsible for all real
estate taxes.
  Inflation
  The
Company’s leases at wholly-owned and consolidated partnership properties
generally provide for either indexed escalators, based on the CPI or other
measures or, to a lesser extent, fixed increases in base rents. The leases also
contain provisions under which the tenants reimburse the Company for a portion
of property operating expenses and real estate taxes.  The Company’s
property management and related services provided to third parties typically
provide for fees based on a percentage of revenues for the month as defined in
the related property management agreements.  The revenues collected
from leases are generally structured as described above, with year over year
increases.  The Company also pays certain payroll and related costs
related to the operations of third party properties that are managed by the
Company.  Under terms of the related management agreements, these
costs are reimbursed by the third party property owners.  The Company
believes that inflationary increases in expenses will be offset, in part, by the
contractual rent increases and tenant expense reimbursements described
above.
  Seasonality
  Business
under the Design-Build and Development segment can be subject to seasonality due
to weather conditions at construction sites.  In addition,
construction starts and contract signings can be impacted by the timing of
budget cycles at healthcare systems and providers.
  Recent
Accounting Pronouncements
  For
additional information, see Note 2 to the accompanying Notes to Consolidated
Financial Statements.
  Item 7A.
                    Quantitative
      and Qualitative Disclosure About Market
  Risk
 The
Company’s future income, cash flows and fair values relevant to financial
instruments are dependent upon prevalent market interest
rates.  Market risk refers to the risk of loss from adverse changes in
market prices and interest rates.  The Company uses some derivative
financial instruments to manage, or hedge, interest rate risks related to the
Company’s borrowings.  The Company does not use derivatives for
trading or speculative purposes and only enters into contracts with major
financial institutions based on their credit rating and other
factors.
  As of
December 31, 2009, the Company had $410.9 million of consolidated debt
outstanding (excluding any discounts or premiums related to assumed debt as
well as excluding $2.1 million in a mortgage note payable related to
discontinued operations).  Of the Company’s total consolidated debt,
$70.0 million, or 17.1%, was variable rate debt that is not subject to variable
to fixed rate interest rate swap agreements.  Of the Company’s total
indebtedness, $340.8 million, or 82.9%, was subject to fixed interest rates,
including variable rate debt that is subject to variable to fixed rate swap
agreements.  The weighted average interest rate for fixed rate debt
was 5.7% as of December 31, 2009.
  If LIBOR
were to increase by 100 basis points, the increase in interest expense on
the Company’s variable rate debt would decrease future earnings and cash flows
by approximately $0.6 million.  Interest rate risk amounts were
determined by considering the impact of hypothetical interest rates on the
Company’s financial instruments.  These analyses do not consider the
effect of any change in overall economic activity that could occur in that
environment.  Further, in the event of a change of that magnitude, the
Company may take actions to further mitigate the Company’s exposure to the
change.  However, due to the uncertainty of the specific actions that
would be taken and their possible effects, these analyses assume no changes in
the Company’s financial structure.
  60
 Item 8.
                      Financial
      Statements and Supplementary
Data
 
 COGDELL
SPENCER INC.
 
 INDEX
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                      62Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                      63Consolidated
      Statements of Operations for the years ended December 31, 2009, 2008, and
      2007
                      64Consolidated
      Statements of Equity for the years ended December 31, 2009, 2008, and
      2007
                      65Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008, and
      2007
                      66Notes
      to Consolidated Financial Statements
                      68Supplemental
      Schedule - Schedule III - Real Estate and Accumulated
      Depreciation
                      100Notes
      to Schedule III - Real Estate and Accumulated Depreciation
                      102
 
 61
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders of
 Cogdell
Spencer Inc.
  Charlotte,
North Carolina
  We have
audited the accompanying consolidated balance sheets of Cogdell Spencer Inc. and
subsidiaries (the "Company") as of December 31, 2009 and 2008, and the related
consolidated statements of operations, equity, and cash flows for each of the
three years in the period ended December 31, 2009.  Our audits also
included the financial statement schedule listed in the Index at Item 8. 
These financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to
express an opinionon the financial
statements and financial statement schedule based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the auditto obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An auditincludes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An auditalso includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable
basis for our opinion
 .
  In our
opinion
, such consolidated financial statements present
fairly, in all material respects, the financial position of Cogdell Spencer Inc.
and subsidiaries at December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.  Also, in our opinion
,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
  As
discussed in Note 2 to the financial statements, on January 1, 2009, the Company
changed its method of accounting for noncontrolling interests and
retrospectively adjusted all periods presented in the consolidated financial
statements.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 16, 2010 expressed an unqualified opinionon the Company's internal control over
financial reporting.
  DELOITTE
& TOUCHE LLP
 
 McLean,
Virginia
  March 16,
2010
  62
 (in
thousands, except per share amounts)
 December
      31, 2009
                      
                      
                      December
      31, 2008AssetsReal
      estate properties:Land
                      
                      $
                      33,139
                      
                      
                      $
                      29,101Buildings
      and improvements
                      
                      
                      527,985
                      
                      
                      
                      498,609Less:
      Accumulated depreciation
                      
                      
                      (93,247
                      )
                      
                      
                      (68,764
                      )Net
      operating real estate properties
                      
                      
                      467,877
                      
                      
                      
                      458,946Construction
      in progress
                      
                      
                      43,338
                      
                      
                      
                      15,314Net
      real estate properties
                      
                      
                      511,215
                      
                      
                      
                      474,260Cash
      and cash equivalents
                      
                      
                      25,914
                      
                      
                      
                      34,668Restricted
      cash
                      
                      
                      3,060
                      
                      
                      
                      12,959Tenant
      and accounts receivable, net of allowance of $2,817 in 2009 and $194 in
      2008
                      
                      
                      12,993
                      
                      
                      
                      43,520Goodwill
                      
                      
                      108,683
                      
                      
                      
                      180,435Trade
      names and trademarks
                      
                      
                      41,240
                      
                      
                      
                      75,969Intangible
      assets, net of accumulated amortization of $43,313 in 2009 and $37,674 in
      2008
                      
                      
                      21,742
                      
                      
                      
                      45,363Other
      assets
                      
                      
                      25,599
                      
                      
                      
                      29,180Other
      assets - held for sale
                      
                      
                      2,217
                      
                      
                      
                      3,736Total
      assets
                      
                      $
                      752,663
                      
                      
                      $
                      900,090Liabilities
      and equityMortgage
      notes payable
                      
                      $
                      280,892
                      
                      
                      $
                      238,448Revolving
      credit facility
                      
                      
                      80,000
                      
                      
                      
                      124,500Term
      loan
                      
                      
                      50,000
                      
                      
                      
                      100,000Accounts
      payable
                      
                      
                      15,293
                      
                      
                      
                      22,775Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                      
                      
                      13,189
                      
                      
                      
                      17,025Deferred
      income taxes
                      
                      
                      15,993
                      
                      
                      
                      34,176Payable
      to prior MEA Holdings, Inc. shareholders
                      
                      
                      -
                      
                      
                      
                      18,002Other
      liabilities
                      
                      
                      47,312
                      
                      
                      
                      59,860Other
      liabilities - held for sale
                      
                      
                      2,204
                      
                      
                      
                      2,310Total
      liabilities
                      
                      
                      504,883
                      
                      
                      
                      617,096Commitments
      and contingenciesEquity:Cogdell
      Spencer Inc. stockholders' equity:Preferred
      stock, $0.01 par value; 50,000 shares authorized, none issued or
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $0.01 par value; 200,000 shares authorized, 42,729 and 17,699
      sharesissued
      and outstanding in 2009 and 2008, respectively
                      
                      
                      427
                      
                      
                      
                      177Additional
      paid-in capital
                      
                      
                      370,593
                      
                      
                      
                      275,380Accumulated
      other comprehensive loss
                      
                      
                      (1,861
                      )
                      
                      
                      (5,106
                      )Accumulated
      deficit
                      
                      
                      (164,321
                      )
                      
                      
                      (77,438
                      )Total
      Cogdell Spencer Inc. stockholders' equity
                      
                      
                      204,838
                      
                      
                      
                      193,013Noncontrolling
      interests:Real
      estate partnerships
                      
                      
                      5,220
                      
                      
                      
                      4,657Operating
      partnership
                      
                      
                      37,722
                      
                      
                      
                      85,324Total
      noncontrolling interests
                      
                      
                      42,942
                      
                      
                      
                      89,981Total
      equity
                      
                      
                      247,780
                      
                      
                      
                      282,994Total
      liabilities and equity
                      
                      $
                      752,663
                      
                      
                      $
                      900,090See
      notes to consolidated financial statements.
  63
 COGDELL SPENCER INC.
 STATEMENTS
 For
      the Year Ended
                      
                      
                      
                      For
      the Year Ended
                      
                      
                      
                      For
      the Year EndedDecember
      31, 2009
                      
                      
                      
                      December
      31, 2008
                      
                      
                      
                      December
      31, 2007Revenues:Rental
      revenue
                      
                      $
                      79,486
                      
                      
                      
                      $
                      77,421
                      
                      
                      
                      $
                      62,611Design-Build
      contract revenue and other sales
                      
                      
                      143,416
                      
                      
                      
                      
                      253,596
                      
                      
                      
                      
                      -Property
      management and other fees
                      
                      
                      3,336
                      
                      
                      
                      
                      3,460
                      
                      
                      
                      
                      3,502Development
      management and other income
                      
                      
                      3,363
                      
                      
                      
                      
                      885
                      
                      
                      
                      
                      290Total
      revenues
                      
                      
                      229,601
                      
                      
                      
                      
                      335,362
                      
                      
                      
                      
                      66,403Expenses:Property
      operating and management
                      
                      
                      31,810
                      
                      
                      
                      
                      31,065
                      
                      
                      
                      
                      25,405Design-Build
      contracts and development management
                      
                      
                      113,961
                      
                      
                      
                      
                      214,019
                      
                      
                      
                      
                      -Selling,
      general, and administrative
                      
                      
                      32,285
                      
                      
                      
                      
                      30,215
                      
                      
                      
                      
                      7,365Depreciation
      and amortization
                      
                      
                      34,502
                      
                      
                      
                      
                      44,879
                      
                      
                      
                      
                      27,612Impairment
      charges
                      
                      
                      120,920
                      
                      
                      
                      
                      -
                      
                      
                      
                      
                      -Total
      expenses
                      
                      
                      333,478
                      
                      
                      
                      
                      320,178
                      
                      
                      
                      
                      60,382Income
      (loss) from continuing operations before other income (expense)
      and
                        income
      tax benefit (expense)
                      
                      
                      (103,877
                      )
                      
                      
                      
                      15,184
                      
                      
                      
                      
                      6,021Other
      income (expense):Interest
      and other income
                      
                      
                      620
                      
                      
                      
                      
                      922
                      
                      
                      
                      
                      1,073Gain
      on settlement from MEA Holdings, Inc. transaction
                      
                      
                      4,905
                      
                      
                      
                      
                      -
                      
                      
                      
                      
                      -Interest
      expense
                      
                      
                      (21,711
                      )
                      
                      
                      
                      (25,017
                      )
                      
                      
                      
                      (15,818
                      )Debt
      extinguishment and interest rate derivative expense
                      
                      
                      (2,511
                      )
                      
                      
                      
                      -
                      
                      
                      
                      
                      -Equity
      in earnings of unconsolidated real estate partnerships
                      
                      
                      15
                      
                      
                      
                      
                      22
                      
                      
                      
                      
                      20Total
      other income (expense)
                      
                      
                      (18,682
                      )
                      
                      
                      
                      (24,073
                      )
                      
                      
                      
                      (14,725
                      )Loss
      from continuing operations before income tax benefit
    (expense)
                      
                      
                      (122,559
                      )
                      
                      
                      
                      (8,889
                      )
                      
                      
                      
                      (8,704
                      )Income
      tax benefit (expense)
                      
                      
                      22,124
                      
                      
                      
                      
                      1,244
                      
                      
                      
                      
                      (117
                      )Net
      loss from continuing operations
                      
                      
                      (100,435
                      )
                      
                      
                      
                      (7,645
                      )
                      
                      
                      
                      (8,821
                      )Discontinued
      operations:Loss
      from discontinued operations
                      
                      
                      (168
                      )
                      
                      
                      
                      (212
                      )
                      
                      
                      
                      (173
                      )Impairment
      of real estate property
                      
                      
                      (1,359
                      )
                      
                      
                      
                      -
                      
                      
                      
                      
                      -Total
      discontinued operations
                      
                      
                      (1,527
                      )
                      
                      
                      
                      (212
                      )
                      
                      
                      
                      (173
                      )Net
      loss
                      
                      
                      (101,962
                      )
                      
                      
                      
                      (7,857
                      )
                      
                      
                      
                      (8,994
                      )Net
      loss (income) attributable to the noncontrolling interest
    in:Real
      estate partnerships
                      
                      
                      (288
                      )
                      
                      
                      
                      (964
                      )
                      
                      
                      
                      (85
                      )Operating
      partnership
                      
                      
                      32,522
                      
                      
                      
                      
                      3,048
                      
                      
                      
                      
                      2,738Net
      loss attributable to Cogdell Spencer Inc.
                      
                      $
                      (69,728
                      )
                      
                      
                      $
                      (5,773
                      )
                      
                      
                      $
                      (6,341
                      )Per
      share data - basic and dilutedLoss
      from continuing operations attributable to Cogdell Spencer
      Inc.
                      
                      $
                      (2.10
                      )
                      
                      
                      $
                      (0.36
                      )
                      
                      
                      $
                      (0.56
                      )Loss
      from discontinued operations attributable to Cogdell Spencer
      Inc.
                      
                      
                      (0.04
                      )
                      
                      
                      
                      (0.01
                      )
                      
                      
                      
                      (0.01
                      )Net
      loss per share attributable to Cogdell Spencer Inc.
                      
                      $
                      (2.14
                      )
                      
                      
                      $
                      (0.37
                      )
                      
                      
                      $
                      (0.57
                      )Weighted
      average common shares - basic and diluted
                      
                      
                      32,655
                      
                      
                      
                      
                      15,770
                      
                      
                      
                      
                      11,056Net
      (loss) attributable to Cogdell Spencer Inc.:Income
      from continuing operations, net of tax
                      
                      $
                      (68,500
                      )
                      
                      
                      $
                      (5,634
                      )
                      
                      
                      $
                      (6,216
                      )Discontinued
      operations
                      
                      
                      (1,228
                      )
                      
                      
                      
                      (139
                      )
                      
                      
                      
                      (125
                      )Net
      loss attributable to Cogdell Spencer Inc.
                      
                      $
                      (69,728
                      )
                      
                      
                      $
                      (5,773
                      )
                      
                      
                      $
                      (6,341
                      )See
      notes to consolidated financial statements.
 64
 COGDELL SPENCER
INC.
 Cogdell
      Spencer Inc. StockholdersAccumulated
                        
                        
                        
                        
                        
                        Noncontrolling
                        
                        NoncontrollingOther
                        
                        
                        
                        Additional
                        
                        Interests
      in
                        
                        Interests
      inTotal
                        
                        Comprehensive
                        
                        Accumulated
                        
                        Comprehensive
                        
                        Common
                        
                        Paid-in
                        
                        Operating
                        
                        Real
      EstateEquity
                        
                        Loss
                        
                        Deficit
                        
                        Income
      (Loss)
                        
                        Stock
                        
                        Capital
                        
                        Partnership
                        
                        PartnershipsBalance
      at December 31, 2006
                        
                        $
                        113,676
                        
                        
                        
                        $
                        (27,702
                        )
                        $
                        47
                        
                        $
                        80
                        
                        $
                        87,224
                        
                        $
                        53,870
                        
                        $
                        157Comprehensive
      loss:Net
      income (loss)
                        
                        
                        (8,994
                        )
                        $
                        (8,994
                        )
                        
                        (6,341
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (2,738
                        )
                        
                        85Unrealized
      loss on interest rate swaps
                        
                        
                        (1,307
                        )
                        
                        (1,307
                        )
                        
                        -
                        
                        
                        (931
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        (376
                        )
                        
                        -Comprehensive
      loss
                        
                        
                        (10,301
                        )
                        $
                        (10,301
                        )Issuance
      of common stock, net of costs
                        
                        
                        78,464
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        39
                        
                        
                        78,425
                        
                        
                        -
                        
                        
                        -Issuance
      of operating partnership units
                        
                        
                        2,426
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        2,426
                        
                        
                        -Redemption
      of operating partnership units
                        
                        
                        (1,326
                        )
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (1,326
                        )
                        
                        -Conversion
      of operating partnership units to common stock
                        
                        
                        -
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        6
                        
                        
                        (6
                        )
                        
                        -Issuance
      of limited partnership interests in real estate
partnership
                        
                        
                        2,308
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        2,308Restricted
      stock and LTIP units grants
                        
                        
                        73
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        20
                        
                        
                        53
                        
                        
                        -Amortization
      of restricted stock grants
                        
                        
                        110
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        69
                        
                        
                        41
                        
                        
                        -Dividends
      and distributions
                        
                        
                        (23,174
                        )
                        
                        
                        
                        
                        (16,708
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (6,350
                        )
                        
                        (116
                        )Adjustment
      to record change of interest in the operating
                          partnership
      due to the issuance of operating partnership units in
                          excess
      of book value
                        
                        
                        -
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,157
                        
                        
                        (1,157
                        )
                        
                        -Balance
      at December 31, 2007
                        
                        
                        162,256
                        
                        
                        
                        
                        
                        (50,751
                        )
                        
                        (884
                        )
                        
                        119
                        
                        
                        166,901
                        
                        
                        44,437
                        
                        
                        2,434Comprehensive
      loss:Net
      income (loss)
                        
                        
                        (7,857
                        )
                        $
                        (7,857
                        )
                        
                        (5,773
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (3,048
                        )
                        
                        964Unrealized
      loss on interest rate swaps, net of tax
                        
                        
                        (7,936
                        )
                        
                        (7,936
                        )
                        
                        -
                        
                        
                        (4,222
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        (2,092
                        )
                        
                        (1,622
                        )Comprehensive
      loss
                        
                        
                        (15,793
                        )
                        $
                        (15,793
                        )Issuance
      of common stock, net of costs
                        
                        
                        91,231
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        57
                        
                        
                        91,174
                        
                        
                        -
                        
                        
                        -Issuance
      of operating partnership units
                        
                        
                        74,270
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        74,270
                        
                        
                        -Redemption
      of operating partnership units
                        
                        
                        (493
                        )
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (493
                        )
                        
                        -Conversion
      of operating partnership units to common stock
                        
                        
                        (114
                        )
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1
                        
                        
                        1,843
                        
                        
                        (1,958
                        )
                        
                        -Issuance
      of limited partnership interests in real estate
partnership
                        
                        
                        3,845
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        3,845Restricted
      stock and LTIP units grants
                        
                        
                        1,144
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        94
                        
                        
                        1,050
                        
                        
                        -Amortization
      of restricted stock grants
                        
                        
                        101
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        63
                        
                        
                        38
                        
                        
                        -Dividends
      and distributions
                        
                        
                        (33,453
                        )
                        
                        
                        
                        
                        (20,914
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (11,575
                        )
                        
                        (964
                        )Adjustment
      to record change of interest in the operating partnership
                          due
      to the issuance ofoperating partnership units at other than
                          book value
                        
                        
                        -
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        15,305
                        
                        
                        (15,305
                        )
                        
                        -Balance
      at December 31, 2008
                        
                        
                        282,994
                        
                        
                        
                        
                        
                        (77,438
                        )
                        
                        (5,106
                        )
                        
                        177
                        
                        
                        275,380
                        
                        
                        85,324
                        
                        
                        4,657Comprehensive
      loss:Net income (loss)
                        
                        
                        (101,962
                        )
                        $
                        (101,962
                        )
                        
                        (69,728
                        )
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (32,522
                        )
                        
                        288Unrealized
      gain on interest rate swaps, net of tax
                        
                        
                        5,185
                        
                        
                        5,185
                        
                        
                        -
                        
                        
                        3,760
                        
                        
                        -
                        
                        
                        -
                        
                        
                        611
                        
                        
                        814Comprehensive loss
                        
                        
                        (96,777
                        )
                        $
                        (96,777
                        )Issuance of common stock, net of costs
                        
                        
                        76,457
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        230
                        
                        
                        76,227
                        
                        
                        -
                        
                        
                        -Issuance of operating partnership units
                        
                        
                        5,262
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        5,262
                        
                        
                        -Conversion of operating partnership units to common stock
                        
                        
                        -
                        
                        
                        
                        
                        
                        -
                        
                        
                        (515
                        )
                        
                        20
                        
                        
                        18,830
                        
                        
                        (18,335
                        )
                        
                        -Restricted stock and LTIP unit grants
                        
                        
                        1,344
                        
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        80
                        
                        
                        1,264
                        
                        
                        -Amortization of restricted stock grants
                        
                        
                        113
                        
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        76
                        
                        
                        37Dividends and distributions
                        
                        
                        (21,613
                        )
                        
                        
                        
                        
                        (17,155
                        )
                        
                        
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (3,919
                        )
                        
                        (539
                        )Balance
      at December 31, 2009
                        
                        $
                        247,780
                        
                        
                        
                        
                        $
                        (164,321
                        )
                        $
                        (1,861
                        )
                        $
                        427
                        
                        $
                        370,593
                        
                        $
                        37,722
                        
                        $
                        5,220See
      notes to consolidated financial statements.
  65
 COGELL SPENCER
INC.
  For
      the Year Ended
                        
                        
                        For
      the Year Ended
                        
                        
                        For
      the Year EndedDecember
      31, 2009
                        
                        
                        December
      31, 2008
                        
                        
                        December
      31, 2007Operating
      activities:Net
      loss
                        
                        $
                        (101,962
                        )
                        
                        $
                        (7,857
                        )
                        
                        $
                        (8,994
                        )Adjustments
      to reconcile net loss to cash provided
      by operating activities:Depreciation and
      amortization (including amounts in discontinued operations)
                        
                        
                        34,502
                        
                        
                        
                        45,016
                        
                        
                        
                        27,758Amortization of
      acquired above market leases and acquired below market leases, net
      (including amounts in
                          discontinued operations)
                        
                        
                        (542
                        )
                        
                        
                        (638
                        )
                        
                        
                        (723
                        )Straight-line rental
      revenue
                        
                        
                        (556
                        )
                        
                        
                        (569
                        )
                        
                        
                        (445
                        )Amortization of deferred
      finance costs and debt premium
                        
                        
                        1,644
                        
                        
                        
                        1,286
                        
                        
                        
                        271Provision for bad
      debts
                        
                        
                        2,624
                        
                        
                        
                        175
                        
                        
                        
                        17Deferred income
      taxes
                        
                        
                        (18,614
                        )
                        
                        
                        (5,657
                        )
                        
                        
                        (30
                        )Deferred tax expense on
      intersegment profits
                        
                        
                        (2,813
                        )
                        
                        
                        (7
                        )
                        
                        
                        -Equity-based
      compensation
                        
                        
                        1,300
                        
                        
                        
                        1,245
                        
                        
                        
                        183Equity in earnings of
      unconsolidated real estate partnerships
                        
                        
                        (15
                        )
                        
                        
                        (22
                        )
                        
                        
                        (20
                        )Debt extinguishment and
      interest rate derivative expense
                        
                        
                        2,511
                        
                        
                        
                        -
                        
                        
                        
                        -Change in fair value of
      interest rate swap agreements
                        
                        
                        (757
                        )
                        
                        
                        -
                        
                        
                        
                        -Impairment of goodwill,
      trade names and trademarks and intangibleassets
                        
                        
                        120,920
                        
                        
                        
                        -
                        
                        
                        
                        -Impairment of real estate
      property
                        
                        
                        1,359
                        
                        
                        
                        -
                        
                        
                        
                        -Gain on settlement from
      MEA Holdings, Inc. transaction
                        
                        
                        (2,002
                        )
                        
                        
                        -
                        
                        
                        
                        -Changes in operating
      assets and liabilities:Tenant and accounts
      receivable and other assets
                        
                        
                        32,118
                        
                        
                        
                        16,243
                        
                        
                        
                        (369
                        )Accounts payable and other
      liabilities
                        
                        
                        (20,438
                        )
                        
                        
                        (4,366
                        )
                        
                        
                        6,121Billings in excess of
      costs and estimated earningson
      uncompleted contracts
                        
                        
                        (3,836
                        )
                        
                        
                        (20,109
                        )
                        
                        
                        -Net
      cash provided by operating activities
                        
                        
                        45,443
                        
                        
                        
                        24,740
                        
                        
                        
                        23,769Investing
      activities:Business
      acquisitions, net of cash acquired
                        
                        
                        (8,022
                        )
                        
                        
                        (134,134
                        )
                        
                        
                        -Investment
      in real estate properties, net of cash acquired
                        
                        
                        (54,572
                        )
                        
                        
                        (45,515
                        )
                        
                        
                        (112,355
                        )Purchase
      of noncontrolling interests in operating partnership
                        
                        
                        -
                        
                        
                        
                        (770
                        )
                        
                        
                        (4,340
                        )Proceeds
      from sales-type capital lease
                        
                        
                        306
                        
                        
                        
                        306
                        
                        
                        
                        305Purchase
      of corporate property, plant and equipment
                        
                        
                        (1,830
                        )
                        
                        
                        (3,008
                        )
                        
                        
                        (576
                        )Distributions
      received from unconsolidated real estate partnerships
                        
                        
                        6
                        
                        
                        
                        5
                        
                        
                        
                        14Decrease
      (increase) in restricted cash
                        
                        
                        9,899
                        
                        
                        
                        (11,161
                        )
                        
                        
                        (346
                        )Net
      cash used in investing activities
                        
                        
                        (54,213
                        )
                        
                        
                        (194,277
                        )
                        
                        
                        (117,298
                        )Financing
      activities:Proceeds
      from mortgage notes payable
                        
                        
                        73,222
                        
                        
                        
                        22,580
                        
                        
                        
                        70,257Repayments
      of mortgage notes payable
                        
                        
                        (30,813
                        )
                        
                        
                        (21,964
                        )
                        
                        
                        (33,361
                        )Proceeds
      from revolving credit facility
                        
                        
                        3,500
                        
                        
                        
                        145,000
                        
                        
                        
                        82,400Repayments
      to revolving credit facility
                        
                        
                        (48,000
                        )
                        
                        
                        (99,700
                        )
                        
                        
                        (80,687
                        )Proceeds
      from term loan
                        
                        
                        -
                        
                        
                        
                        100,000
                        
                        
                        
                        -Repayment
      of term loan
                        
                        
                        (50,000
                        )
                        
                        
                        -
                        
                        
                        
                        -Net
      proceeds from sale of common stock
                        
                        
                        76,457
                        
                        
                        
                        91,229
                        
                        
                        
                        78,463Dividends
      and distributions
                        
                        
                        (22,135
                        )
                        
                        
                        (32,101
                        )
                        
                        
                        (21,705
                        )Contributions
      from noncontrolling interests in real estate partnerships
                        
                        
                        -
                        
                        
                        
                        481
                        
                        
                        
                        1,848Distributions
      to noncontrolling interests in real estate partnerships
                        
                        
                        (539
                        )
                        
                        
                        (963
                        )
                        
                        
                        (117
                        )Payment
      of financing costs
                        
                        
                        (1,676
                        )
                        
                        
                        (3,912
                        )
                        
                        
                        (1,043
                        )Net
      cash provided by financing activities
                        
                        
                        16
                        
                        
                        
                        200,650
                        
                        
                        
                        96,055Increase
      (decrease) in cash and cash equivalents
                        
                        
                        (8,754
                        )
                        
                        
                        31,113
                        
                        
                        
                        2,526Balance
      at beginning of period
                        
                        
                        34,668
                        
                        
                        
                        3,555
                        
                        
                        
                        1,029Balance
      at end of period
                        
                        $
                        25,914
                        
                        
                        $
                        34,668
                        
                        
                        $
                        3,555
  66
 COGDELL SPENCER
INC.
  For
      the Year Ended
                        
                        
                        For
      the Year Ended
                        
                        
                        For
      the Year EndedDecember
      31, 2009
                        
                        
                        December
      31, 2008
                        
                        
                        December
      31, 2007Supplemental
      disclosure of cash flow information:Cash
      paid for interest, net of capitalized interest
                        
                        $
                        21,998
                        
                        
                        $
                        25,477
                        
                        
                        $
                        15,355Cash
      paid for income taxes
                        
                        $
                        37
                        
                        
                        $
                        3,897
                        
                        
                        $
                        307Non-cash
      investing and financing activities:Operating
      Partnership Units issued or to be issued inconnection
      with the acquisition of a business or real estate
                          property
                        
                        $
                        -
                        
                        
                        $
                        81,347
                        
                        
                        $
                        3,583Investment
      in real estate properties included in accountspayable
      and other liabilities
                        
                        
                        (4,490
                        )
                        
                        
                        (1,788
                        )
                        
                        
                        1,109Debt
      assumed with purchase of properties
                        
                        
                        -
                        
                        
                        
                        2,733
                        
                        
                        
                        16,238Noncontrolling
      interest assumed with purchase of property
                        
                        
                        -
                        
                        
                        
                        3,359
                        
                        
                        
                        -Investment
      in real estate costs contributed by partner in aconsolidated
      real estate partnership
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        460Accrued
      dividends and distributions
                        
                        
                        5,051
                        
                        
                        
                        6,061
                        
                        
                        
                        5,771Operating
      Partnership Units converted into common stock
                        
                        
                        18,850
                        
                        
                        
                        1,844
                        
                        
                        
                        -See
      notes to consolidated financial statements.
  67
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
                        Business
  Cogdell
Spencer Inc., incorporated in Maryland in 2005, together with its subsidiaries
(the “Company”) is a fully-integrated, self-administered, and self-managed real
estate investment trust (“REIT”) that invests in specialty office buildings for
the medical profession, including medical offices and ambulatory surgery and
diagnostic centers.  The Company focuses on the ownership, delivery,
acquisition, and management of strategically located medical office buildings
and other healthcare related facilities in the United States of
America.  The Company has been built around understanding and
addressing the full range of specialized real estate needs of the healthcare
industry.  The Company operates its business through Cogdell Spencer
LP, its operating partnership subsidiary (the “Operating Partnership”), and its
subsidiaries.  The Company has two segments: (1) Property Operations
and (2) Design-Build and Development.  Property Operations owns and
manages properties and manages properties for third
parties.  Design-Build and Development provides strategic planning,
design, construction, development, and project management services for
properties owned by the Company and for third parties.
  2.
                        Summary of Significant
      Accounting Policies
 
 Basis
of Presentation
  The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”) and represent the assets and liabilities and operating results of the
Company. The consolidated financial statements include the Company’s accounts,
its wholly-owned subsidiaries, as well as the Operating Partnership and its
subsidiaries. The consolidated financial statements also include any
partnerships for which the Company or its subsidiaries is the general partner or
the managing member and the rights of the limited partners do not overcome the
presumption of control by the general partner or managing member. The Company
reviews its interests in entities to determine if the entity’s assets,
liabilities, noncontrolling interests and results of activities should be
included in the consolidated financial statements in accordance with the GAAP.
All significant intercompany balances and transactions have been eliminated in
consolidation.
  Use
of Estimates in Financial Statements
 The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes.  Significant estimates and
assumptions are used by management in determining the percentage of completion
revenue, construction contingency and loss provisions, useful lives of real
estate properties and improvements, the initial valuations and underlying
allocations of purchase price in connection with business and real estate
property acquisitions, and projected cash flow and fair value estimates used for
impairment testing.  Actual results may differ from those
estimates.
 Revenue
Recognition
 The
Company derives a majority of its revenues from two main sources: 1) from rents
received from tenants under existing leases in medical office buildings and
other healthcare related facilities, and 2) from revenue earned from
design-build construction contracts and development contracts.
  Rental Revenue and Property
Management.Rental income related to non-cancelable operating leases is
recognized as earned over the term, which is the period from the date the lessee
has access and control over the leased space to the lease termination date, of
the lease agreements on a straight-line basis.  Rental income
recognized on a straight-line basis for certain lease agreements results in
recognized revenue greater than or less than amounts contractually due from
tenants.  In addition, the leases generally contain provisions under
which the tenants reimburse the Company for a portion of property operating
expenses and real estate taxes.  At times the Company will receive
cash payments at the inception of the lease for tenant improvements and these
amounts are amortized into rental revenue over the life of the
lease.  These amounts are included in “Other liabilities” in the
consolidated balance sheets.  The Company monitors the
creditworthiness of its tenants on a regular basis and maintains an allowance
for doubtful accounts.
  68
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The
Company receives fees for property management and related services provided to
third parties which are reflected as property management fee
revenue.  Management fees are generally based on a percentage of
revenues for the month as defined in the related property management
agreements.  The Company also pays certain payroll and related costs
related to the operations of third party properties that are managed by the
Company.  Under terms of the related management agreements, these
costs are reimbursed by the third party property owners and recognized by the
Company as revenue as they are characterized by GAAP as “out of pocket” expenses
incurred in the performance of a service.
  Design-Build Contract Revenues and
Development Management.Design-Build contract revenue is
recognized under the percentage-of-completion method of accounting in accordance
with GAAP.  Revenues are determined by measuring the percentage of
costs incurred to date to estimated total costs for each design-build contract
based on current estimates of costs to complete.  Contract costs
include all labor and benefits, materials, subcontracts, and an allocation of
indirect costs related to contract performance such as architectural,
engineering, and construction management.  Indirect costs are
allocated to projects based upon labor hours charged.  As long-term
design-build projects extend over one or more years, revisions in cost and
estimated earnings during the course of the work are reflected in the accounting
period in which the facts which require the revision become known.  At
the time a loss on a design-build project becomes known, the entire amount of
the estimated ultimate loss is recognized in the consolidated financial
statements.  Change orders are recognized when they are approved by
the client.
  Costs and
estimated earnings in excess of billings on uncompleted design-build projects
(“underbillings”) are included in “Other assets” in the consolidated balance
sheets.  Billings in excess of costs and estimated earnings on
uncompleted design-build projects (“overbillings”) are included in liabilities
in the consolidated balance sheets.  Customers are billed on a monthly
basis at the end of each month, which can be in advance of work
performed.  As a result, the Company typically generates billings in
excess of costs and estimated earnings on design-build projects.
  Revenue
from project analysis and design agreements is accounted for on the completed
contract method.  Costs in excess of billings and billings in excess
of costs on project analysis and design agreements are included with
design-build projects over and underbillings in the consolidated balance
sheets.  Revenue from development agreements is recognized as earned
per the agreements and costs are expensed as
incurred.
  Other
income.Other income on the Company’s statement of operations
generally includes income incidental to the operations of the Company and is
recognized when earned.  Interest and other income includes the
amortization of unearned income related to a sales-type capital
lease.
  Warranties
  The
Company provides standard industry warranties in its design-build business,
which generally are for one year after completion of a project. Buildings are
guaranteed against defects in workmanship for one year after completion. The
typical warranty requires that the Company replace or repair the defective item.
The Company records an estimate for future warranty related costs based on
actual historical warranty claims. This estimated liability is included in
“Other liabilities” in the consolidated balance sheets. Based on analysis of
warranty costs, the warranty provisions are adjusted as necessary. While
warranty costs have historically been within calculated expectations, it is
possible that future warranty costs could exceed expectations.
  The
changes in the carrying amounts of the total warranty liabilities for the
periods shown are as follows (in thousands):
  For
      the Year Ended
                        
                        
                        For
      the Year Ended
                        
                        
                        For
      the Year EndedDecember
      31, 2009
                        
                        
                        December
      31, 2008
                        
                        
                        December
      31, 2007Balance
      at the beginning of period
                        
                        $
                        4,331
                        
                        
                        $
                        -
                        
                        
                        $
                        -Erdman
      acquisition
                        
                        
                        -
                        
                        
                        
                        4,600
                        
                        
                        
                        -Accruals
                        
                        
                        (218
                        )
                        
                        
                        2,217
                        
                        
                        
                        -Settlements
                        
                        
                        (2,613
                        )
                        
                        
                        (2,486
                        )
                        
                        
                        -Balance
      at the end of period
                        
                        $
                        1,500
                        
                        
                        $
                        4,331
                        
                        
                        $
                        -
  69
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Income
Taxes
 The
Company elected to be taxed as a REIT under sections 856 through 860 of the
Internal Revenue Code of 1986, as amended.  REITs are subject to a
number of organizational and operational requirements, including a requirement
that 90% of ordinary “REIT taxable income” (as determined without regard to the
dividends paid deduction or net capital gains) be distributed.  As a
REIT, the Company will generally not be subject to U.S. federal income tax to
the extent that it meets the organization and operational requirements and
distributions equal or exceed taxable income.  For all periods
subsequent to the REIT election, the Company has met the organization and
operational requirements and distributions exceeded net taxable
income.  Accordingly, no provision has been made for federal and state
income taxes, except as follows.
 The
Company, together with Cogdell Spencer TRS Holdings, LLC and its subsidiaries
(“TRS Holdings”) have made the election to treat TRS Holdings as a taxable REIT
subsidiary.  As a taxable REIT subsidiary, the operations of TRS
Holdings are generally subject to corporate income taxes.
  The
Company’s taxable REIT subsidiary accounts for its income taxes in
accordance with GAAP, which includes an estimate of the amount of taxes payable
or refundable for the current year and deferred tax liabilities and assets for
the future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns.  The calculation of the taxable
REIT subsidiary’s tax provision may require interpreting tax laws and
regulations and could result in the use of judgments or estimates which could
cause its recorded tax liability to differ from the actual amount
due.  Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.  The
taxable REIT subsidiary periodically assesses the realizability of deferred tax
assets and the adequacy of deferred tax liabilities, including the results of
local, state, or federal statutory tax audits or estimates and judgments
used.
  The
Company and the taxable REIT subsidiary apply the GAAP provisions for measuring
and recognizing tax benefits associated with uncertain tax
positions.  Penalties and interest, if incurred, would be recorded as
a component of income tax expense.
  The
Company defers income taxes paid on intercompany profits for real estate
properties remaining with the Company.  Such taxes are presented with
the related real estate property on the balance sheet, are amortized to income
tax expense over the useful life of the related property, are assessed for
impairment as part of the asset group and any remaining balance will be removed
from the balance sheet when the related property is removed.  Such
income taxes totaled $2.8 million and approximately $7,000 for the years ended
December 31, 2009 and 2008.
  During
2009, the Company paid two quarterly dividends of $0.225 per share and two
quarterly dividends of $0.10, totaling $0.65 per share for the
year.  The dividends of $0.65 per share are classified for income tax
purposes as 61.5% taxable ordinary dividend and 38.5% return of
capital.  No portion of the dividends constitutes “qualified
dividends” eligible for the reduced rates on dividends pursuant to the Jobs and
Growth Tax Relief Reconciliation Act of 2003.
  Comprehensive
Income or Loss
  Comprehensive
income or loss includes net income (loss) and all other non-owner changes in
stockholders’ equity during the period including unrealized fair value
adjustments on certain derivative agreements.
  Cash
and Cash Equivalents
  The
Company considers all short-term investments with maturities of three months or
less when purchased to be cash equivalents.  Restricted cash and
short-term investments are excluded from cash for the purpose of preparing the
consolidated statements of cash flows.
  Restricted
Cash
 Restricted
cash includes escrow accounts held by lenders and banks.  Restricted
cash also includes proceeds from property sales deposited with a qualified
intermediary in accordance with like-kind exchange income tax rules and
regulations.
  70
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Real Estate
Properties and Related Intangible Assets
 Land and
buildings and improvements are recorded at cost.  For developed
properties, direct and indirect costs that clearly relate to projects under
development are capitalized in accordance with GAAP.  Costs include
construction costs, professional services such as architectural and legal costs,
travel expenses, capitalized interest and direct payroll and other acquisition
costs.  The Company begins capitalization when the project is
probable.  Capitalization of interest ceases when the property is
ready for its intended use, which is generally near the date that a certificate
of occupancy is obtained.
  Depreciation
and amortization is computed using the straight-line method for financial
reporting purposes.  Buildings and improvements are depreciated over
13 to 50 years.  Tenant improvement costs, which are included in
building and improvements in the consolidated balance sheets, are depreciated
over the shorter of (i) the related remaining lease term or (ii) the
life of the improvement.  Corporate property, plant and equipment,
which are included in “Other assets,” are depreciated over three to seven
years.
  Acquisitions
of properties are accounted for utilizing the acquisition method in accordance
with GAAP and accordingly the purchase cost is allocated to tangible and
intangible assets and liabilities based on their fair values.  The
fair value of tangible assets acquired is determined by valuing the property as
if it were vacant, applying methods similar to those used by independent
appraisers of income-producing property.  The resulting value is then
allocated to land, buildings and improvements, and tenant improvements based on
management’s determination of the fair value of these assets.  The
assumptions used in the allocation of fair values to assets acquired are based
on management’s best estimates at the time of evaluation.
  Fair
value is assigned to above-market and below-market leases based on the
difference between (a) the contractual amounts to be paid by the tenant
based on the existing lease and (b) management’s estimate of current market
lease rates for the corresponding in-place leases, over the remaining terms of
the in-place leases.  Capitalized above-market lease amounts are
amortized as a decrease to rental revenue over the remaining terms of the
respective leases.  Capitalized below-market lease amounts are
amortized as an increase to rental revenue over the remaining terms of the
respective leases.  If a tenant vacates its space prior to the
contractual termination of the lease and no rental payments are being made on
the lease, any unamortized balance of the related intangible will be written
off.
  The
aggregate value of other acquired intangible assets consists of acquired ground
leases and acquired in-place leases and tenant relationships.  The
fair value allocated to acquired in-place leases consists of a variety of
components including, but not necessarily limited to: (a) the value
associated with avoiding the cost of originating the acquired in-place leases
(i.e. the market cost to execute a lease, including leasing commissions and
legal fees, if any); (b) the value associated with lost revenue related to
tenant reimbursable operating costs estimated to be incurred during the assumed
lease-up period (i.e. real estate taxes, insurance and other operating
expenses); (c) the value associated with lost rental revenue from existing
leases during the assumed lease-up period; and (d) the value associated
with any other inducements to secure a tenant lease.
  As
required by GAAP, the Company assesses the potential for impairment of its
long-lived assets, including real estate properties, whenever events occur or a
change in circumstances indicate that the recorded value might not be fully
recoverable.  Management determines whether impairment in value has
occurred by comparing the estimated future undiscounted cash flows expected from
the use and eventual disposition of the asset to its carrying
value.  If the undiscounted cash flows do not exceed the carrying
value, the real estate is adjusted to fair value and an impairment loss is
recognized.  Assets held for sale are recorded at the lower of cost or
fair value less costs to sell.
  All
operations and gains and losses associated with sales of real estate property or
assets classified as held for sale are reclassified and presented as
discontinued operations.
 Repairs,
Maintenance and Major Improvements
 The costs
of ordinary repairs and maintenance are charged to operations when incurred.
Major improvements that enhance the value or extend the life of an asset are
capitalized and depreciated over the remaining useful life of the asset. In some
circumstances lenders require the Company to maintain a reserve account for
future repairs and capital expenditures. These amounts are classified as
restricted cash.
  71
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Capitalization of
Interest
 The
Company capitalizes interest costs on borrowings incurred during the
construction and lease-up periods of qualifying assets.  Capitalized
interest is added to the cost of the underlying assets and is depreciated over
the useful lives of the assets.  For the years ended December 31,
2009, 2008, and 2007, the Company capitalized interest of approximately $1.0
million, $0.6 million, and $0.9 million, respectively, in connection with
various development projects.
 Tenant and
Accounts Receivable
 
 Property Operations’ tenant and accounts receivable are recorded and carried at
the amount billable per the applicable lease or contract
agreement.  Straight-line rent adjustments are included in tenant and
accounts receivable.
 Design-Build
and Development’s accounts receivable are comprised primarily of contracts
receivable. Contracts receivable from performing construction of healthcare
facilities are recorded when invoiced and are based on contracted prices and
billing terms.  Normal contracts receivable are due 15 to 30 days
after the issuance of the invoice. Contract retentions are due 15 to
30 days after completion of the project and acceptance by the owner.
Receivables past due more than 180 days are considered delinquent.
Delinquent receivables are written off based on individual credit evaluation and
specific circumstances of the customer. As construction contracts are long term,
a portion of the contract retention receivable balance will not be collected
within the next year.
  An
allowance for uncollectible accounts is made based upon a review of outstanding
receivables, historical collection information, existing economic conditions,
and other factors that may indicate collection of the full amount is no longer
considered probable.
 Investment in
Capital Lease
 
 Investment
in capital lease consists of a building on a sales-type capital
lease.  Unearned income is amortized into interest income using a
method that is not materially different from a method that produces a constant
periodic rate of return on the net investment in the lease.  The
interest income is recorded in “Interest and other income.”  The
investment in capital lease is included in “Other assets.”
 Deferred
Financing Costs
 
 Deferred financing costs include fees and costs incurred in conjunction with
long-term financings and are amortized over the terms of the related debt using
the straight-line method, which approximates the effective interest
method.  Upon repayment of or in conjunction with a substantial
modification in the terms of the underlying debt agreement, any unamortized
costs are charged to earnings.  Deferred financing costs were $3.1
million, net of accumulated amortization of $3.0 million, as of December 31,
2009 and $4.1 million, net of accumulated amortization of $2.0 million, as of
December 31, 2008.
 Unconsolidated
Real Estate Partnerships
 
 The
Company records investments in which it does not control but exercises
significant influence under the equity method in accordance with
GAAP.  In circumstances where the real estate partnerships have
distributions in excess of the investment and accumulated earnings or
experienced net losses in excess of the investment and the Company has
guaranteed debt of the entity or otherwise intends to provide financial support,
the Company has reduced the carrying value of its investment below zero and
recorded a liability in “Other Liabilities.”  Services performed for
real estate joint ventures and capitalized by real estate joint ventures are
recognized to the extent attributable to the outside interests in the real
estate joint venture.
 Goodwill
and Intangible Assets
 The
Company accounts for goodwill in accordance with GAAP. Goodwill is tested
annually for impairment and is tested for impairment more frequently if events
and circumstances indicate that the asset might be impaired. An impairment loss
is recognized to the extent that the carrying amount, including goodwill,
exceeds the reporting unit’s fair value and the implied fair value of goodwill
is less than the carrying amount of that goodwill.  Non-amortizing
intangible assets, such as trade names and trademarks, are subject to an annual
impairment test based on fair value and amortizing intangible assets are tested
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
  72
 COGDELL
SPENCER INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Fair Value of
Financial Instruments
 
 The Company defines fair value as the exchange price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date.  In accordance
with the Financial Accounting Standards Board (“FASB”), the Company adopted this
definition for its financial assets and liabilities on January 1, 2008, and for
all nonfinancial assets and nonfinancial liabilities on January 1,
2009.  The adoption for non-financial assets and liabilities on
January 1, 2009 did not have a material impact on the Company’s consolidated
financial position or results of operations.
 The
Company utilizes the GAAP fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three broad
levels.  Fair values determined by Level 1 inputs utilize observable
inputs such as quoted prices in active markets for identical assets or
liabilities the Company has the ability to access.  Fair values
determined by Level 2 inputs utilize inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly or
indirectly.  Level 2 inputs include quoted prices for similar assets
and liabilities in active markets and inputs other than quoted prices observable
for the asset or liability.  Level 3 inputs are unobservable inputs
for the asset or liability, and include situations where there is little, if
any, market activity for the asset or liability.  In instances in
which the inputs used to measure fair value may fall into different levels of
the fair value hierarchy, the level in the fair value hierarchy within which the
fair value measurement in its entirety has been determined is based on the
lowest level input significant to the fair value measurement in its
entirety.  The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or liability.
  To obtain
fair values, observable market prices are used if available.  In some
instances, observable market prices are not readily available for certain
financial instruments and fair value is determined using present value or other
techniques appropriate for a particular financial instrument.  These
techniques involve some degree of judgment and as a result are not necessarily
indicative of the amounts the Company would realize in a current market
exchange.  The use of different assumptions or estimation techniques
may have a material effect on the estimated fair value amounts.
  The
Company does not hold or issue financial instruments for trading
purposes.  The Company considers the carrying amounts of cash and cash
equivalents, restricted cash, tenant and accounts receivable, accounts payable,
and other liabilities to approximate fair value due to the short maturity of
these instruments.  The Company has estimated the fair value of debt
utilizing present value techniques taking into consideration current market
conditions.  At December 31, 2009 the carrying amount and estimated
fair value of debt was $410.9 million and $398.5 million,
respectively.  The mortgage included in Other liabilities – held for
sale has a $2.2 million carrying value and $2.3 million estimated fair value as
of December 31, 2009.  As of December 31, 2009, the Company
reclassified the wholly-owned property Harbison Medical Office Building
(formerly known as Baptist Northwest) as held for sale discontinued
operations.  At December 31, 2008, the carrying amount and estimated
fair value of debt was $460.7 million and $451.5 million,
respectively.
 See Note
8 regarding the write-down of the Company’s goodwill and certain intangible
assets to implied fair market value.  See Note 10 regarding the fair
value of the Company’s interest rate swap agreements.  See Note 4
regarding the write-down of real estate property for one property to its implied
fair market value less costs to sell.
 Offering
Costs
 Underwriting
commissions and other offering costs of raising equity are reflected as a
reduction in additional paid-in capital.
  73
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Share
Based Compensation
 The
Company accounts for share based compensation, including restricted stock grants
and long-term incentive units (“LTIP units”), in accordance with
GAAP.  The Company measures the compensation cost based on the
estimated fair value of the award at the grant date.  The estimate is
based on the share price of the common stock at the grant date.  Where
an observable market value of a similar instrument is not available an
option-pricing model is utilized.  The compensation cost is recognized
as an expense over the requisite service period required for vesting or when
performance criteria for vesting is expected to be achieved.
 Per
Share Data
  Basic and
diluted earnings per share are computed based upon the weighted average number
of shares outstanding during the respective period.
 
 Concentrations
and Credit Risk
  The
Company maintains its cash in commercial banks. Balances on deposit are insured
by the Federal Deposit Insurance Corporation (“FDIC”) up to specific limits.
Balances on deposit in excess of FDIC limits are uninsured.  At
December 31, 2009, the Company had bank cash balances of $29.7 million in excess
of FDIC insured limits.
  Three
customers and one customer accounted for more than 10% of tenant and accounts
receivable as of December 31, 2009 and 2008, respectively.  One
customer or tenant accounted for more than 10% of revenue for the year ended
December 31, 2009.  No customers or tenants accounted for more than
10% of revenue for the year ended December 31, 2008.
  Reclassifications
 
 During 2009, the Company reclassified Harbison Medical Office Building, a
wholly-owned real estate property (formerly known as Baptist Northwest), as
discontinued operations and has actively marketed the property for
sale.  The Company expects the sale to close in
2010.  Accordingly, the Company has reclassified the assets and
liabilities related to this discontinued operations real estate property to
“Other assets – held for sale” and “Other liabilities – held for sale,”
respectively, as well as the results of operations to “Discontinued Operations”
in the consolidated statement of operations for the years ended December 31,
2009, 2008 and 2007.  The asset is part of the Property Operations
segment.
  The accompanying Notes to Consolidated Financial Statements include the
retrospective application of the presentation and disclosure requirements of
Accounting Standards Codification (“ASC”) 810, Consolidation.  ASC
810 is described in “Recent Accounting Pronouncements” below.  The
retrospective application did not have a material impact on the Company’s
financial condition, results of operations, or cash flows.  However,
it did impact the presentation and disclosure of noncontrolling (minority)
interest in the consolidated financial statements.  The principal
effect to the balance sheet is summarized as follows:
  December
      31, 2009
                        
                        
                        December
      31, 2008
                        
                        
                        December
      31, 2007Equity,
      as previously reported
                        
                        $
                        247,780
                        
                        
                        $
                        188,949
                        
                        
                        $
                        115,035Increase
      for ASC 810 reclass of noncontrolling interests
                        
                        
                        -
                        
                        
                        
                        94,045
                        
                        
                        
                        47,221Equity,
      as adjusted
                        
                        $
                        247,780
                        
                        
                        $
                        282,994
                        
                        
                        $
                        162,256
 
 Additionally, the adoption of ASC 810 had the effect of reclassifying earnings
attributable to noncontrolling interests in the consolidated statement of
operations from before net loss to separate line items after net
loss.  ASC 810 also requires that a new separate caption for net loss
attributable to Cogdell Spencer Inc. be presented in the consolidated statements
of operations. Net loss increased by $32.2 million, $2.1 million, and $2.7
million for the fiscal years 2009, 2008, and 2007, respectively and net loss
attributable to Cogdell Spencer Inc. equals net loss as previously reported
prior to the application ASC 810.
  Additionally, ASC 810 requires consolidated comprehensive income (loss) to be
adjusted to include the comprehensive income (loss) attributed to noncontrolling
interests.  The adoption of ASC 810 resulted in a reclassification of
Accumulated Other Comprehensive Loss from Cogdell Spencer Inc. stockholder
equity to noncontrolling interests.  This reclassification resulted in
a $2.4 million and $0.4 million decrease in noncontrolling interests in
operating partnership at December 31, 2008 and 2007, respectively, and a $1.6
million and zero decrease in noncontrolling interests in real estate
partnerships at December 31, 2008 and 2007, respectively.  Net loss
attributable to Cogdell Spencer Inc., per common share – basic and diluted was
not affected by this reclassification.
  74
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Subsequent
Events
 The
Company evaluates significant unusual or infrequent events occurring after the
financial statement date through the date the financial statements are issued,
or available to be issued, to determine if additional disclosures are
needed.  As of March 16, 2010, the date the financial statements were
available to be issued, no significant events have been identified.
  Recent
Accounting Pronouncements
 Effective
July 1, 2009, the FASB established the Accounting Standards Codification (“ASC”)
as the primary source of authoritative GAAP recognized by the FASB to be applied
to nongovernmental entities.  Although the establishment of the ASC
did not change current GAAP, it did change the way current GAAP is
referenced.
  In
December 2007, the FASB issued an accounting standard, codified in ASC 805,
Business Combinations, relating to the accounting for and reporting of business
combinations using the acquisition method of accounting, which significantly
changes the principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree.  Among these changes, this standard redefines the
measurement date of a business combination and requires most transaction costs
to be expensed as incurred, and requires expanded disclosure requirements such
as reasons for the business combination, amount of third-party related expenses
incurred, and a description of the prior relationship between or among the
parties.  The standard also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and requires
additional disclosures to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
standard is effective prospectively, except for certain retrospective
adjustments to deferred tax balances, for fiscal years beginning after December
15, 2008.  The adoption of this standard had no impact on the
Company’s balance sheet, statement of operations, or changes in equity on
December 31, 2009.
  In
December 2007, the FASB issued an accounting standard, codified in ASC 810,
Consolidation, which establishes the accounting for and reporting of
noncontrolling interests (“NCI”), formerly referred to as minority interests, in
partially owned consolidated subsidiaries and the accounting for and reporting
of the change in control of subsidiaries.  NCIs are to be reported as
a component of equity separate from the parent’s equity and purchases or sales
of equity interests that do not result in a change in control are accounted for
as equity transactions.  In addition, net income attributable to the
noncontrolling interest is included in consolidated net income on the face of
the income statement and upon a loss of control, the interest sold, as well as
any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings.  The standard is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years, except for the presentation and
disclosure requirements, which will apply retrospectively.  The
Company implemented the standard effective January 1, 2009 and has applied the
presentation and disclosure requirements retrospectively.  Its
adoption has resulted in an increase to equity as of December 31, 2008 of $94.0
million for the reclassification of noncontrolling interest to equity for
noncontrolling interests in consolidated entities as well as a $4.1 million
reclassification of Accumulated Other Comprehensive Loss from Cogdell Spencer
Inc. stockholders’ equity to noncontrolling interests as of December 31,
2008.  Also, net loss for year ended December 31, 2008 has increased
by $2.1 million for the reclassification of loss allocated to noncontrolling
interests; however, net loss per common share attributable to Cogdell Spencer
Inc. – basic and diluted was not affected by this reclassification.
  In March
2008, the FASB issued an accounting standard, codified in ASC 815, Derivatives
and Hedging, relating to disclosures about derivative instruments and hedging
activities.  The standard is intended to provide users of financial
statements with an enhanced understanding of derivative instruments and hedging
activities by having the Company disclose: (1) how and why the Company uses
derivative instruments; (2) how derivative instruments and related hedged items
are accounted for under GAAP and its related interpretations; and (3) how
derivative instruments and related hedged items affect the Company’s financial
position, financial performance and cash flows.  The standard is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application
encouraged.  It also encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.  The adoption of
the standard had no impact on the Company’s balance sheet, statement of
operations, or changes in equity on January 1, 2009.  See Note 8 for
additional disclosures.
  75
 COGDELL
SPENCER INC..
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 In June
2008, the FASB issued an accounting standard, codified in ASC 260, Earnings Per
Share, clarifying how certain unvested share-based payment awards are accounted
for in the computation of earnings per common unit.  The guidance
states that unvested share-based payment awards containing non-forfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per common unit pursuant to the two-class method.  This guidance
requires the retrospective adjustment of all prior-period earnings per common
unit data presented (including interim financial statements, summaries of
earnings, and selected financial data) to conform to the provisions of the
standard.   As a result, the Company’s unvested LTIP units and
restricted stock are considered participating securities and are included in the
computation of basic and diluted earnings per common share of the Company if the
effect of applying the if-converted method is dilutive.  The adoption
of this standard did not have a material impact on the Company’s computation of
earnings per common share on January 1, 2009.
  In
November 2008, the FASB issued an accounting standard, codified in ASC 323,
Investments – Equity Method and Joint Ventures, relating to certain equity
method investment accounting considerations.  The standard states,
among other things, that transaction costs for an investment should be included
in the cost of the equity-method investment (and not expensed) and shares
subsequently issued by the equity-method investee that reduce the investor’s
ownership percentage should be accounted for as if the investor had sold a
proportionate share of its investment, with gains or losses recorded through
earnings.  The statement is effective for transactions occurring in
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008.  The adoption of this standard had no impact
on the Company’s balance sheet, statement of operations, or changes in
equity.
  In April
2009, the FASB issued an accounting standard, codified in ASC 825, Financial
Instruments, regarding interim disclosures about fair value of financial
instruments.  The standard essentially expands the disclosure about
fair value of financial instruments that were previously required only annually
to also be required for interim period reporting.  In addition, the
standard requires certain additional disclosures regarding the methods and
significant assumptions used to estimate the fair value of financial
instruments.  This standard is effective for interim reporting periods
ending after June 15, 2009.  The additional disclosures required by
the standard are included in Note 8 within this Form 10-Q.
  In May
2009, and further revised in February 2010, the FASB issued an accounting
standard, codified in ASC 855, Subsequent Events, relating to the disclosure of
subsequent events.  The standard incorporates into authoritative
accounting literature certain guidance that already existed within generally
accepted auditing standards, with the requirements concerning recognition and
disclosure of subsequent events remaining essentially unchanged.  This
guidance addresses events which occur after the balance sheet date but before
the issuance of financial statements.  Under the new standard, as
under previous practice, an entity must record the effects of subsequent events
that provide evidence about conditions that existed at the balance sheet date
and must disclose but not record the effects of subsequent events which provide
evidence about conditions that did not exist at the balance sheet
date.  The statement is effective for interim and annual reporting
periods ending after June 15, 2009.  The additional disclosure
required by the standard is included in Note 2.
  In June
2009, the FASB issued an accounting standard, codified in ASC 810,
Consolidation, which revises the consolidation guidance for variable-interest
entities (“VIE”).  The revisions include (1) no longer exempting
qualifying special-purpose entities from the scope of the guidance, (2)
requiring the continuous reconsideration for determining whether an enterprise
is the primary beneficiary of another entity, (3) ignoring kick-out rights
unless the rights are held by a single enterprise and (4) requiring
consolidation if an entity has power and receives benefits or absorbs losses
that are potentially significant to the VIE and not requiring consolidation if
power is shared amongst unrelated parties.  The revisions also include
the enhancement of disclosure requirements.  The standard is effective
for interim and annual reporting periods beginning after November 15,
2009.  The Company is still evaluating the effect of this standard on
the Company’s balance sheet, statement of operations, or changes in
equity.
  76
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, Measuring
Liabilities at Fair Value, which provides additional guidance on how companies
should measure liabilities at fair value under ASC 820.  This update
provides alternatives to measuring the fair value of liabilities when a quoted
price for an identical liability traded in an active market does not
exist.  The alternatives include using the quoted price for the
identical liability when traded as an asset or the quoted price of a similar
liability or of a similar liability when traded as an asset, in addition to
valuation techniques based on the amount an entity would pay to transfer the
identical liability (or receive to enter into an identical
liability).  The update is effective for interim and annual reporting
periods ending after August 28, 2009.  The adoption of this standard
had no impact on the Company’s balance sheet, statement of operations, or
changes in equity on December 31, 2009.
  3.           
Minimum Future Rental Revenues
  The
Company’s properties are generally leased to tenants under non-cancelable,
fixed-term operating leases with expirations through 2026.  Some
leases provide for fixed rent renewal terms or market rent renewal
terms.  The Company’s leases generally require the lessee to pay
minimum rent, additional rent based upon increases in the Consumer Price Index,
and all taxes (including property tax), insurance, maintenance and other
operating costs associated with the leased property.  No tenant
occupied more than 10% of the Company’s net rentable square footage at
December 31, 2009.
 Future
minimum lease payments by tenants under the non-cancelable operating leases as
of December 31, 2009 were as follows (in thousands):
  For
      the year ending:2010
                          
                          $
                          71,6162011
                          
                          
                          61,7202012
                          
                          
                          50,0522013
                          
                          
                          37,5712014
                          
                          
                          30,152Thereafter
                          
                          
                          116,531$
                          367,642
  The
operating leases held at Harbison Medical Office Building (formerly known as
Baptist Northwest), a wholly-owned property, are not included in the above
future minimum lease payments schedule as the property was reclassified to
discontinued operations during 2009 and is actively being marketed for sale as
of December 31, 2009.  Future minimum lease payments by tenants under
non-cancelable operating leases as of December 31, 2009 relating to Harbison
Medical Office Building are $0.2 million, $0.2 million, $0.1 million, and $0.1
million for 2010, 2011, 2012, and 2013, respectively, and zero
thereafter.
 The
Company has one building leased to a tenant under a capital lease that began in
1987 and expires in 2017.  The tenant is the owner of the land on
which the building sits and has leased the land to the Company for the same term
with a bargain renewal option, through 2027, that the Company intends to
exercise.  Upon renewal of the ground lease, the building lease
automatically extends for the same 10 year extension period.  The
“Investment in capital lease” is included in other assets and was as follows (in
thousands):
 
 December
      31, 2009
                            
                            
                            December
      31, 2008Total
      minimum lease payments
                            
                            $
                            11,873
                            
                            
                            $
                            12,650Less:
      Unearned income
                            
                            
                            (6,596
                            )
                            
                            
                            (7,068
                            )Investment
      in capital lease
                            
                            $
                            5,277
                            
                            
                            $
                            5,582
  Total
minimum lease payments receivable on the capital lease as of December 31,
2009 exclusive of the operating expense reimbursement payments, are as follows
(in thousands):
 For
      the year ending:2010
                            
                            $
                            7842011
                            
                            
                            7902012
                            
                            
                            7962013
                            
                            
                            6242014
                            
                            
                            630Thereafter
                            
                            
                            8,249$
                            11,873
 
 77
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 4.
                            Acquisitions
      and Discontinued Operations
  Business
Acquisition
  On
March 10, 2008, the Company and the Operating Partnership completed a
merger transaction through which they acquired MEA Holdings, Inc. (“MEA”), a
design-build construction and engineering company specializing in healthcare
facility construction.  The transaction was effected pursuant to an
Agreement and Plan of Merger (the “Merger Agreement”), dated as of
January 23, 2008, as amended, by and among the Company, the Operating
Partnership, Goldenboy Acquisition Corp. (a wholly-owned subsidiary of the
Operating Partnership), MEA, Marshall Erdman & Associates, Inc., Marshall
Erdman Development, LLC, and David Pelisek, David J. Lubar and Scott A. Ransom,
in their capacities as the Seller Representatives.  MEA’s operating
results are included in the consolidated financial statements from March 10,
2008, the acquisition date.
  The
consideration payable in the merger transaction and in the contribution
transactions described below consisted of cash and limited partnership interests
issued by the Operating Partnership (the “OP Units”). The Operating
Partnership entered into contribution agreements with 40 of MEA’s stockholders
(the “Contributors”) pursuant to which the Contributors agreed to “roll over” an
aggregate of 1,265,392 shares of MEA (representing in the aggregate
approximately 41% of MEA’s outstanding shares on a fully diluted basis) by
exchanging those shares for OP Units.  The exchange of those shares
for OP Units was completed immediately before the completion of the merger
provided for in the Merger Agreement (the “Merger”).  In the Merger,
all the shares of MEA (other than the shares acquired by the Operating
Partnership) were converted into the right to receive an amount of cash to be
calculated in accordance with the provisions of the Merger
Agreement.
 The cash
consideration per share of MEA common shares payable in the Merger (the “Cash
Consideration”) was calculated pursuant to a formula based on an “enterprise
value” for 100% of MEA of $247.0 million, subject to certain
adjustments.  In connection with the Merger, in addition to the cash
consideration of approximately $159.6 million paid in the aggregate to the
holders of MEA common shares, pursuant to certain contribution agreements
entered into in connection with the Merger, the Operating Partnership issued
OP Units to the Contributors.  The number of OP Units per
MEA common share was based on the same value per MEA common share payable in
cash under the Merger Agreement, or $17.01 per OP Unit.  The
OP Units issued in the transaction were of two types — “regular units”
and “alternative units.” A total of 4,331,336 OP Units were issued upon the
closing of the transaction, of which 3,063,908 were regular units and 1,267,429
were alternative units.  In June 2008, a total of 208,496 OP Units, of
which all were alternative units, were issued as part of a post-closing claim
release.  In November 2008, a total of 148,926 OP Units, of which all
were alternative units, were issued as part of a post-closing claim
release.  In October 2009, a total of 331,812 OP units, of which all
were alternative units, were issued as part of a post-closing claim
release.  The alternative units are substantially the same as the
regular units, except that the regular units have an exchange feature whereby
they are exchangeable, after a one-year lock-up period, on a one-for-one basis,
for shares of the Company’s common stock, while the alternative units were not
exchangeable for shares of the Company’s common stock until the exchange feature
included as a feature of the alternative units was approved by the Company’s
stockholders.  On May 29, 2008, the Company’s stockholders approved
the exchange feature whereby the alternative units are exchangeable, after a
one-year lock-up period, on a one-for-one basis, for shares of the Company’s
common stock.  The fair value per OP Unit issued in connection with
the Merger was $15.84, which was determined using the Company’s stock price on
and about the January 23, 2008, announcement date of the merger.
  In
connection with the Merger, one of the former MEA shareholders, Lubar Capital
LLC (“Lubar”), received the right to nominate one individual for election to the
Company’s Board of Directors. Accordingly, the Company’s Board of Directors
increased the size of the Board of Directors and elected David J. Lubar as a
director on January 22, 2008.  Lubar will continue to retain its
right to nominate one individual for so long as Lubar and its affiliates
continue to maintain at least 75% of their aggregate initial ownership measured
in number of equity securities of the Company and its affiliates.
  78
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The
aggregate consideration paid for the Merger was as follows (in
thousands):
  Fair
      value of OP Units issued and to be issued
                            
                            $
                            81,347Cash
      consideration, net of cash acquired
                            
                            
                            144,998Total
      purchase price, net of cash acquired
                            
                            $
                            226,345
 
 The
Merger was accounted for under the purchase method in accordance with
GAAP.  The total purchase price was allocated to assets acquired and
liabilities assumed based upon their estimated fair values as determined by
management.  The estimated fair values were based on information
available and assumptions as to future operations at the acquisition
date.
  The
following table is a summary allocation of the total purchase price for the
assets acquired and liabilities assumed of MEA as of March 10, 2008 (in
thousands):
 
 Accounts
      receivable, including retainage receivables
                            
                            $
                            52,638Goodwill
      and intangible assets
                            
                            
                            286,138Other
      assets
                            
                            
                            19,398Accounts
      payable
                            
                            
                            (27,450
                            )Billings
      in excess of costs and estimated earningson
      uncompleted contracts
                            
                            
                            (37,134
                            )Deferred
      income taxes
                            
                            
                            (40,965
                            )Other
      liabilities
                            
                            
                            (26,280
                            )Total
      purchase price, net of cash acquired
                            
                            $
                            226,345
  The
Company purchased MEA for an amount in excess of its net tangible assets and as
a result has recorded goodwill related to the transaction (see also Note
8).  The Company believes that MEA’s service offerings and customer
lists are complementary to the Company’s pre-Merger service
offerings.  As a result of the Merger, the Company became a fully
integrated healthcare facilities real estate company.  The
accompanying statement of operations for the year ended December 31, 2008,
includes ten months of Erdman’s operations.
  In
October 2009, the final escrow release related to the Erdman acquisition
occurred.  Per agreement between the Company and the MEA Seller
Representatives, $5.0 million of the escrow was paid to the Company in
consideration of full and final settlement of certain claims made by the Company
in connection with the MEA transaction.  During the fourth quarter of
2009, $8.1 million of cash was released from the escrow to the Erdman sellers
and 331,812 OP units were issued to the Erdman sellers.  The Company
recorded other income of $4.9 million in 2009 related to this
settlement.
  Property
Acquisitions
  Property
acquisitions are accounted for in accordance with GAAP.  The purchase
price is allocated between net tangible and intangible assets based on their
estimated fair values as determined by management using methods similar to those
used by independent appraisers of income-producing property.
  There
were no property acquisitions in 2009.
  In
February 2008, the Company acquired a leasehold interest in floors six and seven
of St. Mary’s North Medical Office Building, a seven-story multi-tenant medical
office building located on the campus of St. Mary’s Hospital in Richmond,
Virginia.  The purchase price was $4.6 million less a $0.2 million
credit from the seller for unpaid tenant improvement allowances.
  In
February 2008, the Company acquired East Jefferson Medical Plaza located in
Metairie, Louisiana for $19.8 million less a $0.7 million credit from the seller
for unpaid tenant improvement allowances.  The facility is 123,184
square feet and is located on the campus of East Jefferson General
Hospital.  With this acquisition, the Company now owns and manages
253,914 square feet of medical office and clinical space on or adjacent to the
East Jefferson campus.
  79
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 In
September 2008, the Company acquired a controlling interest in Genesis Property
Holding, LLC (“Genesis”), a pre-development project in 2008, for $2.2
million.  Genesis owns the Woodlands Center for Specialized Medicine
building, which completed construction and became operational in
2009.
  The
following table is an allocation of the purchase price of the property
acquisitions during the year ended December 31, 2008 (in
thousands):
 
 Construction
      in progress
                            
                            $
                            4,031Building
      and improvements
                            
                            
                            20,259Acquired
      ground or air rights leases
                            
                            
                            325Acquired
      in place lease value and deferred leasing costs
                            
                            
                            2,948Acquired
      above market leases
                            
                            
                            10Mortgage
      notes payable
                            
                            
                            (2,722
                            )Noncontrolling
      interest in real estate partnerships
                            
                            
                            (3,359
                            )Total
      purchase price allocated, net of cash acquired
                            
                            $
                            21,492
 
 The
following summary of selected unaudited pro forma results of operations presents
information as if the 2008 property and business acquisitions had occurred at
the beginning of the period presented. The unaudited pro forma information is
provided for informational purposes only and is not indicative of results that
would have occurred or which may occur in the future (in thousands, except per
share amount):
  For
      the Year EndedDecember
      31, 2008Total
      revenue
                            
                            $
                            384,370Net
      loss from continuing operations attributable to Cogdell Spencer
      Inc.
                            
                            
                            (12,439
                            )Net
      loss from continuing operations attributable to Cogdell
      SpencerInc.
      per share - basic and diluted
                            
                            $
                            (0.79
                            )
 Discontinued
Operations
  As of
December 31, 2009, the Company reclassified the wholly-owned property Harbison
Medical Office Building (formerly known as Baptist Northwest) as held for sale
discontinued operations.  Related to this property, the Company
recorded a non-cash impairment charge of ($1.4 million) in order to reduce the
carrying value of the real estate property to its estimated net sale
proceeds.
  In
accordance with GAAP, net income and loss on discontinued operations of real
estate property are reflected in the consolidated statements of operations as
“discontinued operations” for all periods presented.  Below is a
summary of discontinued operations for the real estate property reclassified to
discontinued operations and marketed for sale during 2009 (in
thousands):
  For
      the Year Ended
                              
                              
                              For
      the Year Ended
                              
                              
                              For
      the Year EndedDecember
      31, 2009
                              
                              
                              December
      31, 2008
                              
                              
                              December
      31, 2007Revenues:Rental
      revenues
                              
                              $
                              354
                              
                              
                              $
                              378
                              
                              
                              $
                              418Total
      revenues
                              
                              
                              354
                              
                              
                              
                              378
                              
                              
                              
                              418Expenses:Property
      operating and management
                              
                              
                              247
                              
                              
                              
                              311
                              
                              
                              
                              298Depreciation
      and amortization
                              
                              
                              137
                              
                              
                              
                              137
                              
                              
                              
                              146Interest
      expense
                              
                              
                              138
                              
                              
                              
                              142
                              
                              
                              
                              147Total
      expenses
                              
                              
                              522
                              
                              
                              
                              590
                              
                              
                              
                              591Loss
      from discontinued operations before impairment of real estate
      property
                              
                              
                              (168
                              )
                              
                              
                              (212
                              )
                              
                              
                              (173
                              )Impairment
      of real estate property
                              
                              
                              (1,359
                              )
                              
                              
                              -
                              
                              
                              
                              -Total
      discontinued operations
                              
                              $
                              (1,527
                              )
                              
                              $
                              (212
                              )
                              
                              $
                              (173
                              )
 
 The
following table presents information about the Company’s real estate assets held
for sale measured at fair value as of December 31, 2009 (in
thousands):
  Recorded
      Value as
                              
                              
                              Fair
      Value Measurement as of December 31, 2009Description
                              
                              of
      December 31, 2009
                              
                              
                              Level
      1
                              
                              
                              Level
      2
                              
                              
                              Level
      3
                              
                              
                              Total
      LossesOther
      assets - held for sale
                              
                              $
                              2,200
                              
                              
                              $
                              -
                              
                              
                              $
                              2,200
                              
                              
                              $
                              -
                              
                              
                              $
                              (1,359
                              )
 80
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  5.
                              Investments in Real Estate
      Partnerships
 
 As of December 31, 2009 the Company had an ownership interest in eight
limited liability companies or limited partnerships.
 The
following is a description of the unconsolidated entities:
 ·
                                Cogdell
      Spencer Medical Partners LLC, a Delaware limited liability company,
      founded in 2008, no assets or liabilities, and 20.0% owned by the
      Company;
  ·
                                BSB
      Health/MOB Limited Partnership No. 2, a Delaware limited partnership,
      founded in 2002, owns nine medical office buildings, and 2.0% owned by the
      Company;
  ·
                                Shannon
      Health/MOB Limited Partnership No. 1, a Delaware limited partnership,
      founded in 2001, owns ten medical office buildings, and 2.0% owned by the
      Company; and
  ·
                                McLeod
      Medical Partners, LLC, a South Carolina limited liability company, founded
      in 1982, owns three medical office buildings, and 1.1% owned by the
      Company.
 The
following is a description of the consolidated entities:
 ·
                                Genesis
      Property Holdings, LLC, a Florida limited liability company, founded in
      2007, owns one medical office building, and 40.0% owned by the
      Company;
 ·
                                Cogdell
      General Health Campus MOB, LP, a Pennsylvania limited partnership, founded
      in 2006, owns one medical office building, and 80.9% owned by the
      Company;
 ·
                                Mebane
      Medical Investors, LLC, a North Carolina limited liability company,
      founded in 2006, owns one medical office building, and 35.1% owned by the
      Company; and
  ·
                                Rocky
      Mount MOB, LLC, a North Carolina limited liability company, founded in
      2002, owns one medical office building, and 34.5% owned by the
      Company.
 The
Company is the general partner or managing member of these real estate
partnerships and manages the properties owned by these entities.  The
Company may receive design/build revenue, development fees, property management
fees, leasing fees, and expense reimbursements from these real estate
partnerships.  For consolidated entities, these revenues and fees are
eliminated in consolidation.
  The
consolidated entities are included in the Company’s consolidated financial
statements because the limited partners or non-managing members do not have
sufficient participation rights in the partnerships to overcome the presumption
of control by the Company as the managing member or general
partner.  The limited partners or non-managing members have certain
protective rights such as the ability to prevent the sale of building, the
dissolution of the partnership or limited liability company, or the incurrence
of additional indebtedness, in each case subject to certain
exceptions.
 The Company’s unconsolidated entities are accounted for under the equity method
of accounting based on the Company’s ability to exercise significant influence
as the entity’s managing member or general partner. The following is a summary
of financial information for the limited liability companies and limited
partnerships for the periods indicated.  The summary of financial
information set forth below reflects the financial position and operations of
the unconsolidated real estate partnerships in their entirety, not just the
Company’s interest in the entities (in thousands):
  December
      31, 2009
                              
                              
                              December
      31, 2008Financial
      position:Total
      assets
                              
                              $
                              54,725
                              
                              
                              $
                              56,262Total
      liabilities
                              
                              
                              48,672
                              
                              
                              
                              49,831Member's
      equity
                              
                              
                              6,053
                              
                              
                              
                              6,431
  For
      the Year Ended
                              
                              
                              For
      the Year Ended
                              
                              
                              For
      the Year EndedDecember
      31, 2009
                              
                              
                              December
      31, 2008
                              
                              
                              December
      31, 2007Results
      of operations:Total
      revenues
                              
                              $
                              12,528
                              
                              
                              $
                              12,362
                              
                              
                              $
                              12,230Operating
      and general andadministrative
      expenses
                              
                              
                              5,977
                              
                              
                              
                              5,787
                              
                              
                              
                              5,566Net
      income
                              
                              
                              800
                              
                              
                              
                              760
                              
                              
                              
                              788
 81
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 6.            Business
Segments
 The
Company has two identified reportable segments: (1) Property Operations and (2)
Design-Build and Development.  The Company defines business segments
by their distinct customer base and service provided.  Each segment
operates under a separate management group and produces discrete financial
information, which is reviewed by the chief operating decision maker to make
resource allocation decisions and assess performance.  Inter-segment
sales and transfers are accounted for as if the sales and transfers were made to
third parties, which involves applying a negotiated fee onto the costs of the
services performed.  All inter-company balances and transactions are
eliminated during the consolidation process.
  The
Company’s management evaluates the operating performance of its operating
segments based on funds from operations (“FFO”) and funds from operations
modified (“FFOM”).  FFO, as defined by the National Association of
Real Estate Investment Trusts (“NAREIT”), represents net income (computed in
accordance with GAAP), excluding gains from sales of property, plus real estate
depreciation and amortization (excluding amortization of deferred financing
costs) and after adjustments for unconsolidated partnerships and joint ventures.
The Company adjusts the NAREIT definition to add back noncontrolling interests
in real estate partnerships before real estate related depreciation and
amortization. FFOM adds back to FFO non-cash amortization of non-real estate
related intangible assets associated with purchase accounting.  The
Company considers FFO and FFOM important supplemental measures of the Company’s
operational performance.  The Company believes FFO is frequently used
by securities analysts, investors and other interested parties in the evaluation
of REITs, many of which present FFO when reporting their results. The Company
believes that FFOM allows securities analysts, investors and other interested
parties in evaluating current period results to results prior to the Erdman
transaction.  FFO and FFOM are intended to exclude GAAP historical
cost depreciation and amortization of real estate and related assets, which
assumes that the value of real estate assets diminishes ratably over time.
Historically, however, real estate values have risen or fallen with market
conditions. Because FFO and FFOM exclude depreciation and amortization unique to
real estate, gains and losses from property dispositions and extraordinary
items, it provides a performance measure that, when compared year over year,
reflects the impact to operations from trends in occupancy rates, rental rates,
operating costs, development activities and interest costs, providing
perspective not immediately apparent from net income.  The Company’s
methodology may differ from the methodology for calculating FFO utilized by
other equity REITs and, accordingly, may not be comparable to such other REITs.
Further, FFO and FFOM do not represent amounts available for management’s
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties.
  82
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 The
following tables represent the segment information for the years ended December
31, 2009, 2008 and 2007 (in thousands):
  Year
      ended December 31, 2009
                              
                              Property
                                Operations
                              
                              
                              Design-Build
                                and
                                Development
                              
                              
                              Intersegment
      Eliminations
                              
                              
                              Unallocated
                                and
      Other
                              
                              
                              TotalRental
      revenue
                              
                              $
                              79,578
                              
                              
                              $
                              -
                              
                              
                              $
                              (92
                              )
                              
                              $
                              -
                              
                              
                              $
                              79,486Design-Build
      contract revenue and other sales
                              
                              
                              -
                              
                              
                              
                              176,124
                              
                              
                              
                              (32,708
                              )
                              
                              
                              -
                              
                              
                              
                              143,416Property
      management and other fees
                              
                              
                              3,336
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,336Development
      management and other income
                              
                              
                              -
                              
                              
                              
                              6,750
                              
                              
                              
                              (3,387
                              )
                              
                              
                              -
                              
                              
                              
                              3,363Total
      revenues
                              
                              
                              82,914
                              
                              
                              
                              182,874
                              
                              
                              
                              (36,187
                              )
                              
                              
                              -
                              
                              
                              
                              229,601Certain
      operating expenses:Property
      operating and management
                              
                              
                              31,810
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              31,810Design-Build
      contracts and development management
                              
                              
                              -
                              
                              
                              
                              142,305
                              
                              
                              
                              (28,344
                              )
                              
                              
                              -
                              
                              
                              
                              113,961Selling,
      general, and administrative
                              
                              
                              -
                              
                              
                              
                              20,541
                              
                              
                              
                              (92
                              )
                              
                              
                              -
                              
                              
                              
                              20,449Impairment
      charges
                              
                              
                              -
                              
                              
                              
                              120,920
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              120,920Total
      certain operating expenses
                              
                              
                              31,810
                              
                              
                              
                              283,766
                              
                              
                              
                              (28,436
                              )
                              
                              
                              -
                              
                              
                              
                              287,14051,104
                              
                              
                              
                              (100,892
                              )
                              
                              
                              (7,751
                              )
                              
                              
                              -
                              
                              
                              
                              (57,539
                              )Interest
      and other income
                              
                              
                              541
                              
                              
                              
                              48
                              
                              
                              
                              -
                              
                              
                              
                              31
                              
                              
                              
                              620Gain
      on settlement from MEA Holdings Inc. transaction
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,905
                              
                              
                              
                              4,905Corporate
      general and administrative expenses
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (11,836
                              )
                              
                              
                              (11,836
                              )Interest
      expense
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (21,711
                              )
                              
                              
                              (21,711
                              )Debt
      extinguishment and interest rate derivative expense
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (2,511
                              )
                              
                              
                              (2,511
                              )Benefit
      from income taxes applicable to funds from operations
    modified
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              20,356
                              
                              
                              
                              20,356Non-real
      estate related depreciation and amortization
                              
                              
                              -
                              
                              
                              
                              (779
                              )
                              
                              
                              -
                              
                              
                              
                              (225
                              )
                              
                              
                              (1,004
                              )Earnings
      from unconsolidated real estate partnerships,before
      real estate related depreciation
                                and amortization
                              
                              
                              27
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              27Noncontrolling
      interests in real estate partnerships,before
      real estate related depreciation
                                and amortization
                              
                              
                              (1,049
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,049
                              )Discontinued
      operations and impairment of real estate property,before
      real estate related
                                depreciation and amortization
                              
                              
                              (1,253
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (137
                              )
                              
                              
                              (1,390
                              )Funds
      from operations modified (FFOM)
                              
                              
                              49,370
                              
                              
                              
                              (101,623
                              )
                              
                              
                              (7,751
                              )
                              
                              
                              (11,128
                              )
                              
                              
                              (71,132
                              )Amortization
      of intangibles related to purchaseaccounting,
      net of income tax benefit
                              
                              
                              (169
                              )
                              
                              
                              (4,364
                              )
                              
                              
                              -
                              
                              
                              
                              1,768
                              
                              
                              
                              (2,765
                              )Funds
      from operations (FFO)
                              
                              
                              49,201
                              
                              
                              
                              (105,987
                              )
                              
                              
                              (7,751
                              )
                              
                              
                              (9,360
                              )
                              
                              
                              (73,897
                              )Real
      estate related depreciation and amortization
                              
                              
                              (29,114
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (29,114
                              )Noncontrolling
      interests in real estate partnerships,before
      real estate related depreciation
                                and amortization
                              
                              
                              1,049
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,049Net
      income (loss)
                              
                              
                              21,136
                              
                              
                              
                              (105,987
                              )
                              
                              
                              (7,751
                              )
                              
                              
                              (9,360
                              )
                              
                              
                              (101,962
                              )Net
      loss (income) attributable to the noncontrolling interest
    in:Real
      estate partnerships
                              
                              
                              (288
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (288
                              )Operating
      partnership
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              32,522
                              
                              
                              
                              32,522Net
      income (loss) attributable to Cogdell Spencer Inc.
                              
                              $
                              20,848
                              
                              
                              $
                              (105,987
                              )
                              
                              $
                              -
                              
                              
                              $
                              23,162
                              
                              
                              $
                              (69,728
                              )Total
      assets
                              
                              $
                              555,072
                              
                              
                              $
                              195,799
                              
                              
                              $
                              -
                              
                              
                              $
                              1,792
                              
                              
                              $
                              752,663
  83
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Year
      ended December 31, 2008
                              
                              Property
                                Operations
                              
                              
                              Design-Build
                                and
                                Development
                              
                              
                              Intersegment
      Eliminations
                              
                              
                              Unallocated
                                and
      Other
                              
                              
                              TotalRevenues:Rental
      revenue
                              
                              $
                              77,464
                              
                              
                              $
                              -
                              
                              
                              $
                              (43
                              )
                              
                              $
                              -
                              
                              
                              $
                              77,421Design-Build
      contract revenue and other sales
                              
                              
                              -
                              
                              
                              
                              258,132
                              
                              
                              
                              (4,536
                              )
                              
                              
                              -
                              
                              
                              
                              253,596Property
      management and other fees
                              
                              
                              3,460
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,460Development
      management and other income
                              
                              
                              -
                              
                              
                              
                              1,688
                              
                              
                              
                              (803
                              )
                              
                              
                              -
                              
                              
                              
                              885Total
      revenues
                              
                              
                              80,924
                              
                              
                              
                              259,820
                              
                              
                              
                              (5,382
                              )
                              
                              
                              -
                              
                              
                              
                              335,362Certain
      operating expenses:Property
      operating and management
                              
                              
                              31,065
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              31,065Design-Build
      contracts and development management
                              
                              
                              -
                              
                              
                              
                              218,731
                              
                              
                              
                              (4,712
                              )
                              
                              
                              -
                              
                              
                              
                              214,019Selling,
      general, and administrative
                              
                              
                              -
                              
                              
                              
                              20,184
                              
                              
                              
                              (43
                              )
                              
                              
                              -
                              
                              
                              
                              20,141Total
      certain operating expenses
                              
                              
                              31,065
                              
                              
                              
                              238,915
                              
                              
                              
                              (4,755
                              )
                              
                              
                              -
                              
                              
                              
                              265,22549,859
                              
                              
                              
                              20,905
                              
                              
                              
                              (627
                              )
                              
                              
                              -
                              
                              
                              
                              70,137Interest
      and other income
                              
                              
                              597
                              
                              
                              
                              149
                              
                              
                              
                              -
                              
                              
                              
                              176
                              
                              
                              
                              922Corporate
      general and administrative expenses
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (10,074
                              )
                              
                              
                              (10,074
                              )Interest
      expense
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (25,017
                              )
                              
                              
                              (25,017
                              )Provision
      for income taxes applicable to funds from
                                operations
      modified
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (3,860
                              )
                              
                              
                              (3,860
                              )Non-real
      estate related depreciation and amortization
                              
                              
                              -
                              
                              
                              
                              (1,129
                              )
                              
                              
                              -
                              
                              
                              
                              (230
                              )
                              
                              
                              (1,359
                              )Earnings
      from unconsolidated real estate partnerships,
                                before
      real estate related depreciation and amortization
                              
                              
                              35
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              35Noncontrolling
      interests in real estate partnerships, before
                                real
      estate related depreciation and amortization
                              
                              
                              (1,346
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,346
                              )Discontinued
      operations and impairment of real estate property,
                                before
      real estate related depreciation and amortization
                              
                              
                              67
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (142
                              )
                              
                              
                              (75
                              )Funds
      from operations modified (FFOM)
                              
                              
                              49,212
                              
                              
                              
                              19,925
                              
                              
                              
                              (627
                              )
                              
                              
                              (39,147
                              )
                              
                              
                              29,363Amortization
      of intangibles related to purchase
                                accounting,
      net of income tax benefit
                              
                              
                              (169
                              )
                              
                              
                              (12,918
                              )
                              
                              
                              -
                              
                              
                              
                              5,104
                              
                              
                              
                              (7,983
                              )Funds
      from operations (FFO)
                              
                              
                              49,043
                              
                              
                              
                              7,007
                              
                              
                              
                              (627
                              )
                              
                              
                              (34,043
                              )
                              
                              
                              21,380Real
      estate related depreciation and amortization
                              
                              
                              (30,583
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (30,583
                              )Noncontrolling
      interests in real estate partnerships, before
                                real
      estate related depreciation and amortization
                              
                              
                              1,346
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,346Net
      income (loss)
                              
                              
                              19,806
                              
                              
                              
                              7,007
                              
                              
                              
                              (627
                              )
                              
                              
                              (34,043
                              )
                              
                              
                              (7,857
                              )Net
      loss (income) attributable to the noncontrolling interest
    in:Real
      estate partnerships
                              
                              
                              (964
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (964
                              )Operating
      partnership
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,048
                              
                              
                              
                              3,048Net
      income (loss) attributable to Cogdell Spencer Inc.
                              
                              $
                              18,842
                              
                              
                              $
                              7,007
                              
                              
                              $
                              (627
                              )
                              
                              $
                              (30,995
                              )
                              
                              $
                              (5,773
                              )Total
      assets
                              
                              $
                              545,714
                              
                              
                              $
                              353,054
                              
                              
                              $
                              -
                              
                              
                              $
                              1,322
                              
                              
                              $
                              900,090
  84
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Year
      ended December 31, 2007
                              
                              Property
                                Operations
                              
                              
                              Design-Build
                                and
                                Development
                              
                              
                              Intersegment
      Eliminations
                              
                              
                              Unallocated
                                and
      Other
                              
                              
                              TotalRevenues:Rental
      revenue
                              
                              $
                              62,611
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              62,611Design-Build
      contract revenue and other sales
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Property
      management and other fees
                              
                              
                              3,502
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,502Development
      management and other income
                              
                              
                              -
                              
                              
                              
                              290
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              290Total
      revenues
                              
                              
                              66,113
                              
                              
                              
                              290
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              66,403Certain
      operating expenses:Property
      operating and management
                              
                              
                              25,405
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              25,405Selling,
      general, and administrative
                              
                              
                              -
                              
                              
                              
                              804
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              804Total
      certain operating expenses
                              
                              
                              25,405
                              
                              
                              
                              804
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              26,20940,708
                              
                              
                              
                              (514
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              40,194Interest
      and other income
                              
                              
                              592
                              
                              
                              
                              231
                              
                              
                              
                              -
                              
                              
                              
                              250
                              
                              
                              
                              1,073Corporate
      general and administrative expenses
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (6,561
                              )
                              
                              
                              (6,561
                              )Interest
      expense
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (15,818
                              )
                              
                              
                              (15,818
                              )Provision
      for income taxes applicable to funds from
                                operations
      modified
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (183
                              )
                              
                              
                              (183
                              )Non-real
      estate related depreciation and amortization
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (159
                              )
                              
                              
                              (159
                              )Earnings
      from unconsolidated real estate partnerships,
                                before
      real estate related depreciation and amortization
                              
                              
                              43
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              43Noncontrolling
      interests in real estate partnerships, before
                                real
      estate related depreciation and amortization
                              
                              
                              (200
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (200
                              )Discontinued
      operations and impairment of real estate property,
                                before
      real estate related depreciation and amortization
                              
                              
                              119
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (146
                              )
                              
                              
                              (27
                              )Funds
      from operations modified (FFOM)
                              
                              
                              41,262
                              
                              
                              
                              (283
                              )
                              
                              
                              -
                              
                              
                              
                              (22,617
                              )
                              
                              
                              18,362Amortization
      of intangibles related to purchase
                                accounting,
      net of income tax benefit
                              
                              
                              (169
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              66
                              
                              
                              
                              (103
                              )Funds
      from operations (FFO)
                              
                              
                              41,093
                              
                              
                              
                              (283
                              )
                              
                              
                              -
                              
                              
                              
                              (22,551
                              )
                              
                              
                              18,259Real
      estate related depreciation and amortization
                              
                              
                              (27,453
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (27,453
                              )Noncontrolling
      interests in real estate partnerships, before
                                real
      estate related depreciation and amortization
                              
                              
                              200
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              200Net
      income (loss)
                              
                              
                              13,840
                              
                              
                              
                              (283
                              )
                              
                              
                              -
                              
                              
                              
                              (22,551
                              )
                              
                              
                              (8,994
                              )Net
      loss (income) attributable to the noncontrolling interest
    in:Real
      estate partnerships
                              
                              
                              (85
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (85
                              )Operating
      partnership
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,738
                              
                              
                              
                              2,738Net
      income (loss) attributable to Cogdell Spencer Inc.
                              
                              $
                              13,755
                              
                              
                              $
                              (283
                              )
                              
                              $
                              -
                              
                              
                              $
                              (19,813
                              )
                              
                              $
                              (6,341
                              )Total
      assets
                              
                              $
                              497,917
                              
                              
                              $
                              5,335
                              
                              
                              $
                              -
                              
                              
                              $
                              2,985
                              
                              
                              $
                              506,237
  7.           
Contracts
 Revenue and billings to date on uncompleted contracts, from their inception, as
of December 31, 2009 and December 31, 2008 (in thousands):
  December
      31,
                                2009
                              
                              
                              December
      31,
                                2008Costs
      and estimated earnings on uncompleted contracts
                              
                              $
                              79,374
                              
                              
                              $
                              165,891Billings
      to date
                              
                              
                              (90,701
                              )
                              
                              
                              (176,210
                              )Net
      billings in excess of costs and estimated earnings
                              
                              $
                              (11,327
                              )
                              
                              $
                              (10,319
                              )
 85
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 These
amounts are included in the consolidated balance sheet at December 31, 2009 and
2008 as shown below (in thousands).  At December 31, 2009, the Company
had retainage receivables of $4.5 million, which are included in "Tenant and
accounts receivable" in the consolidated balance sheets.  The Company
estimates that $0.7 million of the December 31, 2009, retainage receivable
balance will be collected after one year.
 December
      31,
                                    2009
                                  
                                  
                                  December
      31,
                                    2008Costs
      and estimated earnings in excess of billings (1)
                                  
                                  $
                                  1,862
                                  
                                  
                                  $
                                  6,706Billings
      in excess of costs and estimated earnings
                                  
                                  
                                  (13,189
                                  )
                                  
                                  
                                  (17,025
                                  )Net
      billings in excess of costs and estimated earnings
                                  
                                  $
                                  (11,327
                                  )
                                  
                                  $
                                  (10,319
                                  )
 
 (1) Included in
"Other assets" in the consolidated balance sheet
  8.            
Goodwill and Intangible Assets
 The
Company reviews the value of goodwill and intangible assets on an annual basis
and when circumstances indicate a potential impairment may exist.  An
interim review of the Design-Build and Development’s intangible assets was
performed on March 31, 2009, due to a decline in the Company’s stock price, a
decline in the cash flow multiples for comparable public engineering and
construction companies, and changes in the cash flow projections for the
Design-Build and Development business segment resulting from a decline in
backlog and delays and cancellations of client building projects.  As
a result of the March 31, 2009 review, the Company recorded, during the three
months ended March 31, 2009, a pre-tax, non-cash impairment charge of ($120.9
million) and the Company recognized a non-cash income tax benefit of $19.2
million, resulting in an after-tax impairment charge of ($101.7
million).  The Company’s goodwill, amortizing and non-amortizing
intangible assets, and deferred tax liabilities associated with the Design-Build
and Development business segment have been reduced from the December 31, 2008
carrying amounts as a result of the impairment charge.  The Company
determined an interim review has not been necessary since the previous
impairment review was performed at March 31, 2009.
  The
Company performed an annual review of goodwill for impairment as of December 31,
2009 and concluded there was no impairment of goodwill.  The Company
also performed an annual review for impairment for other non-amortizing
intangible assets and concluded no impairment existed.
  The
goodwill impairment reviews involved a two-step process.  The first
step was a comparison of the reporting unit’s fair value to its carrying
value.  Fair value was estimated by using two approaches, an income
approach and a market approach.  Each approach was weighted 50% in the
Company’s analysis as the Company believes a market participant would consider
both approaches.  The income approach uses the reporting unit’s
projected operating results and discounted cash flows using a weighted-average
cost of capital that reflects current market conditions, which was 14.0% for the
December 31, 2009 review and 14.5% for the March 31, 2009 review.  The
cash flow projections use estimates of economic and market information over the
projection period, including growth rates in revenues and costs and estimates of
future expected changes in operating margins and cash
expenditures.  Other significant estimates and assumptions include
terminal value growth rates, future estimates of capital expenditures, and
changes in future working capital requirements.  The market approach
estimates fair value by applying cash flow multiples to the reporting unit's
operating performance.  The multiples are derived from comparable
publicly traded companies with similar operating and profitability
characteristics.  Additionally, the Company reconciled the total of
the estimated fair values of all its reporting units to its market
capitalization to determine if the sum of the individual fair values is
reasonable compared to the external market indicators.
  If the
carrying value of the reporting unit is higher than its fair value, as it was
for March 31, 2009, then an indication of impairment may exist and a second step
must be performed to measure the amount of impairment.  The amount of
impairment is determined by comparing the implied fair value of the reporting
unit’s goodwill to the carrying value of the goodwill calculated in the same
manner as if the reporting unit was being acquired in a business
combination.  If the implied fair value of goodwill is less than the
recorded goodwill, then an impairment charge for the difference would be
recorded.
  For
non-amortizing intangible assets, the Company estimates fair value by applying
an estimated market royalty rate, 2.0% for both the December 31, 2009 and the
March 31, 2009 reviews, to projected revenues and discounted using a
weighted-average cost of capital that reflects current market conditions, which
was 14.0% for the December 31, 2009 and 14.5% for the March 31, 2009
review.
  86
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 The following table presents information about the Company’s goodwill and
certain intangible assets measured at fair value as of March 31, 2009 (in
thousands):
  Recorded
      Value as
                              
                              
                              Fair
      Value Measurement as of March 31, 2009Description
                              
                              of
      March 31, 2009
                              
                              
                              Level
      1
                              
                              
                              Level
      2
                              
                              
                              Level
      3
                              
                              
                              Total
      LossesGoodwill
                              
                              $
                              108,683
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              108,683
                              
                              
                              $
                              (71,755
                              )Trade
      names and trademarks
                              
                              
                              41,240
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              41,240
                              
                              
                              
                              (34,728
                              )Acquired
      signed contracts
                              
                              
                              1,398
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,281
                              
                              
                              
                              -Acquired
      proposals
                              
                              
                              2,129
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,129
                              
                              
                              
                              (1,833
                              )Acquired
      customer relationships
                              
                              
                              1,789
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,789
                              
                              
                              
                              (12,604
                              )$
                              155,239
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              159,122
                              
                              
                              $
                              (120,920
                              )
  See Note
2 to these consolidated financial statements for a discussion of the Company’s
accounting policy regarding the fair value of financial and non-financial
assets.
  The
following table shows the change in carrying value for the Company’s goodwill
and certain intangible assets from the measurement date of March 31, 2009 to
December 31, 2009 (in thousands):
  Recorded
      Value
                              
                              
                              Amortization
      for the
                              
                              
                              Recorded
      Valueas
      of
                              
                              
                              Nine
      Months Ended
                              
                              
                              as
      ofLocation
      of Asset
                              
                              March
      31, 2009
                              
                              
                              December
      31, 2009
                              
                              
                              December
      31, 2009Goodwill
                              Goodwill
                              
                              $
                              108,683
                              
                              
                              
                              n/a
                              
                              
                              $
                              108,683Trade
      names and trademarks
                              Trade
      names and trademarks
                              
                              
                              41,240
                              
                              
                              
                              n/a
                              
                              
                              
                              41,240Acquired
      signed contracts
                              Intangible
      assets
                              
                              
                              1,398
                              
                              
                              $
                              (1,398
                              )
                              
                              
                              -Acquired
      proposals
                              Intangible
      assets
                              
                              
                              2,129
                              
                              
                              
                              (340
                              )
                              
                              
                              1,789Acquired
      customer relationships
                              Intangible
      assets
                              
                              
                              1,789
                              
                              
                              
                              (144
                              )
                              
                              
                              1,645$
                              155,239
                              
                              
                              $
                              (1,882
                              )
                              
                              $
                              153,357
  Goodwill and trade names and trademarks are not amortized and are associated
with the Design-Build and Development business segment.  The following
table shows the change in carrying value related to goodwill and trade names and
trademarks intangible assets for the periods shown (in thousands):
 Year
      Ended December 31, 2009
                                
                                
                                Year
      Ended December 31, 2008Accumulated
                                
                                
                                Net
                                
                                
                                
                                
                                
                                Accumulated
                                
                                
                                NetGross
      Amount
                                
                                
                                Impairment
                                
                                
                                Carrying
      Value
                                
                                
                                Gross
      Amount
                                
                                
                                Impairment
                                
                                
                                Carrying
      ValueGoodwill
      as of January 1
                                
                                $
                                180,438
                                
                                
                                $
                                -
                                
                                
                                $
                                180,438
                                
                                
                                $
                                5,335
                                
                                
                                $
                                -
                                
                                
                                $
                                5,335Goodwill
      recognized in acquisition
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                175,100
                                
                                
                                
                                -
                                
                                
                                
                                175,100Accumulated
      impairment losses
                                
                                
                                -
                                
                                
                                
                                71,755
                                
                                
                                
                                (71,755
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Goodwill
      as of December 31
                                
                                $
                                180,438
                                
                                
                                $
                                71,755
                                
                                
                                $
                                108,683
                                
                                
                                $
                                180,435
                                
                                
                                $
                                -
                                
                                
                                $
                                180,435Trade
      names and trademarks as of January 1
                                
                                $
                                75,968
                                
                                
                                $
                                -
                                
                                
                                $
                                75,968
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -Trade
      names and trademarks recognized in acquisition
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                75,969
                                
                                
                                
                                -
                                
                                
                                
                                75,969Accumulated
      impairment losses
                                
                                
                                -
                                
                                
                                
                                34,728
                                
                                
                                
                                (34,728
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Trade
      names and trademarks as of December 31
                                
                                $
                                75,968
                                
                                
                                $
                                34,728
                                
                                
                                $
                                41,240
                                
                                
                                $
                                75,969
                                
                                
                                $
                                -
                                
                                
                                $
                                75,969
 
 Amortizing
intangible assets consisted of the following for the periods shown (in
thousands):
  December
      31, 2009
                              
                              
                              December
      31, 2008Accumulated
                              
                              
                              
                              
                              
                              AccumulatedGross
      Amount
                              
                              
                              Amortization
                              
                              
                              Gross
      Amount
                              
                              
                              AmortizationAcquired
      signed contracts
                              
                              $
                              13,253
                              
                              
                              $
                              13,253
                              
                              
                              $
                              13,253
                              
                              
                              $
                              11,389Acquired
      proposals
                              
                              
                              2,129
                              
                              
                              
                              340
                              
                              
                              
                              6,168
                              
                              
                              
                              886Acquired
      customer relationships
                              
                              
                              1,789
                              
                              
                              
                              144
                              
                              
                              
                              15,732
                              
                              
                              
                              644Acquired
      above market leases
                              
                              
                              1,559
                              
                              
                              
                              955
                              
                              
                              
                              1,559
                              
                              
                              
                              748Acquired
      in place lease value and deferred leasing costs
                              
                              
                              40,666
                              
                              
                              
                              27,512
                              
                              
                              
                              41,046
                              
                              
                              
                              23,573Acquired
      ground leases
                              
                              
                              3,562
                              
                              
                              
                              515
                              
                              
                              
                              3,562
                              
                              
                              
                              389Acquired
      property management contracts
                              
                              
                              2,097
                              
                              
                              
                              594
                              
                              
                              
                              2,097
                              
                              
                              
                              425Total
      amortizing intangible assets
                              
                              $
                              65,055
                              
                              
                              $
                              43,313
                              
                              
                              $
                              83,417
                              
                              
                              $
                              38,054
  Amortization
expense related to intangibles for the years ended December 31, 2009,
2008 and 200 was $9.1 million, $19.1 million, and $6.8 million,
respectively.  The Company expects to recognize amortization expense
from the acquired intangible assets as follows (in thousands):
  For
      the year ending:
                              
                              Future
      Amortization Expense2010
                              
                              $
                              5,7912011
                              
                              
                              3,4522012
                              
                              
                              2,4612013
                              
                              
                              1,5342014
                              
                              
                              1,390Thereafter
                              
                              
                              7,114$
                              21,742
  87
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 9.
                                Debt
  Debt
consisted of the following (in thousands):
 Outstanding
      at
                                  
                                  Outstanding
      at
                                  
                                  As
      of December 31, 2009December
      31,
                                  
                                  December
      31,
                                  
                                  Stated
      Interest
                                  
                                  Interest
                                  
                                  
                                  Maturity2009
                                  
                                  2008
                                  
                                  Rate
                                  
                                  Rate
                                  
                                  
                                  Date
                                  AmortizationMortgage
      loans - wholly-owned propertiesBarclay
      Downs
                                  
                                  $
                                  4,378
                                  
                                  $
                                  4,470
                                  
                                  
                                  6.50
                                  %
                                  6.50
                                  %
                                  
                                  11/15/2012
                                  25
      yearsBeaufort
      Medical Plaza
                                  
                                  
                                  4,763
                                  
                                  
                                  4,890
                                  
                                  LIBOR
      + 1.85
                                  
                                  5.65
                                  
                                  
                                  8/18/2011
                                  39
      yearsCentral
      NY Medical Center
                                  
                                  
                                  24,500
                                  
                                  
                                  24,500
                                  
                                  
                                  6.22
                                  
                                  6.22
                                  
                                  
                                  7/15/2017
                                  Interest
      onlyCopperfield
      Medical Mall, Harrisburg Medical Mall,Midland
                                    Medical  Park and Weddington &Internal/Pediatric
      Medicine
                                  
                                  
                                  8,268
                                  
                                  
                                  8,505
                                  
                                  LIBOR
      + 1.50
                                  
                                  3.25
                                  (2)
                                  
                                  12/15/2014
                                  25
      yearsEast
      Jefferson MOB
                                  
                                  
                                  8,968
                                  
                                  
                                  9,188
                                  
                                  
                                  6.01
                                  
                                  6.01
                                  
                                  
                                  8/10/2014
                                  25
      yearsEast
      Jefferson Medical Plaza
                                  
                                  
                                  11,600
                                  
                                  
                                  11,600
                                  
                                  LIBOR
      + 3.75
                                  
                                  5.55
                                  
                                  
                                  1/31/2012
                                  Interest
      onlyHealth
      Park Medical Office Building
                                  
                                  
                                  7,000
                                  
                                  
                                  8,700
                                  
                                  
                                  7.50
                                  
                                  7.50
                                  
                                  
                                  12/1/2019
                                  25
      yearsHealthPartners
      Medical Office Building (construction loan)
                                  
                                  
                                  4,339
                                  
                                  
                                  -
                                  
                                  LIBOR
      + 3.25
                                  
                                  6.00
                                  
                                  
                                  11/1/2014
                                  22.5
      years
                                  (4)Lancaster
      Rehabilitation Hospital
                                  
                                  
                                  9,621
                                  
                                  
                                  -
                                  
                                  
                                  6.71
                                  
                                  6.71
                                  
                                  
                                  6/26/2014
                                  25
      yearsLancaster
      Rehabilitation Hospital (construction loan)
                                  
                                  
                                  26
                                  
                                  
                                  -
                                  
                                  LIBOR
      + 3.75
                                  
                                  3.98
                                  
                                  
                                  6/26/2014
                                  25
      yearsMedical
      Arts Center of Orangeburg
                                  
                                  
                                  2,365
                                  
                                  
                                  2,442
                                  
                                  LIBOR
      + 3.25
                                  
                                  6.00
                                  
                                  
                                  5/5/2014
                                  20
      yearsMedical
      Center Physicians Tower (construction loan)
                                  
                                  
                                  8,582
                                  
                                  
                                  -
                                  
                                  LIBOR
      + 2.50
                                  
                                  4.50
                                  
                                  
                                  3/1/2019
                                  25
      years
                                  (4)Randolph
      Medical Park, Lincoln/Lakemont FamilyPractice,
      and Northcross Family Physicians
                                  
                                  
                                  7,481
                                  
                                  
                                  -
                                  
                                  
                                  7.00
                                  
                                  7.00
                                  
                                  
                                  10/15/2014
                                  20
      yearsMethodist
      Professional Center
                                  
                                  
                                  25,466
                                  
                                  
                                  30,000
                                  
                                  LIBOR
      + 1.30
                                  
                                  1.53
                                  
                                  
                                  10/31/2011
                                  30
      yearsMRMC
      MOB I (formerly known as Hanover MOB)
                                  
                                  
                                  5,993
                                  
                                  
                                  4,818
                                  
                                  
                                  7.33
                                  
                                  7.33
                                  
                                  
                                  11/1/2014
                                  25
      yearsMulberry
      Medical Park
                                  
                                  
                                  923
                                  
                                  
                                  989
                                  
                                  
                                  6.49
                                  
                                  6.49
                                  
                                  
                                  4/15/2010
                                  20
      yearsOne
      Medical Park
                                  
                                  
                                  5,095
                                  
                                  
                                  5,324
                                  
                                  
                                  5.93
                                  
                                  5.93
                                  
                                  
                                  11/1/2013
                                  20
      yearsPalmetto
      Health Parkridge
                                  
                                  
                                  13,500
                                  
                                  
                                  13,500
                                  
                                  
                                  5.68
                                  
                                  5.68
                                  
                                  
                                  6/1/2017
                                  Interest
      only
                                  (7)Peerless
      Crossing Medical Center
                                  
                                  
                                  7,354
                                  
                                  
                                  7,449
                                  
                                  
                                  6.06
                                  
                                  6.06
                                  
                                  
                                  9/1/2016
                                  30
      yearsProvidence
      Medical Office Building I, II and III
                                  
                                  
                                  8,327
                                  
                                  
                                  8,572
                                  
                                  
                                  6.12
                                  
                                  6.12
                                  
                                  
                                  1/12/2013
                                  25
      yearsRiver
      Hills Medical Plaza
                                  
                                  
                                  3,795
                                  
                                  
                                  4,000
                                  
                                  LIBOR
      + 3.75
                                  
                                  5.53
                                  
                                  
                                  12/22/2011
                                  22
      yearsRocky
      Mount Medical Park
                                  
                                  
                                  6,794
                                  
                                  
                                  7,306
                                  
                                  Prime
                                  
                                  4.25
                                  
                                  
                                  12/15/2010
                                  25
      yearsRocky
      Mount Kidney Center
                                  
                                  
                                  1,000
                                  
                                  
                                  1,032
                                  
                                  
                                  6.75
                                  
                                  6.75
                                  
                                  
                                  8/21/2014
                                  15
      yearsRoper
      Medical Office Building
                                  
                                  
                                  9,430
                                  
                                  
                                  9,188
                                  
                                  
                                  7.10
                                  
                                  7.10
                                  
                                  
                                  6/1/2019
                                  25
      yearsRowan
      Outpatient Surgery Center
                                  
                                  
                                  3,237
                                  
                                  
                                  3,322
                                  
                                  
                                  6.00
                                  
                                  6.00
                                  
                                  
                                  7/6/2014
                                  25
      yearsSt.
      Francis CMOB, St. Francis Professional Medical Center
                                  
                                  
                                  6,870
                                  
                                  
                                  7,053
                                  
                                  LIBOR
      + 1.85
                                  
                                  5.17
                                  (1)
                                  
                                  6/15/2011
                                  39
      yearsSt.
      Francis Medical Plaza (Greenville), St. Francis Women's
                                  
                                  
                                  7,380
                                  
                                  
                                  7,575
                                  
                                  LIBOR
      + 1.85
                                  
                                  5.17
                                  (1)
                                  
                                  6/15/2011
                                  39
      yearsSummit
      Professional Plaza I and II
                                  
                                  
                                  15,925
                                  
                                  
                                  15,925
                                  
                                  
                                  6.18
                                  
                                  6.18
                                  
                                  
                                  9/1/2017
                                  Interest
      onlyThree
      Medical Park
                                  
                                  
                                  7,673
                                  
                                  
                                  7,879
                                  
                                  
                                  5.55
                                  
                                  5.55
                                  
                                  
                                  3/25/2014
                                  25
      yearsUniversity
      Physicians MOB & Outpatient Clinic(construction
      loan)
                                  
                                  
                                  4,922
                                  
                                  
                                  -
                                  
                                  LIBOR
      + 2.25
                                  
                                  2.48
                                  (9)
                                  
                                  4/20/2019
                                  25
      years
                                  (4)Total
      / weighted average mortgage loans
                                  
                                  
                                  235,575
                                  
                                  
                                  208,227
                                  
                                  
                                  
                                  
                                  5.36Secured
      revolving credit facility
                                  
                                  
                                  50,000
                                  
                                  
                                  94,500
                                  
                                  LIBOR
      + 1.15
                                  
                                  3.97
                                  
                                  
                                  3/10/2011
                                  Interest
      only30,000
                                  
                                  
                                  30,000
                                  
                                  LIBOR
      + 1.15
                                  
                                  4.26
                                  (1)
                                  
                                  3/10/2011
                                  Interest
      only80,000
                                  
                                  
                                  124,500
                                  
                                  
                                  
                                  
                                  4.08Term
      loan
                                  
                                  
                                  50,000
                                  
                                  
                                  100,000
                                  
                                  LIBOR
      + 4.50
                                  
                                  7.32
                                  
                                  
                                  3/10/2011
                                  Interest
      onlyConsolidated
      real estate partnershipsAlamance
      Regional Mebane Outpatient Center
                                  
                                  
                                  12,262
                                  
                                  
                                  12,200
                                  
                                  LIBOR
      + 1.30
                                  
                                  1.53
                                  
                                  
                                  5/1/2010
                                  30
      years
                                  (10)Alamance
      Regional Mebane Outpatient Center
                                  
                                  
                                  1,470
                                  
                                  
                                  -
                                  
                                  LIBOR
      + 4.00
                                  
                                  4.23
                                  
                                  
                                  5/1/2010
                                  Interest
      onlyEnglish
      Road Medical Center (formerly known as Rocky Mount MOB)
                                  
                                  
                                  5,265
                                  
                                  
                                  5,362
                                  
                                  
                                  6.03
                                  
                                  6.03
                                  
                                  
                                  3/1/2012
                                  25
      yearsLancaster
      ASC MOB
                                  
                                  
                                  10,445
                                  
                                  
                                  10,843
                                  
                                  LIBOR
      + 1.20
                                  
                                  5.23
                                  
                                  
                                  3/2/2015
                                  25
      yearsWoodlands
      Center for Specialized Medicine(construction
      loan)
                                  
                                  
                                  15,786
                                  
                                  
                                  1,702
                                  
                                  LIBOR
      + 1.50
                                  
                                  1.73
                                  
                                  
                                  9/26/2018
                                  25
      yearsTotal
      / weighted average consolidated
                                    real
      estate partnerships
                                  
                                  
                                  45,228
                                  
                                  
                                  30,107
                                  
                                  
                                  
                                  
                                  3.07410,803
                                  (11)
                                  
                                  462,834Unamortized
      premium
                                  
                                  
                                  89
                                  
                                  
                                  114Total
      / weighted average rate
                                  
                                  $
                                  410,892
                                  
                                  $
                                  462,948
                                  
                                  
                                  
                                  
                                  5.10
                                  %
 88
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (1)Represents the fixed rate for floating rate loans that have been
      swapped to fixed.(2)Maximum interest of 8.25%; Minimum interest of
    3.25%.(3)Minimum interest of 6.00%.  The Company has entered into
      a forward starting interest rate swap agreement that effectively fixes the
      interest rate at 6.80% beginning December 2010,when
      the construction phase of the loan expires and converts to an amortizing
      loan.(4)Interest only during the construction period.(5)Minimum interest of 6.00%.(6)Minimum interest of 4.50%.  The Company has entered into
      a forward starting interest rate swap agreement that effective fixes the
      interest rate at 6.19% beginning October 2010,when
      the construction phase of the loan expires and converts to an amortizing
      loan.(7)Interest only through June 2012.  Principal and interest
      payments from July 2012 through June 2017.(8)Maximum interest of 7.25%; Minimum interest of
    4.25%.(9)The Company has entered into a forward starting interest rate swap
      agreement that effectively fixes the interest rate at 5.95% beginning
      November 2010, when the constructionphase
      of the loan expires and converts to an amortizing loan.(10)Interest only through May 2009.  Principal and interest
      payments from June 2009 through May 2010 with a 30 year
      amortization.(11)The Company has entered into a forward starting interest rate swap
      agreement that effectively fixes the interest rate at 6.21% beginning May
      2010, when the constructionphase
      of the loan expires and converts to an amortizing loan.(12)Interest only through April 2010.  Principal and interest
      payments from May 2010 through October 2018 with a 25 year
      amortization.
  The
mortgage note payable for Harbison Medical Office Building (formerly known as
Baptist Northwest), a wholly-owned property, is not included in the above debt
schedule as the property was reclassified to discontinued operations during
December 2009 and is actively being marketed for sale as of December 31,
2009.  The Harbison Medical Office Building mortgage matures February
2011 with a fixed interest rate of 8.25% at December 31, 2009, and an
outstanding balance of $2.1 million and $2.2 million as of December 31, 2009 and
December 31, 2008, respectively.
  The LIBOR
rate was 0.23% and 0.44% at December 31, 2009 and 2008,
respectively.  The prime rate was 3.25% at December 31, 2009 and
2008.
 Secured
Revolving Credit Facility
 On
March 10, 2008, the Company amended and restated its existing revolving
credit facility, dated November 1, 2005 (the “Credit
Facility”).  Banc of America Securities LLC is acting as sole lead
arranger and sole book manager of the Credit Facility.  KeyBank
National Association is acting as syndication agent.  Branch Banking
and Trust Company and Wachovia Bank, N.A are acting as co-documentation
agents.  Bank of America, N.A., KeyBank National Association, Branch
Banking and Trust Company, Wachovia Bank, National Association, M&I
Marshall and Ilsley Bank, and Citicorp North America, Inc. are lenders (the
“Lenders”) thereunder.  The Credit Facility is secured by certain of
the Company’s properties and is guaranteed by the Company and certain of its
subsidiaries.  The Credit Facility matures on March 10, 2011, subject
to a one-year extension at the Company’s conditional option, and taking into
consideration any payment, extension or refinancing of the Term Loan (as
described below).  The Credit Facility is cross defaulted against the
Term Loan.  The Company is subject to customary covenants including,
but not limited to, (1) affirmative covenants relating to the Company’s
corporate structure and ownership, maintenance of insurance, compliance with
environmental laws and preparation of environmental reports, maintenance of the
Company’s REIT qualification and listing on the NYSE, (2) negative
covenants relating to restrictions on liens, indebtedness, certain investments
(including loans and certain advances), mergers and other fundamental changes,
sales and other dispositions of property or assets and transactions with
affiliates, and (3) financial covenants to be met by the Company at all
times including a maximum total leverage ratio (70%), maximum real estate
leverage ratio (70%), minimum fixed charge coverage ratio (1.50 to 1.00),
maximum total debt to real estate value ratio (90%) and minimum consolidated
tangible net worth ($45 million plus 85% of the net proceeds of equity
issuances issued after the closing date).  The interest rate on loans
under the Credit Facility equals, at the Company’s election, either
(1) LIBOR (0.23% as of December 31, 2009) plus a margin of between 95 to
140 basis points based on the Company’s leverage ratio (1.15% as of December 31,
2009) or (2) the higher of the federal funds rate plus 50 basis points or
Bank of America, N.A.’s prime rate (3.25% as of December 31, 2009).
  As of
December 31, 2009, there was $61.7 million available under the Credit
Facility.  There was $80.0 million outstanding at December 31, 2009
and $8.3 million of availability was restricted related to outstanding letters
of credit.
  89
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Term
Loan
  On
March 10, 2008, the Company entered into a $100.0 million senior secured
term facility (the “Term Loan”) to finance the cash portion of the
Merger.  Keybanc Capital Markets is acting as sole lead arranger and
sole book manager of the Term Loan.  Bank of America, N.A. is acting
as syndication agent.  Branch Banking and Trust Company and
Wachovia Bank, N.A are acting as co-documentation agents.  KeyBank
National Association, Bank of America, N.A., Branch Banking and
Trust Company, Wachovia Bank, National Association, M&I Marshall and
Ilsley Bank, and Citicorp North America, Inc. are lenders
thereunder.  During 2009, the design-build and development segment
experienced delays in client project starts and some contract
cancellations.  Due to the uncertainty of the Design-Build and
Development segment’s future operating results, the Company and the Term Loan
lenders amended the Term Loan  in June 2009 and the Company repaid
$50.0 million of the $100.0 million outstanding under the Term
Loan.  As a result of the amendment, all unamortized Term Loan
deferred finance costs and costs paid to the lenders that were party to the
amendment were expensed during 2009.  The charge to debt
extinguishment and interest rate derivative expense was approximately $0.9
million, before income tax benefit.  The Company recorded an income
tax benefit of approximately $0.4 million related to this charge.  The
amendment, among other things, amended certain financial covenants relating to
the Design-Build and Development segment, as well as certain other provisions of
the Term Loan, including (1) the elimination of the minimum adjusted
consolidated EBITDA covenant (previously $22.5 million), (2) a modification of
the maximum adjusted consolidated senior indebtedness to adjusted consolidated
EBITDA covenant to 3.50 to 1.00 through March 2011, with a one-time ability to
exceed 3.50 to 1.00 but not greater than 3.75 to 1.00, and 3.00 to 1.00 from
April 2011 to final maturity (previously 4.25 to 1.00 as of March 31, 2009,
decreasing to 3.75 to 1.00 as of July 1, 2009), (3) an increase in the interest
rate from LIBOR plus 3.50% to LIBOR (0.23% as of December 31, 2009) plus 4.50%,
and (4) payment of a market based modification fee.  The amendment was
subject to the repayment of $50.0 million of the outstanding balance under the
Term Loan by the Borrower (which amount was repaid on June 3, 2009) and certain
other customary terms and conditions.
 The
Term Loan also contains customary covenants including, but not limited to,
(1) affirmative covenants relating to the Company’s corporate structure and
ownership, maintenance of insurance, compliance with environmental laws and
preparation of environmental reports, maintenance of the Company’s REIT
qualification and listing on the New York Stock Exchange, and (2) negative
covenants relating to restrictions on liens, indebtedness, certain investments
(including loans and certain advances), mergers and other fundamental changes,
sales and other dispositions of property or assets and transactions with
affiliates, and (3) financial covenants to be met by the Company at all
times under the guaranty including a maximum total leverage ratio (70%), maximum
real estate leverage ratio (70%), minimum fixed charge coverage ratio (1.50 to
1.00), maximum total debt to real estate value ratio (90%) and minimum
consolidated tangible net worth ($45 million plus 85% of the net proceeds
of equity issuances), as well as being cross defaulted to the Company’s Credit
Facility.
  The Term
Loan matures on March 10, 2011, subject to a one-year extension at the Company’s
conditional option, and taking into consideration the extension of the Credit
Facility.
 The
mortgages are collateralized by property and principal and interest payments are
generally made monthly.  Scheduled maturities of mortgages, notes
payable under the Credit Facility, and Term Loan as of December 31, 2009 are as
follows (in thousands):
  For
      the year ending:2010
                                  
                                  $
                                  25,3012011
                                  
                                  
                                  181,6612012
                                  
                                  
                                  25,1512013
                                  
                                  
                                  15,9922014
                                  
                                  
                                  54,231Thereafter
                                  
                                  
                                  108,467$
                                  410,803
  The
scheduled maturities related to the mortgage note payable included in
discontinued operations are not included above.  The mortgage note
payable requires monthly principal and interest payments of approximately
$20,000 until February 2011, at which time a balloon payment of approximately
$2.1 million is due.
  At
December 31, 2009, Management believes the Company was in compliance with all
its loan covenants.
  90
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
                                  Derivative Financial
      Instruments
  Interest
rate swap agreements are utilized to reduce exposure to variable interest rates
associated with certain mortgage notes payable, the Term Loan, and the Credit
Facility.  These agreements involve an exchange of fixed and floating
interest payments without the exchange of the underlying principal amount (the
“notional amount”). The interest rate swap agreements are reported at fair value
in the condensed consolidated balance sheet within “Other assets” or “Other
liabilities” and changes in the fair value, net of tax where applicable, are
reported in accumulated other comprehensive income (loss) (“AOCI”) exclusive of
ineffectiveness amounts.  The following table summarizes the terms of
the agreements and their fair values at December 31, 2009 and 2008 (dollars in
thousands):
  As
      of December 31, 2009
                                  
                                  December
      31, 2009
                                  
                                  December
      31, 2008Entity
                                  
                                  Notional
      Amount
                                  
                                  
                                  Receive
      Rate
                                  
                                  Pay
      Rate
                                  
                                  Effective
                                    Date
                                  
                                  Expiration
                                    Date
                                  
                                  Asset
                                  
                                  Liability
                                  
                                  Asset
                                  
                                  LiabilityRoper
      Medical Office Building
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  n/a
                                  
                                  
                                  n/a
                                  
                                  
                                  n/a
                                  
                                  
                                  n/a
                                  
                                  $
                                  -
                                  
                                  $
                                  -
                                  
                                  $
                                  -
                                  
                                  $
                                  221Methodist
      Professional Center I
                                  
                                  
                                  -
                                  
                                  
                                  
                                  n/a
                                  
                                  
                                  n/a
                                  
                                  
                                  n/a
                                  
                                  
                                  n/a
                                  
                                  
                                  -
                                  
                                  
                                  -
                                  
                                  
                                  -
                                  
                                  
                                  1,106MEA
      Holdings, LLC
                                  
                                  
                                  100,000
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  2.82
                                  %
                                  4/1/2008
                                  
                                  3/1/2011
                                  
                                  
                                  -
                                  
                                  
                                  2,397
                                  
                                  
                                  -
                                  
                                  
                                  3,458Cogdell
      Spencer LP
                                  
                                  
                                  30,000
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.11
                                  %
                                  10/15/2008
                                  
                                  3/10/2011
                                  
                                  
                                  -
                                  
                                  
                                  697
                                  
                                  
                                  -
                                  
                                  
                                  1,218St.
      Francis Community MOB LLC
                                  
                                  
                                  6,870
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.32
                                  %
                                  10/15/2008
                                  
                                  6/15/2011
                                  
                                  
                                  -
                                  
                                  
                                  246
                                  
                                  
                                  -
                                  
                                  
                                  331St.
      Francis Medical Plaza (Greenville)
                                  
                                  
                                  7,380
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.32
                                  %
                                  10/15/2008
                                  
                                  6/15/2011
                                  
                                  
                                  -
                                  
                                  
                                  264
                                  
                                  
                                  -
                                  
                                  
                                  356Beaufort
      Medical Plaza
                                  
                                  
                                  4,763
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.80
                                  %
                                  8/18/2008
                                  
                                  8/18/2011
                                  
                                  
                                  -
                                  
                                  
                                  216
                                  
                                  
                                  -
                                  
                                  
                                  296East
      Jefferson Medical Plaza
                                  
                                  
                                  11,600
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  1.80
                                  %
                                  1/15/2009
                                  
                                  12/23/2011
                                  
                                  
                                  -
                                  
                                  
                                  121
                                  
                                  
                                  -
                                  
                                  
                                  81River
      Hills Medical Plaza
                                  
                                  
                                  3,648
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  1.78
                                  %
                                  1/15/2009
                                  
                                  1/31/2012
                                  
                                  
                                  
                                  
                                  
                                  33
                                  
                                  
                                  -
                                  
                                  
                                  25HealthPartners
      Medical Office Building
                                  
                                  
                                  11,800
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.55
                                  %
                                  6/1/2010
                                  
                                  11/1/2014
                                  
                                  
                                  -
                                  
                                  
                                  186
                                  
                                  
                                  -
                                  
                                  
                                  -Lancaster
      ASC MOB
                                  
                                  
                                  10,632
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  4.03
                                  %
                                  3/14/2008
                                  
                                  3/2/2015
                                  
                                  
                                  -
                                  
                                  
                                  567
                                  
                                  
                                  -
                                  
                                  
                                  1,064Woodlands
      Center for Specialized Medicine
                                  
                                  
                                  16,797
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  4.71
                                  %
                                  4/1/2010
                                  
                                  10/1/2018
                                  
                                  
                                  -
                                  
                                  
                                  1,166
                                  
                                  
                                  -
                                  
                                  
                                  2,365Medcial
      Center Physicians Tower
                                  
                                  
                                  14,770
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.69
                                  %
                                  9/1/2010
                                  
                                  3/1/2019
                                  
                                  
                                  271
                                  
                                  
                                  -
                                  
                                  
                                  -
                                  
                                  
                                  -University
      Physicians MOB & Outpatient Clinic
                                  
                                  
                                  10,439
                                  
                                  
                                  1
      Month LIBOR
                                  
                                  
                                  3.70
                                  %
                                  10/1/2010
                                  
                                  4/1/2019
                                  
                                  
                                  217
                                  
                                  
                                  -
                                  
                                  
                                  -
                                  
                                  
                                  -$
                                  488
                                  
                                  $
                                  5,893
                                  
                                  $
                                  -
                                  
                                  $
                                  10,521
  The
following tables show the effect of the Company’s derivative instruments
designated as cash flow hedges for the year ended December 31, 2009 (in
thousands):
  Interest
      rate swap agreementsGain
      or (Loss) Recognized in AOCI, Noncontrolling Interests in Operating
      Partnership, and Noncontrolling Interests in Real Estate Partnerships -
      Effective Portion (1)
                                  
                                  Location
      of Gain or (Loss) Reclassified from AOCI, Noncontrolling Interests in
      Operating Partnership, and Noncontrolling Interests in Real Estate
      Partnerships  into Income - Effective Portion
                                  
                                  Gain
      or (Loss) Reclassified from AOCI, Noncontrolling Interests in Operating
      Partnership, and Noncontrolling Interests in Real Estate
      Partnerships into Income - Effective Portion (1)
                                  
                                  Location
      of Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded
      from Effectiveness Testing
                                  
                                  Gain
      or (Loss) Recognized - Ineffective Portion and Amount Excluded from
      Effectiveness TestingInterest
                                    Expense
                                  
                                  
                                  
                                  Debt
      extinguishment and interest rate derivative expenseInterest
      rate swap agreements
                                  
                                  $
                                  5,185
                                  
                                  
                                  $
                                  (4,890
                                  )
                                  
                                  $
                                  (1,549
                                  )
  The
following table presents information about the Company’s assets and liabilities
measured at fair value on a recurring basis as of December 31, 2009, and
indicates the fair value hierarchy referenced in Note 2 within these
consolidated financial statements, of the valuation techniques utilized by the
Company to determine such fair value (in thousands):
 Fair
      Value Measurements as ofDecember
      31, 2009Total
                                    
                                    
                                    Level
      1
                                    
                                    
                                    Level
      2
                                    
                                    
                                    Level
      3Assets:Derivative
      financial instruments
                                    
                                    $
                                    488
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    488
                                    
                                    
                                    $
                                    -Liabilities:Derivative
      financial instruments
                                    
                                    $
                                    (5,893
                                    )
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (5,893
                                    )
                                    
                                    $
                                    -
      The
$100.0 million interest rate swap agreement was designated as a hedge instrument
from its inception through June 3, 2009, the date of the $50.0 million repayment
and amendment of the Term Loan.  The agreement was not designated as a
hedge instrument from June 4, 2009, through July 19, 2009.  On July
20, 2009, the agreement was re-designated as a hedge instrument and will be used
to fix the floating rate portion on $50.0 million outstanding on the Term Loan
and $50.0 million outstanding under the Credit Facility.
  11.          Commitments
and Contingencies
  Construction
in Progress
  Construction in progress at December
31, 2009, consisted of the following (dollars in thousands):
 Property
                                      Location
                                      
                                      Estimated
      Completion Date
                                      
                                      
                                      Net
      Rentable Square Feet (unaudited)
                                      
                                      
                                      Investment
                                        to
      Date
                                      
                                      
                                      Estimated
      Total InvestmentMedical
      Center Physicians Tower
                                      Jackson,
      TN
                                      
                                      
                                      1Q
      2010
                                      
                                      
                                      
                                      107,000
                                      
                                      
                                      $
                                      19,280
                                      
                                      
                                      $
                                      21,100HealthPartners
      Medical Office Building
                                      St.
      Cloud, MN
                                      
                                      
                                      2Q
      2010
                                      
                                      
                                      
                                      60,000
                                      
                                      
                                      
                                      11,126
                                      
                                      
                                      
                                      18,300Lancaster
      Rehabilitation Hospital (1)
                                      Lancaster,
      PA
                                      
                                      
                                      2Q
      2010
                                      
                                      
                                      
                                      4,600
                                      
                                      
                                      
                                      414
                                      
                                      
                                      
                                      2,100University
      Physicians MOB & Outpatient Clinic
                                      Brandon,
      MS
                                      
                                      
                                      2Q
      2010
                                      
                                      
                                      
                                      50,600
                                      
                                      
                                      
                                      10,070
                                      
                                      
                                      
                                      13,900Land
      and pre-construction developments
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,448
                                      
                                      
                                      
                                      -222,200
                                      
                                      
                                      $
                                      43,338
                                      
                                      
                                      $
                                      55,400
 As of
December 31, 2009, the Company has remaining purchase commitments totaling
$3.7 million to be paid during 2010 and none thereafter.
 Operating
Leases
 The Company makes payments under operating lease agreements relating to building
leases, equipment leases, and ground leases related to many of the Company’s
properties. Future minimum lease commitments under these leases are as
follows:
  For
      the year ending:2010
                                  
                                  $
                                  5,8842011
                                  
                                  
                                  5,2062012
                                  
                                  
                                  4,4142013
                                  
                                  
                                  3,6042014
                                  
                                  
                                  3,654Thereafter
                                  
                                  
                                  35,045$
                                  57,807
 Many of
the ground leases effectively limit the Company’s control over various aspects
of the operation of the applicable building, restrict the Company’s ability to
transfer the building and allow the lessor the right of first refusal to
purchase the building and improvements. All the ground leases provide for the
property to revert to the lessor for no consideration upon the expiration of the
ground lease.  Many of the ground leases have extension
options.  At December 31, 2009, the Company holds 29 ground leases
that are due to expire between the years 2017 and 2062.  Rent expense
for the year ended December 31, 2009 was $6.0 million.
  91
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Tax
Protection Agreements
 In
connection with the formation of the Operating Partnership, the Company entered
into a tax protection agreement with the former owners of each contributed
property who received limited partnership units in the Operating
Partnership.
  Pursuant
to these agreements, the Company will not sell, transfer or otherwise dispose of
any of the properties (each a “protected asset”) or any interest in a protected
asset prior to the eighth anniversary of the Company’s initial public offering,
which was in 2005, unless:
 ·
                                    a
      majority-in-interest of the former holders of interests in the predecessor
      partnerships or contributing entities (or their successors, which may
      include the Company to the extent any OP units have been redeemed or
      exchanged) with respect to such protected asset consent to the sale,
      transfer of other disposition; provided, however, with respect to three of
      the predecessor entities, Cabarrus POB, LLC, Medical Investors I, LLC and
      Medical Investors III, LLC, the required consent shall be a
      majority-in-interest of the beneficial owners of interests in the
      predecessor entities other than Messrs. Cogdell and Spencer and their
      affiliates; or
  ·
                                    the
      Operating Partnership delivers to each such holder of interests, a cash
      payment intended to approximate the holder’s tax liability related to the
      recognition of such holder’s built-in gain resulting from the sale of such
      protected asset; or
  ·
                                    the
      sale, transfer or other disposition would not result in the recognition of
      any built-in gain by any such holder of
  interests.
 Litigation
 In the
normal course of business, the Company is subject to claims, lawsuits and legal
proceedings. While it is not possible to ascertain with certainty the ultimate
outcome of such matters, in management’s opinion, the liabilities, if any, in
excess of amounts provided or covered by insurance, are not expected to have a
material adverse effect on the consolidated financial position, results of
operations or liquidity of the Company.
 Indemnities
 At times
the Company may be obligated per agreement to indemnify another party with
respect to certain matters. Typically, these obligations arise in contracts into
which the Company enters, under which it customarily agrees to hold the other
party harmless against certain losses arising from breaches of representations,
warranties and/or covenants related to such matters as, among others, title to
assets, specified environmental matters, qualification to do business, due
organization, non-compliance with restrictive covenants, laws, rules and
regulations, maintenance of insurance and payment of tax bills due and owing.
Additionally, with respect to office lease agreements that are entered into as
landlord, the Company may also indemnify the other party against damages caused
by its willful misconduct or negligence associated with the operation and
management of the building. Although no assurances with certainty can be made,
it is believed that if the Company were to incur a loss in any of these matters,
such loss would not have a material effect on the Company’s financial condition
or results of operations. Historically, payments made with regard to these
agreements have not had a material effect on the Company’s financial condition
or results of operations.
 Employees
 The
Company has employment agreements with its executive officers, the terms of
which expire at various times through 2013.  Such agreements, which
have been revised from time to time, provide for salary amounts and cash and
equity incentive bonuses that are payable if specified annual management goals
or project completions are attained.  The aggregate commitment for
future salaries at December 31, 2009, excluding bonuses, was approximately $4.1
million.
 In
December 2008, the Company implemented a reduction in force plan and
approximately 115 jobs were eliminated in January 2009.  In December
2008, the Company recorded an accrued restructuring and severance expense of
approximately $1.5 million related to this plan.  The expense was
recorded to selling, general, and administrative expense.
  92
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
                                  Equity
  Shares
and Units
  An OP
Unit and a share of the Company’s common stock have essentially the same
economic characteristics as they share equally in the total net income or loss
and distributions of the Operating Partnership.  An OP Unit may be
tendered for redemption for cash, however, the Company has sole discretion and
the authorized common stock to exchange for shares of common stock on a
one-for-one basis.
 LTIP
units are a special class of partnership interests in the Operating
Partnership.  Each LTIP unit awarded will be deemed equivalent to an
award of one common share under the 2005 long-term stock incentive plan,
reducing the availability for other equity awards on a one-for-one
basis.  The vesting period for LTIP units, if any, will be determined
at the time of issuance.  Cash distributions on each LTIP unit,
whether vested or not, will be the same as those made on the OP
Units.  Under the terms of the LTIP units, the Operating Partnership
will revalue for tax purposes its assets upon the occurrence of certain
specified events, and any increase in valuation from the time of grant until
such event will be allocated first to the holders of LTIP units to equalize the
capital accounts of such holders with the capital accounts of OP
unitholders.  Subject to any agreed upon exceptions, once vested, LTIP
units are convertible into OP Units in the Operating Partnership on a one for
one basis.
  As of
December 31, 2009, there were 50.5 million OP Units outstanding, of which 42.7
million, or 84.6%, were owned by the Company and 7.8 million, or 15.4%, were
owned by other partners, including certain directors, officers and other members
of senior management.  As of December 31, 2009, the fair market value
of the OP Units not owned by the Company was $44.1 million, based on a market
value of $5.66 per unit, which was the closing stock price of the Company’s
shares on December 31, 2009.
 In
October 2009, the Company issued 331,812 alternative units relating to the final
escrow release related to the Merger.  See Note 4 within these
consolidated financial statements for additional information.
  In 2008,
the Company, through the Operating Partnership, redeemed 46,231 units for cash
payments, at the Company’s election, totaling $0.8 million.  The per
unit redemption prices ranged from $8.78 to $18.64, based on the preceding 10
day average of the Company’s common stock price per share.  There were
no redemption for cash payments in 2009.
  The following is net loss attributable to Cogdell Spencer Inc. and the issuance
of common stock in exchange for redemptions of OP Units for the years ended
December 31, 2009, 2008, and 2007 (in thousands):
  For
      the Year EndedDecember
      31,
                                    2009
                                  
                                  
                                  December
      31,
                                    2008
                                  
                                  
                                  December
      31,
                                    2007Net
      loss attributable to Cogdell Spencer Inc.
                                  
                                  $
                                  (69,728
                                  )
                                  
                                  $
                                  (5,773
                                  )
                                  
                                  $
                                  (6,341
                                  )Increase
      in Cogdell Spencer Inc. additional paid-in capital for
      the conversion of OP units into common stock
                                  
                                  
                                  18,830
                                  
                                  
                                  
                                  1,843
                                  
                                  
                                  
                                  6Change
      from net loss attributable to Cogdell Spencer Inc. andtransfers
      from noncontrolling interests
                                  
                                  $
                                  (50,898
                                  )
                                  
                                  $
                                  (3,930
                                  )
                                  
                                  $
                                  (6,335
                                  )
  The
following is a summary of changes of the Company’s common stock for the years
ended December 31, 2009, 2008, and 2007 (in thousands):
 For
      the Year EndedDecember
      31, 2009
                                      
                                      
                                      December
      31, 2008
                                      
                                      
                                      December
      31, 2007Common
      stock shares at beginning of period
                                      
                                      
                                      17,699
                                      
                                      
                                      
                                      11,948
                                      
                                      
                                      
                                      8,000Issuance
      of common stock
                                      
                                      
                                      23,000
                                      
                                      
                                      
                                      5,608
                                      
                                      
                                      
                                      3,950Conversion
      of OP Units to common stock
                                      
                                      
                                      2,017
                                      
                                      
                                      
                                      137
                                      
                                      
                                      
                                      -Issuance
      of restricted stock grants
                                      
                                      
                                      13
                                      
                                      
                                      
                                      6
                                      
                                      
                                      
                                      (2
                                      )Common
      stock shares at end of period
                                      
                                      
                                      42,729
                                      
                                      
                                      
                                      17,699
                                      
                                      
                                      
                                      11,948
  Dividends
and Distributions
 During
2009, the Company paid two quarterly dividends of $0.225 per share or unit and
two quarterly dividends of $0.10 per share or unit, totaling $0.65 per share or
unit for the year.   These quarterly distributions were paid in
January, April, July, and October 2009.  Total dividends paid to
common stockholders during 2009 were $16.9 million.  Total
distributions paid to OP Unit holders, excluding inter-company distributions,
during 2009 totaled $5.2 million.
  93
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 On
December 17, 2009, the Company announced that its Board of Directors had
declared a quarterly dividend of $0.10 per share and operating partnership unit
that was paid in cash on January 21, 2010 to holders of record on December 31,
2009.
 Earnings
and profits, which determine the tax treatment of distributions to stockholders,
will differ from income reported for financial reporting purposes due to the
differences for federal income tax purposes in the treatment of loss on
extinguishment of debt, revenue recognition, compensation expense and in the
basis of depreciable assets and estimated useful lives used to compute
depreciation.
 Noncontrolling
Interests in Real Estate Partnerships
  Noncontrolling
interests in real estate partnerships at December 31, 2009 and 2008 relate
to Rocky Mount MOB, LLC, Mebane Medical Investors, LLC, Cogdell General Health
Campus MOB, LP, and Genesis Property Holdings, LLC.  See Note 5 for
additional information regarding the Company’s investments in real estate
partnerships.
  13.
                                      Income
    Taxes
  TRS
Holdings is a taxable entity and its consolidated provision for income taxes
consisted of the following for the years ended December 31 (in
thousands):
  2009
                                      
                                      
                                      2008
                                      
                                      
                                      2007Current:Federal
                                      
                                      $
                                      (566
                                      )
                                      
                                      $
                                      3,710
                                      
                                      
                                      $
                                      123State
                                      
                                      
                                      (131
                                      )
                                      
                                      
                                      710
                                      
                                      
                                      
                                      24Deferred
      tax expense on intersegment profits
                                      
                                      
                                      (2,813
                                      )
                                      
                                      
                                      (7
                                      )
                                      
                                      
                                      -Total
      current
                                      
                                      
                                      (3,510
                                      )
                                      
                                      
                                      4,413
                                      
                                      
                                      
                                      147Deferred:Federal
                                      
                                      
                                      (15,679
                                      )
                                      
                                      
                                      (4,765
                                      )
                                      
                                      
                                      (25
                                      )State
                                      
                                      
                                      (2,935
                                      )
                                      
                                      
                                      (892
                                      )
                                      
                                      
                                      (5
                                      )Total
      deferred
                                      
                                      
                                      (18,614
                                      )
                                      
                                      
                                      (5,657
                                      )
                                      
                                      
                                      (30
                                      )Income
      tax expense (benefit)
                                      
                                      $
                                      (22,124
                                      )
                                      
                                      $
                                      (1,244
                                      )
                                      
                                      $
                                      117
  The
effective income tax rate is 18.2%, 39.3%, and 39.0% for the years ended
December 31, 2009, 2008, and 2007, respectively.  The actual tax
provision differed from that computed at the federal statutory corporate rate as
follows (in thousands):
  2009
                                      
                                      
                                      2008
                                      
                                      
                                      2007Federal
      tax (benefit) at 35% statutory rate
                                      
                                      $
                                      (42,505
                                      )
                                      
                                      $
                                      (1,109
                                      )
                                      
                                      $
                                      105State
      income taxes, net of federal benefit
                                      
                                      
                                      (1,955
                                      )
                                      
                                      
                                      (71
                                      )
                                      
                                      
                                      12Nondeductible
      expenses, primarily goodwill
                                      
                                      
                                      25,016
                                      
                                      
                                      
                                      72
                                      
                                      
                                      
                                      -Deferred
      tax expense on intersegment profits
                                      
                                      
                                      (2,813
                                      )
                                      
                                      
                                      (7
                                      )
                                      
                                      
                                      -Other,
      net
                                      
                                      
                                      133
                                      
                                      
                                      
                                      (129
                                      )
                                      
                                      
                                      -Income
      tax expense (benefit)
                                      
                                      $
                                      (22,124
                                      )
                                      
                                      $
                                      (1,244
                                      )
                                      
                                      $
                                      117
 94
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 The
income tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented below
(in thousands):
  2009
                                      
                                      
                                      2008Deferred
      tax assets:Deferred
      interest expense
                                      
                                      $
                                      1,433
                                      
                                      
                                      $
                                      1,094Allowance
      for doubtful accounts receivable
                                      
                                      
                                      1,071
                                      
                                      
                                      
                                      29Unrealized
      loss on interest rate swap agreement
                                      
                                      
                                      626
                                      
                                      
                                      
                                      1,349Accrued
      expenses and other items
                                      
                                      
                                      2,942
                                      
                                      
                                      
                                      4,092Total
      deferred tax assets
                                      
                                      
                                      6,072
                                      
                                      
                                      
                                      6,564Deferred
      tax liabilities:Intangibles
                                      
                                      
                                      (20,779
                                      )
                                      
                                      
                                      (39,993
                                      )Other
      items
                                      
                                      
                                      (1,286
                                      )
                                      
                                      
                                      (747
                                      )Total
      deferred tax liabilities
                                      
                                      
                                      (22,065
                                      )
                                      
                                      
                                      (40,740
                                      )Net
      deferred tax liability
                                      
                                      $
                                      (15,993
                                      )
                                      
                                      $
                                      (34,176
                                      )
  When
goodwill is impaired, such impairment is treated as being of permanent in
character (meaning it has no effect on deferred taxes) unless the amount that
the goodwill is being impaired down to is less than the original amount of tax
basis in goodwill. If the amount that goodwill is impaired down to is less than
the original amount of tax basis in the goodwill there will be an adjustment to
deferred taxes.  As it relates to the impairment in the current
period, there is no provision benefit under the policy described
above.
  At
December 31, 2009, there was $1.4 million of deferred tax assets related to
inter-company interest expense carry forward, which has an unlimited carry
forward period.  No valuation allowance has been recorded against the
deferred tax assets because the Company believes that these deferred tax assets
will, more likely than not, be realized.  This determination is based
largely upon the TRS Holdings’ anticipated future taxable income, as well as the
availability of taxable income in the carry back period and the reversal of
deferred tax liabilities.
  There was
an insignificant amount of penalties or interest recorded during the years ended
December 31, 2009, 2008 and 2007.  The Company and TRS Holdings have
an insignificant amount of unrecognized tax benefits.  For tax years
2006, 2007, 2008, and 2009, the United States federal and state tax returns are
open for examination.
  14.
                                      Incentive and Share-Based
      Compensation
 
 The
Company’s 2005 Long-Term Stock Incentive Plan (“2005 Incentive Plan”) provides
for the grant of incentive awards to employees, directors and consultants to
attract and retain qualified individuals and reward them for superior
performance in achieving the Company’s business goals and enhancing stockholder
value.  Awards issuable under the incentive award plan include stock
options, restricted stock, dividend equivalents, stock appreciation rights, LTIP
units, cash performance bonuses and other incentive awards.  Only
employees are eligible to receive incentive stock options under the incentive
award plan.  The Company has reserved a total of 1,000,000 shares
of common stock for issuance pursuant to the incentive award plan, subject to
certain adjustments set forth in the plan.  Each LTIP unit issued
under the incentive award plan will count as one share of stock for purposes of
calculating the limit on shares that may be issued under the plan and the
individual award limit discussed below.
  In
January 2009, the Company issued 500 LTIP units that vested upon issuance to one
employee. The LTIP units were valued at $8.70 per unit, which was the Company’s
closing stock price on the NYSE on the grant date. The Company has recorded
compensation expense of less than $0.1 million in connection with this
issuance.
  In
February 2009, each non-employee member of the Company’s Board of Directors was
granted 6,569 shares of the Company’s restricted stock or LTIP units, at each
director’s option, that all vested upon issuance. Messrs. Georgius, Lee, Lubar,
and Neugent each elected to receive LTIP units and Mr. Jennings and Dr. Smoak
each elected to receive shares of restricted stock. The restricted stock and
LTIP units were valued at $6.09 per share, which was the Company’s closing stock
price on the NYSE on the grant date. The Company has recorded compensation
expense of $0.2 million in connection with these issuances
  In
February 2009, 3,334 LTIP units previously issued, but unvested, became vested
based on 2008 Company performance. Compensation expense of $0.1 million was
recorded for the year ended December 31, 2008. As of December 31, 2009, there
were 114,535 unvested LTIP units that will vest if, and when, the Company
achieves certain performance standards as provided in the awards. Any portions
of the unvested LTIP units that are not vested as of December 2015 are
forfeited. As of December 31, 2009, the Company assessed the probability of the
performance conditions being achieved and has recorded no compensation expenses
associated with 2009 Company performance.
  95
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 In
February 2009, the Company issued an aggregate of 80,586 LTIP units, all of
which vested upon issuance, to certain employees based on 2008 performance
goals. The LTIP units were valued at $6.09 per unit, which was the Company’s
closing stock price on the grant date. The Company accrued compensation expense
in 2008 in connection with this issuance.
  In
February 2009, the Company issued 4,926 LTIP units to one employee that will
vest in February 2010 if such employee’s employment is maintained through
February 2010. The LTIP units were valued at $6.09 per unit, which was the
Company’s closing stock price on the grant date. The Company recorded
compensation expense for the year ended December 31, 2009 of less than $0.1
million in connection with this issuance.
  In
December 2009, the Company issued an aggregate of 106,756 LTIP units, all of
which vested upon issuance, to certain employees based on specific performance
goals.  The LTIP units were valued at $4.93 per unit, which was the
Company’s closing stock price on the grant date.  The Company recorded
compensation expense of $0.4 million and capitalized $0.1 million as a
development project cost.
  In
February 2008, each non-employee member of the Company’s Board of Directors was
granted shares of restricted stock or LTIP units in the Operating Partnership
that all vested upon issuance.  Messrs. Georgius and Lee and Dr. Smoak
were each granted 3,135 LTIP units and Messrs. Jennings and Neugent were each
granted 3,135 shares of restricted stock.  The restricted stock and
LTIP units were valued at $15.00 per share, which was the Company’s closing
stock price on the grant date.  The Company recorded compensation
expense of $0.2 million during the year ended December 31, 2008.
  In March
2008, the Company issued an aggregate 156,740 LTIP units, of which 20%, or
31,347, vested upon issuance.  The remaining 80% will vest if, and
when, the Company achieves certain performance standards as provided in the
awards.  The one time award was granted in recognition of the role
played by certain employees in guiding the Company through the
Merger.  The LTIP units were valued at $15.72 per unit, which was the
Company’s closing stock price on the grant date.  The Company recorded
compensation expense of $0.5 million in March 2008 related to the 20% of the
grant that vested.  The value of the unvested LTIP units was $2.0
million.  Any portions of the unvested LTIP units that are not vested
as of December 2015 are forfeited.  During 2008, 7,524 LTIP units were
forfeited due to a termination of employment.  The Company has
assessed the probability of the performance conditions being achieved and as a
result has accrued and expensed $0.1 million related to expected vesting
associated with 2008 Company performance.
  In May
2008, Mr. Cogdell, the Chairman of the Board of Directors of the Company elected
to forego his remaining 2008 annual salary.  In lieu of receiving his
annual salary, Mr. Cogdell was awarded 18,579 LTIP units in the Operating
Partnership, under the 2005 Incentive Plan.  The LTIP units were
valued at $17.62 per unit, which was the Company’s closing stock price on the
grant date.  The Company recorded compensation expense of $0.3
million.
  In July
2008, the Company issued an aggregate of 5,153 LTIP units, all of which vested
upon issuance, to certain employees based on specific performance
goals.  The LTIP units were valued at $15.72 per unit, which was the
Company’s closing stock price on the grant date.  The Company recorded
compensation expense of less than $0.1 million and capitalized $0.1 million as a
development project cost.
 
 During 2007, the Company issued 2,500 vested LTIP units.  The LTIP
units were valued at $21.07 per unit and $0.1 million of compensation expense
was recorded.
  No other
stock options, dividend equivalents, or stock appreciation rights were issued or
outstanding in 2009, 2008, and 2007.
  96
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 The
following is a summary of restricted stock and LTIP unit activity for the ended
December 31, 2009 (in thousands, except weighted average grant
price):
  Restricted
                                        Stock
                                      
                                      
                                      LTIP
      Units
                                      
                                      
                                      Weighted
      Average
                                        Grant
      PriceUnvested
      balance at December 31, 2008
                                      
                                      
                                      12
                                      
                                      
                                      
                                      118
                                      
                                      
                                      $
                                      15.89Granted
                                      
                                      
                                      13
                                      
                                      
                                      
                                      219
                                      
                                      
                                      
                                      5.56Vested
                                      
                                      
                                      (19
                                      )
                                      
                                      
                                      (217
                                      )
                                      
                                      
                                      6.00Forfeited
                                      
                                      
                                      (1
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      17.00Unvested
      balance at December 31, 2009
                                      
                                      
                                      5
                                      
                                      
                                      
                                      120
                                      
                                      
                                      $
                                      15.43
  15.
                                      401(k)
      Savings Plans
 Cogdell
Spencer LP sponsors a 401(k) plan covering substantially all of its
employees.  The plan provides for matching as well as profit-sharing
contributions.  Profit-sharing contributions are made at the
discretion of management and are allocated to participants based on their level
of compensation.  Profit-sharing contributions were not paid in 2009,
2008, or 2007.  The Company matched 100% of the employees’
contributions to the plan up to a maximum of 4% of compensation in 2009, 2008,
or 2007.  The 401(k) matching expense for the year ended
December 31, 2009, 2008, and 2007 was approximately $0.1 million,
$0.1 million, and $0.1 million, respectively.
  MEA
sponsors a 401(k)/profit sharing plan covering substantially all salaried
employees. MEA’s contribution to the plan is determined annually by management
and is limited, by law, to 25% of the annual aggregate compensation of those
employees eligible for participation in the plan.  There were no
profit sharing contributions made during the year ended
2009.   The total expense charged to “Costs related to contract
and other revenues” and “Selling, general, and administrative expenses” for this
plan for the year ended December 31, 2008 was approximately $2.7 million
and $0.8 million, respectively.  The
401(k) matching expense for the year ended December 31, 2009 and 2008 was
approximately $0.9 million and $1.5 million,
respectively.   97
 16.
                                      Related Party
      Transactions
  The Fork
Farm, a working farm owned by the Company’s Chairman and founder, periodically
hosts events on behalf of the Company.  Charges of less than $25,000
for each year ended December 31, 2009, 2008, and 2007 are reflected in
“Selling, general, and administrative” expenses in the consolidated statement of
operations.
  The
Company has certain design-build contracts for the construction of medical
facilities with certain entities in which Mr. Lubar, a member of the Company’s
Board of Directors, has an indirect ownership interest and is a
director.  Mr. Lubar resigned as an officer of the entity in
2008.  In addition, Mr. Ransom, a member of the Board of Directors and our
President, and certain members of senior management have direct ownership in the
entities.  The total contract amount is $30.7 million and
construction was in process at the time of the MEA transaction.  During
2008, construction was completed on one medical facility.  For the
year ended December 31, 2008, the Company recognized $16.0 million of revenue
and at December 31, 2008 had accounts receivable of $2.1 million and billings in
excess of costs and estimated earnings on uncompleted contracts of $2.1 million
related to both projects.  During 2009, construction was completed on
the second medical facility and the Company recognized $3.0 million in
2009.  As of December 31, 2009, the Company had no accounts receivable
or billings in excess of costs and estimated earnings on uncompleted
contracts.
  17.
                                      Additional
      Information
 
 During
2009, the Company explored a range of strategic alternatives that included: an
assessment of potential change of control transactions; asset dispositions and
acquisitions; business and portfolio combinations; debt financings and
refinancings.  For the year ended December 31, 2009, the selling,
general and administrative expense associated with this exercise totaled
approximately $2.6 million and included fees for consultants, accountants,
attorneys, and other service providers.
  During
2008, the Company incurred after-tax restructuring and severance charges of $1.3
million related to severance paid to a member of the senior management team and
severance and restructuring due to a planned reduction in force that was
announced in 2008 and occurred in 2009.  This expense is included in
selling, general and administrative.
  98
 COGDELL
SPENCER INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 18.
                                      Selected Quarterly Financial
      Information (unaudited)
 
 The
tables below reflect the Company’s selected quarterly information for the
Company for the years ended December 31, 2009 and 2008 (in thousands,
except per share amounts):
  Three
      Months EndedDecember
      31, 2009
                                      
                                      
                                      September
      30, 2009
                                      
                                      
                                      June
      30, 2009
                                      
                                      
                                      March
      31, 2009Total
      revenue
                                      
                                      $
                                      51,296
                                      
                                      
                                      $
                                      51,313
                                      
                                      
                                      $
                                      57,376
                                      
                                      
                                      $
                                      69,616Income
      (loss) from continuing operations
                                      
                                      $
                                      3,356
                                      
                                      
                                      $
                                      1,496
                                      
                                      
                                      $
                                      (3,006
                                      )
                                      
                                      $
                                      (102,281
                                      )Total
      discontinued operations
                                      
                                      
                                      (1,400
                                      )
                                      
                                      
                                      (40
                                      )
                                      
                                      
                                      (44
                                      )
                                      
                                      
                                      (43
                                      )Net
      income (loss)
                                      
                                      $
                                      1,956
                                      
                                      
                                      $
                                      1,456
                                      
                                      
                                      $
                                      (3,050
                                      )
                                      
                                      $
                                      (102,324
                                      )Net
      income (loss) attributable to CogdellSpencer
      Inc.
                                      
                                      $
                                      1,556
                                      
                                      
                                      $
                                      1,248
                                      
                                      
                                      $
                                      (2,315
                                      )
                                      
                                      $
                                      (70,218
                                      )Per
      share - basic and diluted:Income
      (loss) from continuing operations attributableto Cogdell Spencer Inc.
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      0.03
                                      
                                      
                                      $
                                      (0.08
                                      )
                                      
                                      $
                                      (3.90
                                      )Weighted
      average shares - basic and diluted
                                      
                                      
                                      42,615
                                      
                                      
                                      
                                      42,539
                                      
                                      
                                      
                                      27,088
                                      
                                      
                                      
                                      17,995Three
      Months EndedDecember
      31, 2008
                                      
                                      
                                      September
      30, 2008
                                      
                                      
                                      June
      30, 2008
                                      
                                      
                                      March
      31, 2008Total
      revenue
                                      
                                      $
                                      99,884
                                      
                                      
                                      $
                                      93,935
                                      
                                      
                                      $
                                      98,171
                                      
                                      
                                      $
                                      43,372Loss
      from continuing operations
                                      
                                      $
                                      (1,471
                                      )
                                      
                                      $
                                      (699
                                      )
                                      
                                      $
                                      (2,941
                                      )
                                      
                                      $
                                      (2,534
                                      )Total
      discontinued operations
                                      
                                      
                                      (34
                                      )
                                      
                                      
                                      (107
                                      )
                                      
                                      
                                      (38
                                      )
                                      
                                      
                                      (33
                                      )Net
      loss
                                      
                                      $
                                      (1,505
                                      )
                                      
                                      $
                                      (806
                                      )
                                      
                                      $
                                      (2,979
                                      )
                                      
                                      $
                                      (2,567
                                      )Net
      loss attributable to CogdellSpencer
      Inc.
                                      
                                      $
                                      (1,042
                                      )
                                      
                                      $
                                      (1,087
                                      )
                                      
                                      $
                                      (1,842
                                      )
                                      
                                      $
                                      (1,802
                                      )Per
      share - basic and diluted:Loss
      from continuing operations attributableto
      Cogdell Spencer Inc.
                                      
                                      $
                                      (0.06
                                      )
                                      
                                      $
                                      (0.06
                                      )
                                      
                                      $
                                      (0.12
                                      )
                                      
                                      $
                                      (0.12
                                      )Weighted
      average shares - basic and diluted
                                      
                                      
                                      17,557
                                      
                                      
                                      
                                      15,747
                                      
                                      
                                      
                                      15,393
                                      
                                      
                                      
                                      14,364
   99
 COGDELL
SPENCER INC.
 SCHEDULE
III
 REAL
ESTATE AND ACCUMULATED DEPRECIATION
  Initial
      Costs (I)
                                          
                                          
                                          
                                          
                                          
                                          Gross
      Amount at Which Carried at
                                            December
      31, 2009Property
      Name
                                          Location
                                          
                                          Encumbrances
                                          
                                          
                                          Land
                                          
                                          
                                          Building
      and Improvements (A)
                                          
                                          
                                          Cost
      Capitalized Subsequent to Acquisition or Development
                                          
                                          
                                          Land
                                          
                                          
                                          Building
      and Improvements (A)
                                          
                                          
                                          Total  (B)
                                          
                                          
                                          Accumulated
      Depreciation
                                          
                                          
                                          Date
      Constructed (C)
                                          
                                          
                                          Date
      AcquiredVerdugo
      Hills Professional Bldg I
                                          California
                                          
                                          (H)
                                          
                                          $
                                          1,218
                                          
                                          $
                                          8,228
                                          
                                          $
                                          1,536
                                          
                                          $
                                          1,226
                                          
                                          $
                                          9,756
                                          
                                          $
                                          10,982
                                          
                                          $
                                          2,143
                                          
                                          
                                          1972
                                          
                                          
                                          2006Verdugo
      Hills Professional Bldg II
                                          California
                                          
                                          (H)
                                          
                                          
                                          3,531
                                          
                                          
                                          8,915
                                          
                                          
                                          1,282
                                          
                                          
                                          3,555
                                          
                                          
                                          10,173
                                          
                                          
                                          13,728
                                          
                                          
                                          1,759
                                          
                                          
                                          1987
                                          
                                          
                                          2006Woodlands
      Center for Specialized Med (J)
                                          Florida
                                          
                                          
                                          15,786
                                          
                                          
                                          4,038
                                          
                                          
                                          18,431
                                          
                                          
                                          -
                                          
                                          
                                          4,038
                                          
                                          
                                          18,431
                                          
                                          
                                          22,469
                                          
                                          
                                          65
                                          
                                          
                                          2009
                                          (K)
                                          
                                          2008
                                          (K)Augusta
      POB I
                                          Georgia
                                          
                                          (H)
                                          
                                          
                                          259
                                          
                                          
                                          8,431
                                          
                                          
                                          1,700
                                          
                                          
                                          260
                                          
                                          
                                          10,130
                                          
                                          
                                          10,390
                                          
                                          
                                          2,390
                                          
                                          
                                          1978
                                          
                                          
                                          2005Augusta
      POB II
                                          Georgia
                                          
                                          (H)
                                          
                                          
                                          602
                                          
                                          
                                          10,646
                                          
                                          
                                          839
                                          
                                          
                                          605
                                          
                                          
                                          11,482
                                          
                                          
                                          12,087
                                          
                                          
                                          2,838
                                          
                                          
                                          1987
                                          
                                          
                                          2005Augusta
      POB III
                                          Georgia
                                          
                                          (H)
                                          
                                          
                                          339
                                          
                                          
                                          3,986
                                          
                                          
                                          386
                                          
                                          
                                          341
                                          
                                          
                                          4,370
                                          
                                          
                                          4,711
                                          
                                          
                                          1,040
                                          
                                          
                                          1994
                                          
                                          
                                          2005Augusta
      POB IV
                                          Georgia
                                          
                                          (H)
                                          
                                          
                                          551
                                          
                                          
                                          4,672
                                          
                                          
                                          527
                                          
                                          
                                          554
                                          
                                          
                                          5,196
                                          
                                          
                                          5,750
                                          
                                          
                                          1,271
                                          
                                          
                                          1995
                                          
                                          
                                          2005Summit
      Professional Plaza I
                                          Georgia
                                          
                                          
                                          5,096
                                          
                                          
                                          1,180
                                          
                                          
                                          6,021
                                          
                                          
                                          15
                                          
                                          
                                          1,181
                                          
                                          
                                          6,035
                                          
                                          
                                          7,216
                                          
                                          
                                          528
                                          
                                          
                                          2004
                                          
                                          
                                          2007Summit
      Professional Plaza II
                                          Georgia
                                          
                                          
                                          10,829
                                          
                                          
                                          2,000
                                          
                                          
                                          12,684
                                          
                                          
                                          199
                                          
                                          
                                          2,001
                                          
                                          
                                          12,882
                                          
                                          
                                          14,883
                                          
                                          
                                          1,002
                                          
                                          
                                          1998
                                          
                                          
                                          2007Methodist
      Professional Center One
                                          Indiana
                                          
                                          
                                          25,466
                                          
                                          
                                          -
                                          
                                          
                                          37,830
                                          
                                          
                                          2,286
                                          
                                          
                                          -
                                          
                                          
                                          40,116
                                          
                                          
                                          40,116
                                          
                                          
                                          6,226
                                          
                                          
                                          1985
                                          
                                          
                                          2006OLBH
      Same Day Surgery Ctr, MOB, Garage
                                          Kentucky
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          13,938
                                          
                                          
                                          209
                                          
                                          
                                          -
                                          
                                          
                                          14,147
                                          
                                          
                                          14,147
                                          
                                          
                                          2,802
                                          
                                          
                                          1997
                                          
                                          
                                          2005East
      Jefferson Medical Plaza
                                          Louisiana
                                          
                                          
                                          11,600
                                          
                                          
                                          -
                                          
                                          
                                          16,525
                                          
                                          
                                          94
                                          
                                          
                                          -
                                          
                                          
                                          16,619
                                          
                                          
                                          16,619
                                          
                                          
                                          1,160
                                          
                                          
                                          1996
                                          
                                          
                                          2008East
      Jefferson MOB
                                          Louisiana
                                          
                                          
                                          8,968
                                          
                                          
                                          -
                                          
                                          
                                          12,239
                                          
                                          
                                          791
                                          
                                          
                                          -
                                          
                                          
                                          13,030
                                          
                                          
                                          13,030
                                          
                                          
                                          2,896
                                          
                                          
                                          1985
                                          
                                          
                                          2005Central
      New York Medical Center and Garage
                                          New
      York
                                          
                                          
                                          24,500
                                          
                                          
                                          2,112
                                          
                                          
                                          32,700
                                          
                                          
                                          156
                                          
                                          
                                          2,113
                                          
                                          
                                          32,855
                                          
                                          
                                          34,968
                                          
                                          
                                          2,254
                                          
                                          
                                          1997
                                          
                                          
                                          2007Alamance
      Regional Mebane Outpatient Ctr (J)
                                          North
      Carolina
                                          
                                          
                                          13,732
                                          
                                          
                                          -
                                          
                                          
                                          15,757
                                          
                                          
                                          2,005
                                          
                                          
                                          -
                                          
                                          
                                          17,762
                                          
                                          
                                          17,762
                                          
                                          
                                          1,007
                                          
                                          
                                          2008
                                          (K)
                                          
                                          2007
                                          (K)Barclay
      Downs
                                          North
      Carolina
                                          
                                          
                                          4,378
                                          
                                          
                                          2,084
                                          
                                          
                                          3,363
                                          
                                          
                                          358
                                          
                                          
                                          2,097
                                          
                                          
                                          3,708
                                          
                                          
                                          5,805
                                          
                                          
                                          1,501
                                          
                                          
                                          1987
                                          
                                          
                                          2005Birkdale
      II
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          142
                                          
                                          
                                          992
                                          
                                          
                                          65
                                          
                                          
                                          142
                                          
                                          
                                          1,057
                                          
                                          
                                          1,199
                                          
                                          
                                          238
                                          
                                          
                                          2001
                                          
                                          
                                          2005Birkdale
      Wellness, Bldgs C,D, E
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          1,087
                                          
                                          
                                          5,829
                                          
                                          
                                          205
                                          
                                          
                                          1,095
                                          
                                          
                                          6,026
                                          
                                          
                                          7,121
                                          
                                          
                                          1,426
                                          
                                          
                                          1997
                                          
                                          
                                          2005Copperfield
      Medical Mall
                                          North
      Carolina
                                          
                                          (D)
                                          
                                          
                                          1,380
                                          
                                          
                                          4,047
                                          
                                          
                                          121
                                          
                                          
                                          1,389
                                          
                                          
                                          4,159
                                          
                                          
                                          5,548
                                          
                                          
                                          1,428
                                          
                                          
                                          1989
                                          
                                          
                                          2005East
      Rocky Mount Kidney Center
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          260
                                          
                                          
                                          1,194
                                          
                                          
                                          15
                                          
                                          
                                          261
                                          
                                          
                                          1,208
                                          
                                          
                                          1,469
                                          
                                          
                                          340
                                          
                                          
                                          2000
                                          
                                          
                                          2005English
      Road Medical Center, formerly known as Rocky Mount MOB (J)
                                          North
      Carolina
                                          
                                          
                                          5,265
                                          
                                          
                                          228
                                          
                                          
                                          4,990
                                          
                                          
                                          50
                                          
                                          
                                          228
                                          
                                          
                                          5,040
                                          
                                          
                                          5,268
                                          
                                          
                                          1,874
                                          
                                          
                                          2002
                                          
                                          
                                          2006Gaston
      Professional Center, Gaston Ambulatory Surgery Center, Gaston
      Parking
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          21,358
                                          
                                          
                                          1,842
                                          
                                          
                                          -
                                          
                                          
                                          23,200
                                          
                                          
                                          23,200
                                          
                                          
                                          8,905
                                          
                                          
                                          1997
                                          
                                          
                                          2005Gateway
      Medical Office Building - formerly known as Copperfield
MOB
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          9,281
                                          
                                          
                                          1,563
                                          
                                          
                                          -
                                          
                                          
                                          10,844
                                          
                                          
                                          10,844
                                          
                                          
                                          2,331
                                          
                                          
                                          2005
                                          
                                          
                                          2005Harrisburg
      Family Physicians
                                          North
      Carolina
                                          
                                          
                                          -
                                          
                                          
                                          270
                                          
                                          
                                          509
                                          
                                          
                                          100
                                          
                                          
                                          271
                                          
                                          
                                          608
                                          
                                          
                                          879
                                          
                                          
                                          243
                                          
                                          
                                          1996
                                          
                                          
                                          2005Harrisburg
      Medical Mall
                                          North
      Carolina
                                          
                                          (D)
                                          
                                          
                                          441
                                          
                                          
                                          1,722
                                          
                                          
                                          18
                                          
                                          
                                          443
                                          
                                          
                                          1,738
                                          
                                          
                                          2,181
                                          
                                          
                                          460
                                          
                                          
                                          1997
                                          
                                          
                                          2005Lincoln/Lakemont
      Family Practice Center
                                          North
      Carolina
                                          
                                          (I)
                                          
                                          
                                          270
                                          
                                          
                                          1,025
                                          
                                          
                                          286
                                          
                                          
                                          271
                                          
                                          
                                          1,310
                                          
                                          
                                          1,581
                                          
                                          
                                          485
                                          
                                          
                                          1998
                                          
                                          
                                          2005Mallard
      Crossing Medical Park
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          1,256
                                          
                                          
                                          4,626
                                          
                                          
                                          375
                                          
                                          
                                          1,266
                                          
                                          
                                          4,991
                                          
                                          
                                          6,257
                                          
                                          
                                          1,259
                                          
                                          
                                          1997
                                          
                                          
                                          2005Medical
      Arts Building, formerly known as Cabarrus POB
                                          North
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          7,446
                                          
                                          
                                          979
                                          
                                          
                                          -
                                          
                                          
                                          8,425
                                          
                                          
                                          8,425
                                          
                                          
                                          1,775
                                          
                                          
                                          1997
                                          
                                          
                                          2005Midland
      Medical Park
                                          North
      Carolina
                                          
                                          (D)
                                          
                                          
                                          288
                                          
                                          
                                          1,134
                                          
                                          
                                          302
                                          
                                          
                                          289
                                          
                                          
                                          1,435
                                          
                                          
                                          1,724
                                          
                                          
                                          373
                                          
                                          
                                          1998
                                          
                                          
                                          2005Mulberry
      Medical Park
                                          North
      Carolina
                                          
                                          
                                          924
                                          
                                          
                                          -
                                          
                                          
                                          2,283
                                          
                                          
                                          164
                                          
                                          
                                          -
                                          
                                          
                                          2,447
                                          
                                          
                                          2,447
                                          
                                          
                                          835
                                          
                                          
                                          1982
                                          
                                          
                                          2005Northcross
      Family Physicians
                                          North
      Carolina
                                          
                                          (I)
                                          
                                          
                                          270
                                          
                                          
                                          498
                                          
                                          
                                          148
                                          
                                          
                                          271
                                          
                                          
                                          645
                                          
                                          
                                          916
                                          
                                          
                                          252
                                          
                                          
                                          1993
                                          
                                          
                                          2005Randolph
      Medical Park
                                          North
      Carolina
                                          
                                          (I)
                                          
                                          
                                          1,621
                                          
                                          
                                          5,366
                                          
                                          
                                          2,469
                                          
                                          
                                          1,631
                                          
                                          
                                          7,825
                                          
                                          
                                          9,456
                                          
                                          
                                          1,996
                                          
                                          
                                          1973
                                          
                                          
                                          2005Rocky
      Mount Kidney Center
                                          North
      Carolina
                                          
                                          
                                          1,000
                                          
                                          
                                          198
                                          
                                          
                                          1,366
                                          
                                          
                                          72
                                          
                                          
                                          199
                                          
                                          
                                          1,437
                                          
                                          
                                          1,636
                                          
                                          
                                          384
                                          
                                          
                                          1990
                                          
                                          
                                          2005Rocky
      Mount Medical Park
                                          North
      Carolina
                                          
                                          
                                          6,794
                                          
                                          
                                          982
                                          
                                          
                                          9,854
                                          
                                          
                                          1,650
                                          
                                          
                                          990
                                          
                                          
                                          11,496
                                          
                                          
                                          12,486
                                          
                                          
                                          3,277
                                          
                                          
                                          1991
                                          
                                          
                                          2005Rowan
      Outpatient Surgery Center
                                          North
      Carolina
                                          
                                          
                                          3,237
                                          
                                          
                                          399
                                          
                                          
                                          4,666
                                          
                                          
                                          39
                                          
                                          
                                          401
                                          
                                          
                                          4,703
                                          
                                          
                                          5,104
                                          
                                          
                                          955
                                          
                                          
                                          2003
                                          
                                          
                                          2005Weddington
      Internal & Pediatric Medicine
                                          North
      Carolina
                                          
                                          (D)
                                          
                                          
                                          489
                                          
                                          
                                          838
                                          
                                          
                                          21
                                          
                                          
                                          491
                                          
                                          
                                          857
                                          
                                          
                                          1,348
                                          
                                          
                                          253
                                          
                                          
                                          2000
                                          
                                          
                                          2005Lancaster
      ASC MOB, formerly known as Cogdell General Health Campus MOB
      (J)
                                          Pennsylvania
                                          
                                          
                                          10,445
                                          
                                          
                                          -
                                          
                                          
                                          12,859
                                          
                                          
                                          1,486
                                          
                                          
                                          -
                                          
                                          
                                          14,345
                                          
                                          
                                          14,345
                                          
                                          
                                          1,981
                                          
                                          
                                          2007
                                          (K)
                                          
                                          2006
                                          (K)Lancaster
      Rehabilitation Hospital
                                          Pennsylvania
                                          
                                          
                                          9,647
                                          
                                          
                                          -
                                          
                                          
                                          11,748
                                          
                                          
                                          83
                                          
                                          
                                          -
                                          
                                          
                                          11,831
                                          
                                          
                                          11,831
                                          
                                          
                                          963
                                          
                                          
                                          2007
                                          (K)
                                          
                                          2006
                                          (K)200
      Andrews
                                          South
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          2,663
                                          
                                          
                                          1,216
                                          
                                          
                                          -
                                          
                                          
                                          3,879
                                          
                                          
                                          3,879
                                          
                                          
                                          931
                                          
                                          
                                          1994
                                          
                                          
                                          2005Beaufort
      Medical Plaza
                                          South
      Carolina
                                          
                                          
                                          4,763
                                          
                                          
                                          -
                                          
                                          
                                          7,399
                                          
                                          
                                          150
                                          
                                          
                                          -
                                          
                                          
                                          7,549
                                          
                                          
                                          7,549
                                          
                                          
                                          1,264
                                          
                                          
                                          1999
                                          
                                          
                                          2005Carolina
      Forest Medical Plaza
                                          South
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          7,416
                                          
                                          
                                          160
                                          
                                          
                                          -
                                          
                                          
                                          7,576
                                          
                                          
                                          7,576
                                          
                                          
                                          1,053
                                          
                                          
                                          2007
                                          (K)
                                          
                                          2006
                                          (K)Mary
      Black Westside Medical Office Bldg
                                          South
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          3,922
                                          
                                          
                                          800
                                          
                                          
                                          -
                                          
                                          
                                          4,722
                                          
                                          
                                          4,722
                                          
                                          
                                          852
                                          
                                          
                                          1991
                                          
                                          
                                          2006
  100
 COGDELL
SPENCER INC.
 SCHEDULE
III
 REAL
ESTATE AND ACCUMULATED DEPRECIATION
  Medical
      Arts Center of Orangeburg
                                          South
      Carolina
                                          
                                          
                                          2,365
                                          
                                          
                                          605
                                          
                                          
                                          4,172
                                          
                                          
                                          395
                                          
                                          
                                          608
                                          
                                          
                                          4,564
                                          
                                          
                                          5,172
                                          
                                          
                                          1,060
                                          
                                          
                                          1984
                                          
                                          
                                          2005One
      Medical Park
                                          South
      Carolina
                                          
                                          
                                          5,095
                                          
                                          
                                          -
                                          
                                          
                                          8,767
                                          
                                          
                                          986
                                          
                                          
                                          -
                                          
                                          
                                          9,753
                                          
                                          
                                          9,753
                                          
                                          
                                          1,778
                                          
                                          
                                          1984
                                          
                                          
                                          2005Palmetto
      Health Parkridge
                                          South
      Carolina
                                          
                                          
                                          13,500
                                          
                                          
                                          -
                                          
                                          
                                          16,353
                                          
                                          
                                          689
                                          
                                          
                                          -
                                          
                                          
                                          17,042
                                          
                                          
                                          17,042
                                          
                                          
                                          2,011
                                          
                                          
                                          2003
                                          
                                          
                                          2006Providence
      MOB I
                                          South
      Carolina
                                          
                                          (E)
                                          
                                          
                                          -
                                          
                                          
                                          5,152
                                          
                                          
                                          163
                                          
                                          
                                          1
                                          
                                          
                                          5,314
                                          
                                          
                                          5,315
                                          
                                          
                                          1,108
                                          
                                          
                                          1979
                                          
                                          
                                          2005Providence
      MOB II
                                          South
      Carolina
                                          
                                          (E)
                                          
                                          
                                          -
                                          
                                          
                                          2,441
                                          
                                          
                                          156
                                          
                                          
                                          -
                                          
                                          
                                          2,597
                                          
                                          
                                          2,597
                                          
                                          
                                          440
                                          
                                          
                                          1985
                                          
                                          
                                          2005Providence
      MOB III
                                          South
      Carolina
                                          
                                          (E)
                                          
                                          
                                          -
                                          
                                          
                                          5,459
                                          
                                          
                                          369
                                          
                                          
                                          1
                                          
                                          
                                          5,827
                                          
                                          
                                          5,828
                                          
                                          
                                          957
                                          
                                          
                                          1990
                                          
                                          
                                          2005River
      Hills Medical Plaza
                                          South
      Carolina
                                          
                                          
                                          3,795
                                          
                                          
                                          1,428
                                          
                                          
                                          4,202
                                          
                                          
                                          90
                                          
                                          
                                          1,437
                                          
                                          
                                          4,283
                                          
                                          
                                          5,720
                                          
                                          
                                          870
                                          
                                          
                                          1999
                                          
                                          
                                          2005Roper
      Medical Office Building
                                          South
      Carolina
                                          
                                          
                                          9,430
                                          
                                          
                                          -
                                          
                                          
                                          11,586
                                          
                                          
                                          1,880
                                          
                                          
                                          -
                                          
                                          
                                          13,466
                                          
                                          
                                          13,466
                                          
                                          
                                          3,244
                                          
                                          
                                          1990
                                          
                                          
                                          2005Roper
      Mount Pleasant Medical Office (Long Point)
                                          South
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          3,320
                                          
                                          
                                          521
                                          
                                          
                                          -
                                          
                                          
                                          3,841
                                          
                                          
                                          3,841
                                          
                                          
                                          1,018
                                          
                                          
                                          2001
                                          
                                          
                                          2005St
      Francis Medical Plaza (Charleston), formerly known as West Medical
      I
                                          South
      Carolina
                                          
                                          (H)
                                          
                                          
                                          -
                                          
                                          
                                          3,792
                                          
                                          
                                          2,201
                                          
                                          
                                          -
                                          
                                          
                                          5,993
                                          
                                          
                                          5,993
                                          
                                          
                                          2,068
                                          
                                          
                                          2003
                                          
                                          
                                          2005St.
      Francis CMOB
                                          South
      Carolina
                                          
                                          (F)
                                          
                                          
                                          -
                                          
                                          
                                          5,934
                                          
                                          
                                          815
                                          
                                          
                                          -
                                          
                                          
                                          6,749
                                          
                                          
                                          6,749
                                          
                                          
                                          1,879
                                          
                                          
                                          2001
                                          
                                          
                                          2005St.
      Francis Medical Plaza (Greenville)
                                          South
      Carolina
                                          
                                          (G)
                                          
                                          
                                          -
                                          
                                          
                                          8,007
                                          
                                          
                                          383
                                          
                                          
                                          -
                                          
                                          
                                          8,390
                                          
                                          
                                          8,390
                                          
                                          
                                          1,396
                                          
                                          
                                          1998
                                          
                                          
                                          2005St.
      Francis Professional Medical Center
                                          South
      Carolina
                                          
                                          (F)
                                          
                                          
                                          -
                                          
                                          
                                          5,522
                                          
                                          
                                          1,222
                                          
                                          
                                          -
                                          
                                          
                                          6,744
                                          
                                          
                                          6,744
                                          
                                          
                                          1,715
                                          
                                          
                                          1984
                                          
                                          
                                          2005St.
      Francis Women's
                                          South
      Carolina
                                          
                                          (G)
                                          
                                          
                                          -
                                          
                                          
                                          7,352
                                          
                                          
                                          654
                                          
                                          
                                          -
                                          
                                          
                                          8,006
                                          
                                          
                                          8,006
                                          
                                          
                                          1,247
                                          
                                          
                                          1991
                                          
                                          
                                          2005Three
      Medical Park
                                          South
      Carolina
                                          
                                          
                                          7,673
                                          
                                          
                                          -
                                          
                                          
                                          10,405
                                          
                                          
                                          1,751
                                          
                                          
                                          -
                                          
                                          
                                          12,156
                                          
                                          
                                          12,156
                                          
                                          
                                          2,129
                                          
                                          
                                          1988
                                          
                                          
                                          2005Health
      Park Medical Office Building
                                          Tennessee
                                          
                                          
                                          7,000
                                          
                                          
                                          1,862
                                          
                                          
                                          13,223
                                          
                                          
                                          55
                                          
                                          
                                          1,862
                                          
                                          
                                          13,278
                                          
                                          
                                          15,140
                                          
                                          
                                          927
                                          
                                          
                                          2004
                                          
                                          
                                          2007Peerless
      Crossing Medical Center
                                          Tennessee
                                          
                                          
                                          7,354
                                          
                                          
                                          645
                                          
                                          
                                          8,722
                                          
                                          
                                          14
                                          
                                          
                                          645
                                          
                                          
                                          8,736
                                          
                                          
                                          9,381
                                          
                                          
                                          494
                                          
                                          
                                          2006
                                          
                                          
                                          2007MRMC
      MOB I, formerly known as Hanover MOB
                                          Virginia
                                          
                                          
                                          5,993
                                          
                                          
                                          970
                                          
                                          
                                          9,890
                                          
                                          
                                          1,133
                                          
                                          
                                          976
                                          
                                          
                                          11,017
                                          
                                          
                                          11,993
                                          
                                          
                                          1,435
                                          
                                          
                                          1993
                                          
                                          
                                          2006St.
      Mary's MOB North 6th & 7th floor
                                          Virginia
                                          
                                          
                                          -
                                          
                                          
                                          -
                                          
                                          
                                          3,880
                                          
                                          
                                          304
                                          
                                          
                                          -
                                          
                                          
                                          4,184
                                          
                                          
                                          4,184
                                          
                                          
                                          456
                                          
                                          
                                          1968
                                          
                                          
                                          2008Total
                                          
                                          
                                          (L)
                                          
                                          $
                                          33,005
                                          
                                          $
                                          487,576
                                          
                                          $
                                          40,543
                                          
                                          $
                                          33,139
                                          
                                          $
                                          527,985
                                          
                                          $
                                          561,124
                                          
                                          $
                                          93,247Discontinued
      OperationsHarbison
      Medical Office Building (formerly knownas
      Baptist Northwest)
                                          South
      Carolina
                                          
                                          
                                          2,129
                                          
                                          
                                          398
                                          
                                          
                                          2,534
                                          
                                          
                                          1,469
                                          
                                          
                                          1,574
                                          
                                          
                                          2,827
                                          
                                          
                                          4,401
                                          
                                          
                                          657
                                          
                                          
                                          1986
                                          
                                          
                                          2005
  (A)
      - Includes building and improvements, site improvements, furniture,
      fixtures, and equipment, construction in progress and deferred income tax
      expense on intersegment profits.Excludes
      Harbison Medical Office Building, formerly known as Baptist Northwest,
      being held in discontiuned operations with a book value of $2.2
      million(B)
      - The aggregate cost for federal income tax purposes was $549.9 million as
      of December 31, 2009.  Depreciable lives range from 3-50
      years.(C)
      - Represents the year in which the property was placed in
      service.(D)
      - Collateral for variable rate mortgage which had a balance of $8.3
      million at December 31, 2009.(E)
      - Collateral for fixed rate mortgage which had a balance of $8.3 million
      at December 31, 2009.(F)
      - Collateral for variable rate mortgage which had a balance of $6.9
      million at December 31, 2009.(G)
      - Collateral for variable rate mortgage which had a balance of $7.4
      million at December 31, 2009.(H)
      - Collateral for the Credit Facility(I)
      - Collateral for fixed rate mortgage which had a balance of $7.5 million
      at December 31, 2009.(J)
      - A consolidated, less than 100% owned, real estate
      partnership.(K)
      - Represents development property, thus Date Acquired reflects the
      initiation of the first phase of construction and Date Constructed
      reflects when property began operations.(L)
      - Total mortgage notes payable on operational properties as of December
      31, 2009 was $263 million. In addition, the company had financing of $2
      million on Harbison MOB held in discontinued operationsand
      the Company had construction financing with a balance of $17.8 million for
      Medical Center Physicians Tower, HealthPartners Medical Office Building,
      and University Physicians MOB & Outpatient
  Clinic
  101
 COGDELL
SPENCER INC.
 NOTES
TO SCHEDULE III
  A summary of activity for real estate properties and
accumulated depreciation is as follows:
 Year
      ended
                                        
                                        
                                        Year
      ended
                                        
                                        
                                        Year
      endedDecember
      31, 2009
                                        
                                        
                                        December
      31, 2008
                                        
                                        
                                        December
      31, 2007Real
      estate properties:Balance,
      beginning of period
                                        
                                        $
                                        531,932
                                        
                                        
                                        $
                                        486,279
                                        
                                        
                                        $
                                        361,982Property
      acquisitions
                                        
                                        
                                        -
                                        
                                        
                                        
                                        20,405
                                        
                                        
                                        
                                        81,076Development
      projects (1)
                                        
                                        
                                        22,469
                                        
                                        
                                        
                                        15,757
                                        
                                        
                                        
                                        32,096Purchases
      of minority interests in Operating Partnership
                                        
                                        
                                        -
                                        
                                        
                                        
                                        121
                                        
                                        
                                        
                                        2,488Improvements
                                        
                                        
                                        10,946
                                        
                                        
                                        
                                        9,370
                                        
                                        
                                        
                                        8,637Discontinued
      Operations
                                        
                                        
                                        (4,223
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Balance,
      end of period
                                        
                                        $
                                        561,124
                                        
                                        
                                        $
                                        531,932
                                        
                                        
                                        $
                                        486,279Accumulated
      depreciation:Balance,
      beginning of period
                                        
                                        $
                                        69,285
                                        
                                        
                                        $
                                        44,596
                                        
                                        
                                        $
                                        23,664Depreciation
                                        
                                        
                                        24,483
                                        
                                        
                                        
                                        24,689
                                        
                                        
                                        
                                        20,932Discontinued
      Operations
                                        
                                        
                                        (521
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Balance,
      end of period
                                        
                                        $
                                        93,247
                                        
                                        
                                        $
                                        69,285
                                        
                                        
                                        $
                                        44,596
  (1) Includes deferred income tax expense on intersegment profits of $2.8 million for the year ended December 31, 2009 and $7,000 for the year ended December 31, 2008.
 102
  Item 9.
                                      Changes in
      and Disagreements with Accountants on Accounting and Financial
      Disclosure
 None.
 Item 9A.Controls
      and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in its reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to its management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of “disclosure
controls and procedures” in Rule 13a-15(e).  In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.  Also,
the Company has investments in certain unconsolidated entities.  As
the Company does not control these entities, the Company’s disclosure controls
and procedures with respect to such entities are necessarily substantially more
limited than those the Company maintains with respect to its consolidated
subsidiaries.
  As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of its management, including
its Chief Executive Officer and its Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and
procedures.  Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of the end of the period covered by this
report.
 Management’s
Report on Internal Control over Financial Reporting
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f).  Under the supervision and with
the participation of our management, including the Chief Executive Officer and
Chief Financial Officer, the Company conducted an evaluation of the
effectiveness of its internal control over financial reporting based on the
framework in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.  Based on that
evaluation, the Company concluded that its internal control over financial
reporting was effective as of December 31, 2009.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 The
Company’s internal control over financial reporting as of December 31,
2009, has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in its report which is included
below.
  103
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders of
 Cogdell
Spencer Inc.
 Charlotte,
North Carolina
  We have
audited the internal control over financial reporting of Cogdell Spencer Inc.
and subsidiaries (the "Company") as of December 31, 2009, based on criteria
established in Internal
Control — Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.  The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting.  Our
responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances.  We believe
that our audit provides a reasonable basis for our opinion.
  A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
  Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
  In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on the criteria
established in Internal
Control — Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and
financial statement schedule as of and for the year ended December 31, 2009 of
the Company and our report dated March 16, 2010 expressed an unqualified opinion
on those financial statements and financial statement schedule, and included an
explanatory paragraph relating to the Company changing its method of accounting
for noncontrolling interests on January 1, 2009, and retrospectively adjusting
all periods presented in the consolidated financial statements.
  DELOITTE
& TOUCHE LLP
 McLean,
Virginia
 March 16,
2010
 
 104
 Changes
in Internal Control over Financial Reporting
 There was
no change in our internal control over financial reporting (as such term is
defined in Exchange Act Rule 13a-15(f)) that occurred during our most
recent quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
 Item 9B.Other
      Information
 None.
 PART III
 Item 10.
                                      Directors, Executive Officers,
      and Corporate Governance
  As
required by Section 303A.12(a) of the NYSE Listing Company Manual, our
Chief Executive Officer made his annual certification to the NYSE stating that
he was not aware of any violation by our Company of the corporate governance
listing standards of the NYSE. In addition, the Company has filed, as Exhibits
to the Annual Report on Form 10-K, the certifications of our Chief
Executive Officer and Chief Financial Officer required under Section 302 of
the Sarbanes-Oxley Act of 2002 to be filed with the Securities and Exchange
Commission regarding the quality of our public disclosure.
  Information
required by this Item is hereby incorporated by reference to the material
appearing in the Company’s Proxy Statement for its 2010 Annual Meeting of
Stockholders to be filed within 120 days after December 31,
2009.
  Guidelines
  The Board
of Directors has adopted a Code of Business Ethics, which applies to all
employees, officers and directors, including the principal executive officer,
principal financial officer and principal accounting officer, and is posted on
the Company’s website at www.cogdell.com. The Company intends to satisfy and
disclosure requirements under Item 5.05 of Form 8-K regarding
amendment to, or waiver from, a provision of this Code of Business Conduct and
Ethics by posting such information on its Website at the address and location
specified above.
  The Board
of Directors has adopted Corporate Governance Guidelines and charters for its
Audit Committee, Compensation Committee and Nominating and Governance Committee,
each of which is posted on the Company’s Web site. Investors may obtain a free
copy of the Code of Business Ethics, the Corporate Governance Guidelines or the
committee charters by contacting Investor Relations, Cogdell Spencer Inc., 4401
Barclay Downs Drive, Suite 300, Charlotte, North Carolina 28209, Attn:
Jaime Buell or by telephoning (704) 940-2900.
 Item 11.
                                      Executive
      Compensation
 Information required by this Item is hereby incorporated by reference to the
material appearing in the Company’s Proxy Statement for its 2010 Annual Meeting
of Stockholders to be filed within 120 days after December 31,
2009.
 Item 12.
                                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
 The
information required by this item is hereby incorporated by reference to the
material appearing in the Proxy Statement for its 2010 Annual Meeting of
Stockholders to be filed within 120 days after December 31, 2009 under
the captions “Election of Directors — Security Ownership of Certain
Beneficial Owners” and “Security Ownership of Management.”
 Item 13.
                                      Certain
      Relationships, Related Transactions, and Director
      Independence
 
 Information
required by this Item is hereby incorporated by reference to the material
appearing in the Company’s Proxy Statement for its 2010 Annual Meeting of
Stockholders to be filed within 120 days after December 31,
2009.
  105
 Item 14.
                                      Principal
      Accountant Fees and Services
 
 Information
required by this Item is hereby incorporated by reference to the material
appearing the Company’s Proxy Statement for its 2010 Annual Meeting of
Stockholders to be filed within 120 days after December 31,
2009.
 
 PART IV
 
 Item 15.
                                      Exhibits
      and Financial Statement
Schedules
  1.1
                                      Underwriting
      Agreement dated September 10, 2008, by and among Cogdell Spencer Inc.,
      Cogdell Spencer LP, Banc of America Securities LLC, KeyBanc Capital
      Markets Inc. and Citigroup Global Markets Inc., incorporated by reference
      to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed with the
      SEC on September 16, 2008.1.2
                                      Underwriting
      Agreement dated May 27, 2009, by and among Cogdell Spencer Inc., Cogdell
      Spencer LP, Citigroup Global Markets Inc. and KeyBanc Capital Markets
      Inc., as representatives of the several underwriters named in Schedule I
      thereto, incorporated by reference to Exhibit 1.1 of the Company’s Current
      Report on Form 8-K filed with the SEC on June 2, 2009.3.1
                                      Articles
      of Amendment and Restatement of Cogdell Spencer Inc., incorporated by
      reference to Exhibit 3.1 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).3.2
                                      First
      Amendment to First Amended and Restated Agreement of Limited Partnership
      of Cogdell Spencer LP., incorporated by reference to Exhibit 3.1 of the
      Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
      2008.3.3
                                      Amended
      and Restated Agreement of Limited Partnership of Cogdell Spencer LP,
      incorporated by reference to Exhibit 3.3 of the Company’s
      Registration Statement on Form S-11 (File
      No. 333-127396).3.4
                                      Declaration
      of Trust of CS Business Trust I., incorporated by reference to
      Exhibit 3.4 of the Company’s Registration Statement on Form S-11
      (File No. 333-127396).3.5
                                      Declaration
      of Trust of CS Business Trust II, incorporated by reference to
      Exhibit 3.5 of the Company’s Registration Statement on Form S-11
      (File No. 333-127396).4.1
                                      Form
      of stock certificate, incorporated by reference to Exhibit 4.0 of the
      Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.1
                                      Form
      of Registration Rights Agreement, by and among Cogdell Spencer Inc. and
      the parties listed on Schedule I thereto, incorporated by reference
      to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
      for the quarter ended September 30, 2005. 10.2
                                        Form
      of 2005 Long-Term Stock Incentive Plan. incorporated by reference to
      Exhibit 10.3 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.3
                                        Form
      of Long-Term Stock Incentive Plan Award for employees without employment
      agreements, incorporated by reference to Exhibit 10.4 of the
      Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.4
                                        Form
      of Cogdell Spencer Inc. Performance Bonus Plan, incorporated by reference
      to Exhibit 10.5 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.5
                                        Merger
      Agreement for Cogdell Spencer Inc., CS Merger Sub LLC and Cogdell Spencer
      Advisors, Inc. dated August 9, 2005, incorporated by reference to
      Exhibit 10.6 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.6
                                        Form
      of Indemnification Agreement, incorporated by reference to
      Exhibit 10.7 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.7
                                        Employment
      Agreement, dated October 21, 2005, by and between Cogdell Spencer
      Inc. and James W. Cogdell, incorporated by reference to Exhibit 10.8
      of the Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.8
                                        Employment
      Agreement, dated October 21, 2005, by and between Cogdell Spencer
      Inc. and Frank C. Spencer, incorporated by reference to Exhibit 10.9
      of the Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.9
                                        Employment
      Agreement, dated October 21, 2005, by and between Cogdell Spencer
      Inc. and Charles M. Handy, incorporated by reference to Exhibit 10.10
      of the Company’s Registration Statement on Form S-11 (File
      No. 333-127396).
  106
 10.10
                                      Engagement
      Letter from the Company to Realty Capital International Inc., incorporated
      by reference to Exhibit 10.11 of the Company’s Registration Statement
      on Form S-11 (File No. 333-127396).10.11
                                      Irrevocable
      Exchange and Subscription Agreement by and among James W. Cogdell, Cogdell
      Spencer Advisors, Inc., Cogdell Spencer LP and Cogdell Spencer Inc.,
      incorporated by reference to Exhibit 10.12 of the Company’s
      Registration Statement on Form S-11 (File
      No. 333-127396).10.12
                                      
                                      Irrevocable
      Exchange and Subscription Agreement by and among Frank C. Spencer, Cogdell
      Spencer Advisors, Inc., Cogdell Spencer LP and Cogdell Spencer Inc.,
      incorporated by reference to Exhibit 10.13 of the Company’s
      Registration Statement on Form S-11 (File
      No. 333-127396).10.13
                                      
                                      Form
      of Irrevocable Exchange and Subscription Agreement for all holders of
      interests in the Existing Entities, with the exclusion of James W. Cogdell
      and Frank C. Spencer, incorporated by reference to Exhibit 10.14 of
      the Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.14
                                      
                                      Form
      of Tax Protection Agreement for Existing Entities, except for Cabarrus
      POB, LLC, Medical Investors I, LLC and Medical Investors III, LLC.,
      incorporated by reference to Exhibit 10.15 of the Company’s
      Registration Statement on Form S-11 (File
      No. 333-127396).10.15
                                      
                                      Form
      of Tax Protection Agreement for Cabarrus POB, LLC, Medical
      Investors I, LLC and Medical Investors III, LLC., incorporated by
      reference to Exhibit 10.16 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.16
                                      
                                      Form
      of Transaction Agreement by and among Cogdell Spencer Inc., Cogdell
      Spencer LP, the applicable Existing Entity and CS Merger Sub LLC.,
      incorporated by reference to Exhibit 10.17 of the Company’s
      Registration Statement on Form S-11 (File
      No. 333-127396).10.17
                                      
                                      Commitment
      letter dated October 4, 2005, for $100,000,000 senior unsecured
      revolving credit facility among Cogdell Spencer Inc., Bank of America,
      N.A., Bank of America Securities LLC, Citigroup Global Markets Inc., and
      Citigroup North America, Inc., incorporated by reference to
      Exhibit 10.18 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.18
                                      
                                      Form
      of Cogdell Spencer Inc. 2005 Equity Incentive Plan Restricted Stock Award
      Agreement., incorporated by reference to Exhibit 10.19 of the
      Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.19
                                      
                                      Put
      Assignment Agreement dated August 11, 2005., incorporated by
      reference to Exhibit 10.20 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.20
                                      
                                      Form
      of Consent and Election Form, incorporated by reference to
      Exhibit 10.21 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.21
                                      
                                      Form
      of Long-Term Stock Incentive Plan Award for employees with employment
      agreements, incorporated by reference to Exhibit 10.22 of the
      Company’s Registration Statement on Form S-11 (File
      No. 333-127396).10.22
                                      
                                      Schedule
      to Exhibit 10.14 reflecting consideration to be received by Randolph
      D. Smoak, M.D. and Charles M. Handy, incorporated by reference to
      Exhibit 10.23 to the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).10.23
                                      
                                      Methodist
      Professional Center Purchase and Sale Agreement dated December 13,
      2005, incorporated by reference to Exhibit 10.1 of the Company’s
      Quarterly Report on Form 10-Q for the quarter ended March 31,
      2006.10.24
                                      
                                      Hanover
      Medical Office Building One and 1808/1818 Verdugo Boulevard Purchase and
      Sale Agreement dated March 1, 2006, incorporated by reference to
      Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for
      the quarter ended March 31, 2006.10.25
                                      
                                      Amendment
      No. 1 to the Credit Agreement and Waiver dated August 23, 2006,
      by and among Cogdell Spencer LP, Cogdell Spencer Inc., each subsidiary of
      Cogdell Spencer LP to the Guaranty, each lender signatory thereto and Bank
      of America, N.A., incorporated by reference to the Company’s Quarterly
      Report on Form 10-Q for the quarter ended September 30,
      2006.  107
 10.26
                                      
                                      Amendment
      No. 2 to the Credit Agreement dated December 31, 2007, by and
      among Cogdell Spencer LP, Cogdell Spencer Inc., each subsidiary of Cogdell
      Spencer LP to the Guaranty, each lender signatory thereto and Bank of
      America, N.A., incorporated by reference to Exhibit 10.26 of the Company’s
      Annual Report on Form 10-K for the year ended December 31,
      2007. 10.27
                                      
                                      Agreement
      and Plan of Merger, dated January 23, 2008, by and among Cogdell
      Spencer LP, Goldenboy Acquisitions Corp., MEA Holdings, Inc., Marshall
      Erdman & Associates, Inc., Marshall Erdman Development, LLC, David
      Pelisek, David Lubar and Scott Ransom, incorporated by reference to
      Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2008..10.28
                                      
                                      Amendment
      to Agreement and Plan of Merger, dated March 10, 2008, by and among
      Cogdell Spencer LP, Goldenboy Acquisitions Corp., MEA Holdings, Inc.,
      Marshall Erdman & Associates, Inc., Marshall Erdman Development, LLC,
      David Pelisek, David Lubar and Scott Ransom, incorporated by reference to
      Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2008.10.29
                                      
                                      Escrow
      Agreement, dated March 10, 2008, by and between Cogdell Spencer LP,
      David Pelisek, David Lubar, Scott Ransom and Mellon Investor Services LLC,
      incorporated by reference to Exhibit 10.3 of the Company’s Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2008.10.30
                                      
                                      Exchange
      Agent Agreement, dated March 10, 2008, by and between Cogdell Spencer
      LP, David Pelisek, David Lubar, Scott Ransom and Mellon Investor Services
      LLC, incorporated by reference to Exhibit 10.4 of the Company’s Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2008.10.31
                                      
                                      Voting
      Agreement, dated January 23, 2008, by and among the Shareholders (as
      defined therein) of MEA Holdings, Inc. for the benefit of Cogdell Spencer
      LP and Goldenboy Acquisitions Corp, incorporated by reference to Exhibit
      10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2008.10.32
                                      
                                      Voting
      Agreement, dated January 23, 2008, by and among Baird Capital
      Partners III Limited Partnership, BCP III Affiliates Fund Limited
      Partnership, BCP III Special Affiliates Fund Limited Partnership, Lubar
      Capital LLC, James Cogdell and Frank Spencer, incorporated by reference to
      Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2008.10.33
                                      
                                      Contributing
      Shareholders Voting Agreement, dated March 10, 2008, by and among
      James Cogdell, Frank Spencer, David Pelisek, David Lubar and Scott Ransom,
      incorporated by reference to Exhibit 10.7 of the Company’s Quarterly
      Report on Form 10-Q for the quarter ended March 31, 2008.10.34
                                      
                                      Director
      Designation Agreement, dated March 10, 2008, by and between Cogdell
      Spencer Inc. and David Lubar incorporated by reference to Exhibit 10.8 of
      the Company’s Quarterly Report on Form 10-Q for the quarter ended March
      31, 2008.10.35
                                      
                                      Registration
      Rights Agreement, dated March 10, 2008, by and among Cogdell Spencer
      Inc. and certain persons listed on Schedule I thereto, incorporated
      by reference to Exhibit 10.9 of the Company’s Quarterly Report on Form
      10-Q for the quarter ended March 31, 2008.10.36
                                      
                                      Registration
      Rights Agreement, dated January 28, 2008, by and among Cogdell
      Spencer Inc. and KeyBanc Capital Markets Inc. on behalf of the persons
      listed on Schedule I thereto, incorporated by reference to Exhibit
      10.10 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2008.10.37
                                      
                                      Guaranty
      Agreement, dated March 10, 2008, among each of the Guarantors named
      therein and Bank of America, N.A, incorporated by reference to Exhibit
      10.11 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2008.10.38
                                      
                                      Intercreditor
      Agreement, dated March 10, 2008, between Bank of America, N.A. and
      KeyBank National Association, incorporated by reference to Exhibit 10.12
      of the Company’s Quarterly Report on Form 10-Q for the quarter ended March
      31, 2008.10.39
                                      
                                      Credit
      Agreement, dated March 10, 2008, among Cogdell Spencer LP, Cogdell
      Spencer Inc., Bank of America, N.A., KeyBank National Association, Branch
      Banking & Trust Company, Wachovia Bank, National Association, each
      lender signatory thereto and Banc of America Securities LLC, incorporated
      by reference to Exhibit 10.13 of the Company’s Quarterly Report on Form
      10-Q for the quarter ended March 31, 2008.  108
 10.40
                                      
                                      Employment
      Agreement, dated March 1, 2008, between Marshall Erdman &
      Associates, Inc. and Scott A. Ransom, incorporated by reference to Exhibit
      10.14 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2008.10.41
                                      
                                      Form
      of Contribution Agreement by and among Cogdell Spencer Inc., Cogdell
      Spencer LP and each of the persons set forth on Schedule 1 to
      Exhibit 10.15 incorporated by reference to Exhibit 10.15 of the
      Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
      2008.10.42
                                      
                                      Contribution
      Agreement Side Letter, dated March 10, 2008, by Cogdell Spencer Inc.
      and Cogdell Spencer LP delivered to David Pelisek, David Lubar and Scott
      Ransom, incorporated by reference to Exhibit 10.16 of the Company’s
      Quarterly Report on Form 10-Q for the quarter ended March 31,
      2008.10.43
                                      
                                      Senior
      Secured Term Loan Agreement dated as of March 10, 2008 among Goldenboy
      Acquisition Corp, the Company, KeyBank National Association, current and
      future lenders, Bank of America, N.A., Wachovia Bank, National
      Association, Branch Banking and Trust Company and KeyBank Capital Markets,
      incorporated by reference to Exhibit 10.2 of the Company’s Quarterly
      Report on Form 10-Q for the quarter ended June 30, 2008.10.44
                                        
                                        
                                        10.45
                                      
                                      Employment
      Agreement, dated December 1, 2008, by and between Cogdell Spencer
      Inc., Cogdell Spencer LP and Charles M. Handy, incorporated by reference
      to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the
      SEC on December 4, 2008.
                                        Separation
      and Release Agreements, dated July 8, 2008, by and between Cogdell Spencer
      Inc., Cogdell Spencer LP and Heidi Wilson, incorporated by reference to
      Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the
      SEC on July 14, 2008.10.46
                                      
                                      First
      Amendment to Senior Secured Term Loan Agreement dated as of June 3, 2009,
      by and among MEA Holdings, Inc., the Company, KeyBank National Association
      and each of the undersigned Lenders, incorporated by reference to Exhibit
      10.1 of the Company’s Current Report on Form 8-K   filed
      with the SEC on June 9, 2009. 14.1
                                      
                                      Code
      of Ethics, incorporated by reference to the Annual Report on
      Form 10-K for the year ended December 31, 2005.21.1
                                      
                                      List
      of Subsidiaries of Cogdell Spencer Inc., incorporated by reference to
      Exhibit 21.1 of the Company’s Registration Statement on
      Form S-11 (File No. 333-127396).23.1(1)
                                      
                                      Consent
      of Deloitte & Touche LLP.31.1(1)
                                      
                                      Certification
      by the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act.31.2
      (1)
                                      
                                      Certification
      by the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act.32.1
      (1)
                                      
                                      Certifications
      pursuant to Section 1350.
  (1)
                                      Filed
      herewith
  109
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
  COGDELL
      SPENCER INC.
                                        RegistrantDate:
      March 16, 2010
                                      /s/
      Frank C. SpencerFrank
      C. Spencer
                                        President
      and Chief Executive Officer
                                        (Principal
      Executive Officer)Date:
      March 16, 2010
                                      /s/
      Charles M. HandyCharles
      M. Handy
                                        Senior
      Vice President and Chief Financial Officer
                                        (Principal
      Financial and Accounting
Officer)
  Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
  Date:
      March 16, 2010
                                      /s/
      James W. CogellJames
      W. Cogdell
                                        Chairman
      of the Board of DirectorsDate:
      March 16, 2010
                                      /s/
      Frank C. SpencerFrank
      C. Spencer
                                        President,
      Chief Executive Officer and DirectorDate:
      March 16, 2010
                                      /s/
      Scott A. RansomScott
      A. Ransom
                                        President
      and Chief Executive Officer of ErdmanDate:
      March 16, 2010
                                      /s/
      John R. GeorgiusJohn
      R. Georgius
                                        DirectorDate:
      March 16, 2010
                                      /s/
      Richard B. JenningsRichard
      B. Jennings
                                        DirectorDate:
      March 16, 2010
                                      /s/
      Christopher E. LeeChristopher
      E. Lee
                                        DirectorDate:
      March 16, 2010
                                      /s/
      David J. LubarDavid
      J. Lubar
                                        DirectorDate:
      March 16, 2010
                                      /s/
      Richard C. NeugentRichard
      C. Neugent
                                        DirectorDate:
      March 16, 2010
                                      /s/
      Randolph D. Smoak, M.D.Randolph
      D. Smoak, M.D.
                                        Director
  110